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The One Big Beautiful Bill Act: What Made the Final Cut?

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Tax Notes Capitol Hill reporters Cady Stanton and Katie Lobosco explore the final version of the One Big Beautiful Bill Act that President Trump signed into law on July 4.  

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Credits
Host: David D. Stewart
Executive Producers: Jasper B. Smith, Paige Jones
Producers: Jordan Parrish, Peyton Rhodes
Audio Engineers: Jordan Parrish, Peyton Rhodes

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: act now.

On July 4 President Trump signed the One Big Beautiful Bill Act into law, making permanent most of the Tax Cuts and Jobs Act provisions that had been set to expire. Many of the legislation's spending and tax cuts were up in the air leading up to its final passage. So what made it into the bill, and what's left on the cutting room floor?

We'll be diving deep into the most important changes and provisions in the coming weeks, or even months, here on the podcast. Now, if there's a specific aspect of the bill that you're interested in hearing more about, reach out to us. You can email us at podcast@taxanalysts.org or message us using @TaxNotes on the social media platform of your choosing.

But for now, joining me to walk us through an overview of the final bill are Tax Notes Capitol Hill reporters Cady Stanton and Katie Lobosco. Cady, Katie, welcome back to the podcast.

Cady Stanton: Thanks for having us.

Katie Lobosco: Great to be here again.

David D. Stewart: Now, last time we checked in, the House had just passed the bill. So what happened when it got to the Senate?

Cady Stanton: A lot has happened in the past few weeks; it's been pretty busy, and the Senate even had multiple versions of the bill. But what I'll do here to start is focus on the major changes between the House and the Senate bills. So some of those big changes include that the Senate dropped the section 899 revenge tax, made changes to the cap on the state and local tax deduction, [and] provided permanency for these big three business provisions we've talked a lot about that already expired. The Senate also made changes to clean electricity credits, with particular carveouts related to wind and solar projects.

Some of the Senate's tweaks made the bill more favorable for the clean energy industry, compared with the earlier House version. The Senate also added some tax provisions related to fisheries and whaling in Alaska, as well as residential construction. They also had a slight trim to the standard deduction expansion from the House version, and senators also axed a provision that had language that would've killed the IRS's Direct File program.

Now, once they had the text relatively finalized, Senate Republicans worked over the weekend to whip votes for the bill, and in the end, after a more than 24 hour vote-a-rama, last-minute changes were made to some of the clean energy tax provisions just before the final vote. The Senate narrowly passed the legislation July 1 on a 51-50 vote, with Vice President JD Vance breaking the tie. Republican Senators Susan Collins of Maine, Thom Tillis of North Carolina, and Rand Paul of Kentucky joined all Democrats in voting against the bill. Both Collins and Tillis have said they disagree with the Medicaid reforms that are included in the bill, as well as how quickly some clean energy tax credits would be phased out in the legislation, while Paul has long said he would vote no because the bill also raises the debt ceiling by $5 trillion and he opposes that measure.

David D. Stewart: All right, so with the bill updated, it had to go back to the House for consideration. What happened when it got there?

Katie Lobosco: Yeah, so while the Senate was finishing up their voting, the House actually had left town for the July 4 recess. Once the Senate passes the bill, House Speaker Mike Johnson has to call all his members back. And to make things even a little more dramatic, as many members were returning to Washington on the evening of July 1, there was really bad weather in that area and bad thunderstorms. A lot of flights were canceled, and we saw a lot of members having to make a long drive back to D.C. in order to make it to votes that were expected to start the morning of July 2.

But throughout that day, we see some delays in the votes that the House has to take. Members are trickling back in through the day after their travels. Plus there's a number of holdouts — mostly fiscal hawks that are publicly raising concerns with what the Senate changed to the bill. In fact, the House Freedom Caucus, a fairly conservative group in the House, they released a three-page memo with all the problems they saw with the Senate version of the bill. The memo mentioned a lot of issues, but some of the bigger problems they had were with the energy tax credits, Medicaid, and spending levels.

So there are a lot of group meetings going on with the White House officials. There are some one-on-one calls with President Trump going on, and as a result, it takes the House roughly 24 hours to take the four procedural votes and the final vote on the bill. One of those votes was left open for a record seven hours and 21 minutes as negotiations are going on.

