Senate Bill Expands Business Tax Breaks, Delays Deal on SALT (3)

Senate Republicans propose to cut trillions of dollars in taxes for households and businesses in their version of President Donald Trump’s signature economic package, a plan that comes at the expense of curbing health coverage for some low-income Americans and adding to US deficits.

The bill would preserve Trump’s first-term tax cuts and create several new breaks that he championed on the campaign trail — including eliminating taxes on tips. To offset the cost, senators are proposing to repeal some clean energy tax credits and scale back Medicaid benefits spending more deeply than in the House-passed bill.

Within hours of the bill’s release, cracks were forming among Republicans about the scope of the Medicaid cuts.

“This bill needs a lot of work,” US Senator Josh Hawley, a Missouri Republican, told reporters Monday. “This will close hospitals in rural America.”

Republicans can only afford to lose three votes in the Senate, putting pressure on GOP leaders to broker compromises to push Trump’s agenda through the chamber.

The bill expands some tax breaks while raising the debt ceiling by $5 trillion, instead of $4 trillion in the House-passed measure. It largely hews to the House bill as Senate GOP leaders aim to avoid a protracted negotiation on the substance of the legislation that could risk the US defaulting on a payment obligation when the Treasury Department can no longer employ extraordinary debt limit measures, as soon as mid-August.

Notably absent from the bill is a deal on the state and local tax deduction, one of the most contentious issues facing lawmakers in the negotiations. The draft includes the current $10,000 SALT cap as a placeholder while lawmakers continue to debate the politically important writeoff.

“We understand that it’s a negotiation,” Senate Majority Leader John Thune told reporters on Monday. “Obviously, there had to be some marker. We are prepared to have discussions with our colleagues here in the Senate and figure out a landing spot.”

Thune added that his chamber plans to vote on the bill next week in order to meet a July 4 deadline to send the legislation to Trump.

Earlier: Senate Deadlocked on SALT, Draft Bill Has $10,000 Placeholder

Senator Mike Crapo

Photographer: Andrew Harrer/Bloomberg

Finance Committee Chairman Mike Crapo and other Senate Republicans have pushed to reduce the $40,000 cap included in the House version. House lawmakers representing high-tax states have threatened to block the measure if the cap is lowered. Current law allows only a $10,000 cap for individuals and couples, though the limit is set to expire at the end of the year.

The committee draft’s biggest change is making permanent three business tax breaks that in the House version expire after 2029. That includes the research and development deduction, a provision expanding debt interest writeoffs and expensing for new equipment, including most machinery and factories. The interest expensing changes benefit banks, while research-heavy sectors like pharmaceuticals and information technology should benefit from the longer research and development break.

However, the bill pared back a House proposal to increase a business deduction for closely held businesses to 23% from 20%. The Senate plan makes permanent the current 20% write-off that is set to expire at the end of the year.

Democrats were quick to criticize the legislation, saying that it skews benefits to wealthy individuals and business owners.

“This is textbook class warfare,” Senator Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, said. “It is caviar over kids.”

The bill also scales back a proposed tax on university endowments. The House bill called for a top rate of 21% on the wealthiest universities, but the Senate’s draft tops out at 8%. The legislation also omits a House proposal that would impose taxes on large private foundations, such as the Gates Foundation.

Read More: Rich Colleges Would Face Lower Tax Hike Under Senate Proposal

Trump’s Plan

The legislation largely renews Trump’s 2017 tax cuts for households and small businesses, which are set to expire at the end of 2025. The bill also includes a new slate of levy reductions, including some of the president’s campaign trail promises to eliminate taxes on tips and overtime pay.

The plan proposes cuts to the Medicaid program for low-income and disabled people that are more aggressive than policies the House passed. The Senate went further than the House’s proposal to limit the options states have to fund their share of Medicaid. The House bill would set a moratorium on new or increased taxes on medical providers, while the draft Senate bill would cut the amount that states that have not expanded Medicaid under the Affordable Care Act can tax health care providers to help fund their Medicaid programs.

The Medicaid reductions have been politically divisive even within the Republican Party, with some senators warning that the cuts could harm their constituents.

Donald Trump

Photographer: Jim Lo Scalzo/EPA/Bloomberg

The legislation augments the House version of the child tax credit, making permanent a $2,200 per-child credit. The House bill called for a $2,500 tax break, but the measure was only temporary. The bill would create a new $6,000 deduction for older people and establishes a new deduction for charitable donations for people who don’t itemize their tax returns.

Energy Credits

The bill would also end the $7,500 tax credit for electric vehicles within 180 days of the legislation being enacted. The draft also calls for an end for subsidies to wind and solar.

The draft ends a credit for companies, including Sunrun Inc., that lease rooftop solar systems as well as homeowners who buy them outright. The elimination of the credits would decimate the already reeling solar industry, with the uncertainty of the fate of the clean energy incentives already causing disruption in the market.

Despite a lack of agreement on several key policy issues, the Senate intends to pass the legislation on an ambitious timeline. Republicans are aiming to pass the bill out of the Senate and send it back to the House for final approval by July 4. Trump has put pressure on lawmakers to coalesce around the legislation, which we has dubbed the “One Big, Beautiful Bill” and will serve as the centerpiece of his legislative agenda.

Read More: Senate Republicans Omit Medicare Advantage Cuts in Tax Bill

The release of the Senate bill comes as Trump’s allies have started a messaging campaign to defend his first-term tax cuts. Changes to the corporate tax code that Trump pushed through in 2017 spurred companies to invest for years, according to a new academic study from Kevin Hassett, head of the White House’s National Economic Council.

The analysis found that a one percentage point decrease in the user cost of capital drove between a 1.68 and 3.05 percentage point increase in the rate of investment.

Other economists caution that Trump’s planned tax cuts will add pressure the government’s already surging deficit and keep borrowing costs elevated, for both business and households.

(Updates to add Hawley remarks starting in the third paragraph)

--With assistance from Cam Kettles, Chris Cioffi, Enda Curran, Ari Natter, Steven T. Dennis and Gregory Korte.

To contact the reporter on this story:
Erik Wasson in Washington at ewasson@bloomberg.net

To contact the editors responsible for this story:
Megan Scully at mscully32@bloomberg.net

Laura Davison, John Harney

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