On June 16, the Senate Finance Committee (SFC), the Senate’s tax writing body, released proposed legislative text for its portion of the Republicans’ reconciliation bill.
Overview of the Senate Bill
While the Senate framework contains many of the same priorities as the House-passed bill, the upper chamber made broad changes to numerous provisions to reflect Senate Republicans' policy goals.
In accordance with their reconciliation instructions, the Senate’s bill utilizes a “current policy baseline” for the extension of expiring Tax Cuts and Jobs Act (TCJA) provisions, a novel approach to reconciliation that assumes there is no cost to continuing the policies in place today. This breaks from the House’s approach of using a “current law baseline.”
For more information on the Senate’s reconciliation instructions visit Tracking Tax Reform: Senate Drafts Budget Resolution.
Several of the proposals are currently viewed as placeholders, including the state and local tax (SALT) cap. The Senate’s framework is unlikely to pass both chambers without revisions. The same day the text was released, House Ways and Means Chair Jason Smith (R-MO) congratulated SFC Chair Mike Crapo (R-ID) and noted there is “work that remains to be done to achieve consensus between both chambers of Congress and get this bill on the President’s desk.”
“We will thread that needle to respect the needs of both bodies in the days ahead,” Smith added.
Key Tax Proposals Included
Below is an overview of the key tax provisions contained in the SFC’s proposal. Where applicable, the Senate proposals are presented in comparison to corresponding provisions in the House-passed bill. This is intended to highlight areas of consensus and disagreement between the two chambers.
For detailed information on the House’s reconciliation bill visit: Tracking Tax Reform: A Closer Look at the Ways and Means Tax Framework and Tracking Tax Reform: House Passes Tax Bill with Amendments.
Business Proposals (Including Pass-Through Entities)
- Bonus Depreciation: The Senate proposal would extend 100% bonus depreciation on qualified property permanently, rather than through 2029. The effective date is still January 20, 2025, as in the House bill. The proposal would also temporarily provide 100% depreciation for qualified production property — nonresidential real property that meets specific requirements.
- Research & Experimental (R&E) Expenditures (Sec. 174): The capitalization requirement for domestic R&E expenditures would be permanently suspended. The House proposal was comparable, but the benefit terminated after 2029. In addition, the Senate bill would provide small businesses with the option to apply this change retroactively back to 2022. It would also allow taxpayers to accelerate remaining 174 deductions.
- Business Interest Expense Limitation: Businesses would permanently be able to use EBITDA, rather than the more restrictive EBIT, to calculate adjusted taxable income for the business interest expense limitation. The House also made this change, but only through 2029.
- Qualified Business Income (QBI, Section 199A) Deduction: The QBI deduction would be made permanent under the Senate proposal and increases the limit phase-in range, making the deduction more accessible. The deduction would remain 20% rather than increasing to 23% as the House proposed.
- Excess Business Loss (EBL) Limitation: This limitation would be made permanent, and previously disallowed losses would be subject to retesting and limitation each year.
- Section 179 Special Depreciation Allowance: The Senate proposal matches the House in increasing the Sec. 179 limitations to $2.5 million of expense for up to $4 million in qualifying property.
- Pass-Through Entity Tax (PTET): The Senate proposal would require pass-through entities (PTEs) to separately state PTET deductions and would limit those for individual owners to the greater of $40,000 or 50% of the total PTET payments. The House-passed bill included a change to the treatment of PTET deductions for certain service businesses but left PTET intact for non-service businesses. This is a significant departure in treatment for PTEs.
- Qualified Small Business Stock (QSBS, Sec. 1202): The QSBS exclusion, which is currently a 100% gain exclusion after five years, would be tiered so owners could receive partial benefits beginning after three years.
- Opportunity Zones (OZs): The Senate proposal would establish a permanent OZ policy, creating a rolling 10-year OZ designation beginning in 2027. This varies from the House version, which creates a second OZ opportunity that would run from 2027 through 2033.
- Employee Retention Credit (ERC): The House amended the bill to scrap several provisions, including the ERC, after learning they may run afoul of Senate rules. The Senate included their own language on ERC to prohibit the payment of claims filed after January 31, 2024, and increase enforcement mechanisms for bad actors.
- P.L. 86-272: The Senate Committee on the Judiciary included identical legislative text related to P.L. 86-272. If enacted, this provision would expand the protections against state income taxes for sellers of tangible personal property.
- Other Proposals: The Senate also proposed a permanent extension and expansion of the low-income housing tax credit and the New Markets Tax Credit, and decreased reporting requirements for third-party settlement organizations, among other changes.
International Proposals
- Section 899 Retaliatory Taxes: The Senate retained the House’s Sec. 899 proposal but made two significant changes: it capped the total rate at 15% and chose to delay implementation until 2027. This provision would levy additional taxes on the U.S. income of foreign individuals and companies based in countries that the U.S. deems to impose any “unfair foreign tax.”