The last procedural vote happens around 3 a.m. on July 3; that allows the bill to advance to the final vote in the House. However, Minority Leader Hakeem Jeffries, he uses what's called the "Magic Minute" at this point that allows him to speak for as long as he wants, and he breaks yet another record, giving the longest floor speech in modern time, speaking for eight hours and 33 minutes.

So the final vote on the bill in the House comes at about 2:30 p.m. on July 3. The vote is 218-214. Two Republicans vote no: Thomas Massie of Kentucky, who's long been concerned about deficits and was expected to vote no. Then there's also Brian Fitzpatrick of Pennsylvania. He's a moderate from a swing district, and he joined all Democrats in voting against the bill. He cites some of the changes the Senate made to the Medicaid reforms as the reason for his opposition.

David D. Stewart: So in the end, broadly speaking, what did we get in the final bill?

Cady Stanton: I'm certainly not going to be able to cover everything, but I'll try to cruise through as much of the tax provisions here as I can. As we mentioned earlier, this bill largely made most of the expiring provisions from the 2017 Tax Cuts and Jobs Act permanent, and this was about six months before they were scheduled to sunset at the end of this year. Some of those broad TCJA extensions include the individual tax rates and standard deduction, which were made permanent; a raise in the SALT cap; permanency for some business provisions, including full and immediate expensing, 100 percent bonus depreciation, and the 20 percent passthrough deduction. It also included a new higher senior deduction and expanded child tax credit, as well as provisions related to exempting taxation for tipped income and overtime income, and a provision to increase the estate tax exclusion.

The bill also included modifications to the phaseouts of the extended individual alternative minimum tax and various energy credits from the Inflation Reduction Act, and it added community development tax provisions related to fisheries and whaling in Alaska and residential construction. That specific provision was really targeted for Sen. Lisa Murkowski of Alaska, who really needed a little bit of a nudge for her vote.

Now on the international tax front, foreign-derived intangible income and global intangible low-taxed income rates increased to 14 percent, and the base erosion and antiabuse tax rate was increased to 10.5 percent. Oil and gas companies will be allowed to exempt intangible drilling and development costs from the adjusted financial statement income used to calculate their corporate alternative minimum tax, as well. All of that is a mouthful. As our colleague Doug Sword pointed out in an article earlier this week, the tax package has $12.5 trillion in tax provisions in it, swamping the Tax Cuts and Jobs Act's $9.5 trillion, even when you account for inflation.

David D. Stewart: So throughout this process there've been a number of sticking points. So let's check in on what happened in these various areas. We'll start off with what happened with the provisions on energy taxation.

Katie Lobosco: Sure, yeah. The provisions on energy taxes, they were some of the most negotiated provisions here, and changes were made up until the very last minute before the Senate vote. The reason for this is that there were two groups of Republicans who basically wanted opposite things. You have the fiscal hawks on one hand, and they wanted a full repeal of these clean energy tax credits. But then you have more moderate members, and they didn't want to see credits go away so quickly and undermine investments that companies may have already made, thinking that these credits would be in place for years to come.

The initial House-passed bill repealed or phased out nearly all of the clean energy tax credits that were implemented by the Inflation Reduction Act, which was passed by Democrats in 2022. Now, the Senate version slowed some of the phaseouts and restored the transferability of many of the credits which the House had done away with. So ultimately what we end up [with] here in the end are many, many changes to many clean energy tax credits, but I'll highlight a few things that our listeners may want to know about.

So the wind and solar investment and production tax credits end for projects that are going to be placed in service after December 31, 2027, but there is an exception for facilities that begin construction within 12 months from the date of the law's enactment, and that part was slipped in right before the Senate voted. The bill also ends some energy tax credits as early as this year. Think about the section 30D tax credit for electrical vehicle owners that's worth up to $7,500. That will go away after September 30.

There's also been some changes and tweaks to the foreign entity of concern rules, but not all clean energy tax credits got repealed or phased out. The clean hydrogen production credit, for example — that gets another two years and will be extended through 2027.

David D. Stewart: So another issue that seemed to come up a lot throughout this process was the state and local tax deduction cap. What happened there?

Cady Stanton: You're right to say that it was a pretty big sticking point in negotiations, specifically in the House. I know us Capitol Hill reporters were spending some late nights staking out House Speaker Mike Johnson's office as these negotiations were ongoing. So with all of that back-and-forth, it really came down to how House Republican SALT Caucus members were really holding strong in their demands for a higher cap on this deduction, and changes in the end came in the form of the provision's time frame.

