Senate tweaks Trump tax bill in bid to court GOP holdouts

Senate Republicans unveiled a new version of their $4.2 trillion tax cut package that adjusts key provisions on the SALT deduction, Medicaid and clean energy as they try to meet a July 4 deadline set by President Donald Trump.

The new draft released early Saturday morning reflects compromises among warring factions of the Senate GOP which has been divided over how much to cut safety net programs such as Medicaid and how rapidly to phase out renewable energy tax credits enacted under the Biden administration.

Senate Majority Leader John Thune has said he plans for his chamber to start voting on the tax bill Saturday afternoon with final votes coming as soon as early Sunday. Party leaders plan to bring House members back to Washington early next week for what they hope will be final approval of the measure in time for Trump’s Independence Day deadline.

It is not yet clear if the 50 Senate Republicans needed to pass the bill are all on board. The bill can be further altered on the Senate floor to secure the votes if needed. The House could also make more changes if Speaker Mike Johnson has trouble corralling votes for the measure.

But one conservative senator, Ron Johnson, said Saturday on Fox News he would vote against starting debate on the bill if a vote is called now.

“This is an important bill,” the Wisconsin Republican said. “There’s no need to rush it.”

SALT deduction

A tentative deal with House Republicans to increase the state and local tax deduction is included. The bill would raise the SALT deduction cap from $10,000 to $40,000 for five years before snapping back to the $10,000 level. The new cap applies to 2025 and rises 1% in subsequent years.

The ability to claim the full SALT amount would phase out for those making more than $500,000 per year. A House attempt to curb the ability of pass-though businesses to circumvent the SALT cap was removed from the text.

The deal has the support of most members of the House SALT caucus of Republicans from high-tax swing districts. While decried by conservatives for costing hundreds of billions of dollars, it has the blessing of the White House.

Senate Republicans also deleted a Section 899 “revenge tax” on some foreign companies and investors that had spooked Wall Street, after Treasury Secretary Scott Bessent requested the change.

The Senate measure makes permanent individual and business tax breaks enacted in 2017, while adding temporary new breaks for tipped and overtime workers, seniors and car buyers.

Medicaid changes

To win over moderate Republicans, the bill would create a new $25 billion rural hospital fund aimed at helping mitigate the impact of Medicaid cuts, which otherwise could force some rural providers to shut down.

Republican Sen. Susan Collins of Maine, however, had demanded a $100 billion fund.

Moderate Republicans also won a delay from 2031 to 2032 on the full impact of a new 3.5% cap on state Medicaid provider taxes. States often use these taxes, within some already existing rules, to draw down federal funding and increase payments to facilities like hospitals. Limits on the Medicaid funding mechanism would begin phasing in in 2028.

The cap on provider taxes would only apply to states that expanded Medicaid coverage for low-income people under the Affordable Care Act. According to the Kaiser Family Foundation, 40 states and the District of Columbia have done so.

The House-passed version of the bill proposed a moratorium on new or increased provider taxes, which the Congressional Budget Office said would save the federal government more than $89 billion over the next decade.

The measure also would impose new work requirements on Medicaid recipients and require Medicaid beneficiaries who gained eligibility through the Affordable Care Act to pay a share of their costs through charges such as co-pays and deductibles.

Republican Sen. Josh Hawley of Missouri, who had criticized the cuts to Medicaid as too deep, said the changes were enough to gain his support while Collins said she “would lean against the bill” without more concessions, but would vote to begin debate.

Renewable energy

Senate Republicans moved up a cut-off for tax credits used for wind and solar projects even earlier then they initially proposed, amid pushback on the credits from Trump. The new measure requires those projects to be “placed in service” by the end of 2027 to receive the incentives, as opposed to simply being under construction by that time.

The change, if it makes into law, could be a blow to companies such as NextEra Energy Inc., the biggest U.S. developer of wind and solar projects. But the energy tweaks may help get holdout GOP Sen. Mike Lee to vote for the bill.

Senate Democratic leader Chuck Schumer warned Americans in a social media post that Republicans’ plan to phase out the clean energy tax breaks would “jack up your electric bills and jeopardize hundreds of thousands of jobs.”

Senate Republicans also would alter an existing clean energy tax credit so that it would also cover production of metallurgical coal, which is used in steel making.

The new Senate legislation would end a popular $7,500 consumer tax credit for electric vehicles earlier than in the prior drafts. While the initial proposal would have ended the incentive at the end of 2025 for most EV sales, the new version terminates the credit after Sept. 30, 2025. Tax credits for the purchase of used and commercial electric vehicles would end at the same time.

The new draft adds back in a plan to sell as much as 1.2 million acres of Interior Department land for housing and “community development” across 11 Western states. The measure, championed by Lee, a Utah Republican, could raise as much as $6 billion. But it has drawn opposition from some Republican senators representing affected states, who have vowed to strike it from the bill.

The phase-out of a tax credit for hydrogen production would be delayed to cover projects that begin construction through 2028. The previous version of the legislation ended the credit this year.

The bill would slash funding for the Consumer Financial Protection Bureau, cut federal payments to states for food stamps and boost funds for a U.S.-Mexico border wall among other things.

The version drops a provision explicitly terminating the IRS-run free electronic filing Direct File program, a loss for TurboTax maker Intuit Inc. But the legislation keeps in a $15 million pot of funding that creates a task force to study replacing the free electronic filing program.

The bill would alter a proposed new tax on some remittances by noncitizens, lowering it from 3.5% in earlier versions to 1%, in a win for Western Union and Moneygram.

The measure would avert a U.S. payment default as soon as August by raising the debt ceiling by $5 trillion.

———

(With assistance from María Paula Mijares Torres, Chris Cioffi, Steven T. Dennis and Cam Kettles.)