- International Tax Regime: The Senate took a different approach in relation to three major international tax provisions:
- Global Intangible Low-Taxed Income (GILTI): The Senate proposed a rate of 40%, while the House proposed a rate of 49.2%. GILTI would also be renamed to “net CFC tested income” (NCTI).
- Foreign-Derived Intangible Income (FDII): The Senate proposed a rate of 33.34%, while the House proposed a rate of 36.5%. FDII would also be renamed to “foreign-derived deduction eligible income” (FDDEI).
- Base Erosion and Anti-Abuse Tax (BEAT): The Senate proposed a rate of 14%, while the House proposed a rate of 10.1%
In both versions of the bill, the proposed changes would be permanent.
Individual Proposals
The Senate’s utilization of the current policy baseline enables the permanent extension of the following individual tax provisions:
- Individual Tax Rates and Brackets: TCJA tax rates and brackets would be permanently extended under the Senate proposal, in line with the House bill.
- Standard Deduction: The standard deduction would increase by $1,000 ($2,000 for joint filers), but the change would be permanent and indexed for inflation.
- Itemized Deductions: The Senate’s proposal aligned with the House’s initial proposal, before the manager’s amendment, to limit itemized deductions for taxpayers in the highest tax bracket.
- Alternative Minimum Tax (AMT): The Senate joined the House in proposing a general extension of the current AMT regime and reverting the exemption phaseout amounts.
- State and Local Tax (SALT) Cap: The Senate has a continuation of current policy in their draft of the reconciliation bill — a $10,000 cap ($5,000 for married filing separately or MFS). This is widely viewed as a placeholder while negotiations continue; the mere suggestion received immediate, strong criticism from the SALT caucus. The House’s bill included a carefully negotiated $40,000 cap ($20,000 MFS) for taxpayers making $500,000 ($250,000 for MFS) or less, beginning in 2025.
- Child Tax Credit: The TJCA’s $2,000 child tax credit would increase to $2,200 and become permanent. The House bill increased the credit to $2,500, but only temporarily.
The Senate also aligned with the House in creating the following new benefits for individual taxpayers:
- No Tax on Tips: The Senate’s proposal is similar to the House’s, but it limits the benefit to $25,000 per taxpayer, subject to an income limitation.
- No Tax on Overtime: The Senate’s proposal is similar to the House’s, but it limits the benefit to $12,500 per taxpayer, subject to an income limitation.
- Enhanced Deduction for Seniors: Under the Senate proposal, seniors would receive up to $6,000 per year, subject to an income limitation.
- Other New Individual Provisions: The Senate generally aligned with the House in providing a deduction for interest on domestic auto loans, altering Section 529 plan rules and providing an above-the-line deduction for itemizers (though expanded significantly from the House version). The Senate also added new provisions, including enhancements to the Child and Dependent Care Tax Credit and the creation of a new charitable contribution floor for itemizers.
Estate & Trust Proposals
- Estate and Gift Tax Exemption: The Senate’s text mirrored the House’s, increasing the estate tax exemption to $15 million as of 2026.
Tax Exempt Organization Proposals
- Excise Tax on Investment Income of Private Colleges and Universities: The Senate increases the tax on certain higher education institutions with endowments, but the top rate proposed is 8%, significantly less than the House bill’s 21%.
- Excise Tax on Net Investment Income of Private Foundations: This provision, which was expanded in the House bill, was not included in the Senate proposal.
Inflation Reduction Act Proposals
The Senate’s proposal eases some of the phaseout and expiration timelines for Inflation Reduction Act (IRA) business credits.
|
Code Section |
Credit |
House Bill Treatment |
Senate Proposed Treatment |
|
48E |
Clean Energy Investment Credit |
Phased out for projects other than those that begin within 60 days of enactment and are placed in service by 12/31/28. Transferability maintained during that period. |
Phases out for wind and solar from 2026 through 2027. All other qualified technologies receive the full credit for facilities when construction begins by 2033 and phases out from 2034 through 2035. |
|
45Y |
Clean Energy Production Credit |
||
|
45U |
Zero-Emission Nuclear Power Production Credit |
Terminates after 2031. Transferability maintained through 2031. |
Creates some restrictions based on foreign involvement. Maintains credit and transferability through 2032. |
|
45Q |
Carbon Sequestration Credit |
Would end transferability for facilities that commence construction 2 years after enactment. |
Creates restrictions related to foreign entities but maintains credit and transferability for facilities that begin construction before 2033. |
|
45X |
Advanced Manufacturing Production Credit |
Transferability would expire for electricity, components and fuel produced after 2027. |
Phases out depending on the component with wind phasing out first, after 2027, and critical minerals phasing out between 2031 and 2033. |
|
45Z |
Clean Fuel Production Credit |
Extends credit through 2031 and penalizes fuel produced from components outside the U.S. |
|
|
45W |
Commercial Clean Vehicles Credit |
Would be eliminated for new projects after 2025. |
Terminated for vehicles acquired over 180 days after enactment. |
|
45V |
Clean Hydrogen Credit |
Terminated for projects that begin construction after 2025. |
|
|
45L |
New Energy Efficient Homes Credit |
Terminated for homes acquired more than 12 months after enactment. |
|
|
30C |
Electric Vehicle Charging Station Credit |
Terminated for property placed in service more than 12 months after enactment. |
Debt Limit
The Senate’s proposal includes a $5 trillion increase in the debt limit. This is in accordance with the Senate’s budget resolution but in excess of the $4 trillion the House approved.
*This list is not all-inclusive. We will provide additional details on the contents in the coming days. The introduction of these provisions by SFC does not guarantee they will be included in the final tax package.
Initial Reactions
Senate Majority Leader John Thune (R-SD) and Crapo spent the first half of June engaged in talks with Republican senators, who have a diverse set of priorities, and the White House, while also receiving proactive feedback from Republican House members.
Crapo has left the basic structure of the House-passed framework in place, making changes to incorporate senators' priorities and “red lines.” However, the two chambers remain at odds over several provisions, including the SALT cap, the elimination of clean energy provisions in the IRA and the overall level of deficit reduction.
There were limited initial public reactions from U.S. senators upon the release of the full text, with a few notable exceptions, including:
- Sen. Josh Hawley (R-MO) cited issues with Medicaid provisions and went on the record saying the bill "needs a lot of work.”
- Sen. Ron Johnson (R-WI) came out early as a “no” on this bill. Johnson is a deficit hawk and has repeatedly expressed concerns over the deficit impact of the reconciliation framework throughout this process.
Other Senators were reticent to comment but gave small inclinations that they believe the bill needs additional work.
Negative reactions in the House focused on two main concerns:
- SALT Reform: The SALT caucus took to X earlier in the day to express their dissatisfaction when the $10,000 placeholder figure leaked. A handful of blue-state Republicans currently appear to be united in opposing anything less than the previously negotiated $40,000 cap.
- IRA Changes and Overall Deficit Impact: The House Freedom Caucus (HFC) opposes the Senate’s changes to the IRA and remains concerned about the fiscal impact of the bill. Rep. Chip Roy (R-TX), one of the most outspoken members of the group, posted on X, “Yeah, I will not vote for this.”
Thune cannot lose more than three votes and already has one seemingly immovable “hard no” in Sen. Rand Paul (R-KY); meanwhile, Speaker Johnson (R-LA) has an equally tight, but possibly more precarious, three-vote margin in the House.
Ultimately, the upper and lower chambers will need to reconcile their differences to advance the bill, as we discuss below.
Next Steps in the Reconciliation Process
The Senate Finance Committee, which has jurisdiction over both tax and Medicaid, is not required to markup a reconciliation bill. SFC Chair Crapo has elected to bypass the procedure and, instead, send the text directly to the House Budget Committee.
As in the House, the Senate’s Budget Committee will compile each committee’s portion into a single bill for consideration by the full Senate. Though the Budget Committee cannot make alterations to the bill, it can compile a list of provisions it believes violate the Senate’s Byrd Rule. More information on this can be found in Tracking Tax Reform: The Reconciliation Process.
The Senate has two special procedures they must go through before they can vote on a reconciliation bill:
- Byrd Bath: Senators may challenge provisions they do not believe meet the requirements of the Byrd rule. The Senate parliamentarian, a nonpartisan advisor in charge of interpreting Senate rules, will make determinations on each of the disputed provisions as well as those in the list provided by the Budget Committee.
- Vote-a-rama: In the Senate, debate is limited to 20 hours (10 hours per party); however, an unlimited number of amendments may be considered. This process is known as “vote-a-rama”, and the minority party often uses it to force majority party members to go on record with difficult votes.
Though the Senate may choose to proceed with the bill in its current form, whether it can garner a majority of votes in the upper chamber is currently unknown. Additionally, the Senate may choose to negotiate with House Republicans and make any necessary changes before the bill is compiled and voted on to avoid a ping-pong of amendment votes between the chambers.
As a reminder, both chambers must pass identical versions of the reconciliation bill before it will be sent to the president to be signed into law. Find more details on the reconciliation process in Tracking Tax Reform: The Reconciliation Process.
Stay Tuned for Additional Details
Cherry Bekaert’s Tax Policy and National Tax Office teams will provide a more detailed look at the Senate’s proposed legislation in the coming days.
Your Guide Forward
To learn more about how these proposed changes could impact your business or individual tax situation, reach out to a knowledgeable Cherry Bekaert tax advisor.
Related Insights
- Webinar Recording: Tax Policy Updates: Q2 2025
- Article: Tax Policy Review: June 2025
- Article: Deduction of Domestic Research and Experimental Expenditures
- Alert: Tracking Tax Reform: Ways and Means Releases Reconciliation Bill Text