Now, the House version of the provision included a $40,000 cap with a $500,000 income phaseout, both of which increased yearly over the next 10 years. In the Senate's original bill text, they actually used a $10,000 cap placeholder, which would've kept the cap as it's currently set, but the bill and its explanation also included language that indicated negotiations were ongoing. In terms of lots of back-and-forth between the House and the Senate, there was a lot of talk specifically of changing the income threshold for phaseout as kind of a middle ground here, but in the end, the Senate ended at a $40,000 cap but made it temporary until 2030, when it would revert back to $10,000. The limitation is reduced by 30 percent of the excess of a taxpayer's income over $500,000.

David D. Stewart: Now, there also seemed to be a bit of drama around the section 899 so-called revenge tax. So what happened there?

Cady Stanton: Yeah, I mean, this provision definitely put a lot of people in a tizzy. So this section 899 provision would've imposed major tax penalties on individuals and businesses based in foreign countries that were deemed by the United States to subject U.S. companies to discriminatory taxes. Now, like we said, this was a pretty controversial measure from the House bill, but it ended up being scrapped by the Senate after Treasury Secretary Scott Bessent hinted at a tentative agreement with the United States' G7 partners that would exclude U.S. companies from OECD pillar 2 taxes in exchange for abandoning this section 899 retaliatory tax, also known as the revenge tax. The original House version of the bill had sparked an uproar both in the business community and among overseas governments because of the possible impact on foreign direct investment in the United States, and even on American jobs.

David D. Stewart: The process that the Senate was considering this bill under has somewhat arcane rules associated with it. So what happened with these so-called Byrd rule challenges?

Katie Lobosco: So there were several meetings with the Senate parliamentarian, who advises on whether the provisions in the bill would violate the Byrd rule. And if they do, they could be removed or rewritten in order to get the bill to pass through the reconciliation process. Now, most of the tax provisions got OK'd. And remember, the parliamentarian gave the green light to a lot of these provisions back in 2017, when the Tax Cuts and Jobs Act was passed.

There were a couple tax provisions that did have to ultimately be removed from the bill. There was a carveout for religious schools from an endowment tax, and a new precertification process for taxpayers with children who wanted to claim the earned income tax credit. That was something that was meant to prevent duplicative claims and overpayments, but this had to be removed from the bill. The parliamentarian also had issue with a certain school choice voucher provision: Essentially, it was a credit for contributions made to a scholarship-granting organization. That just had to be rewritten, and the tweak to the language got the OK, so that provision remained in the bill.

David D. Stewart: After all is said and done, what effect is this bill going to have on the deficit?

Cady Stanton: There was a lot of talk of scoring, deficit impact, the so-called current-policy baseline in all of the back-and-forth on this bill. Fiscal hawks in both the House and the Senate decried the cost of a lot of these provisions, demanded spending cuts to offset the cost of those tax cuts, and even held up the bill's progress at multiple points as a result.

In the end, the tax title of the bill is estimated to cost a net $4.5 trillion between 2025 and 2034, according to the Joint Committee on Taxation. The Congressional Budget Office, which includes other aspects of the bill in its estimate, estimates that spending cuts would reduce that shortfall to $3.4 trillion over the same period, compared to the $2.4 trillion price tag on the House bill. Now, something to pay attention to moving forward here will be some of the other economic impacts of the bill. We'll see how Republicans react to the next couple of years of that economic impact, and whether it could either reduce or increase the overall fiscal and deficit impact of the bill.

David D. Stewart: What has been the general reaction to this bill upon its passage?

Katie Lobosco: Well, that's going to depend on who you ask. Republicans generally are saying, no, it's not perfect, but hey, it prevents a tax hike on most Americans that would've happened if a lot of these TCJA provisions weren't extended past December 31 of this year.

Democrats are framing this as an awful bill. They are focusing on the fact that these tax cuts disproportionately benefit the wealthy in the U.S., and that there's these cuts to Medicaid that are going to hurt the most vulnerable among us. As far as the electorate, we'll have to see. One thing I think is interesting to note [is] that maybe a lot of people won't even notice these extensions of the tax cuts because they're already in place. If they don't ever go away, you might not notice any difference, which is kind of the point. Things like no tax on tips and no tax on overtime, these are new, but they don't affect everybody.

And also an interesting note, some of the Medicaid cuts and reforms, they are not implemented for a while, so those effects won't be felt right away. And as far as those fiscal hawks go, that were holding out their vote for a little while last week in the House, they said they got some assurances from the White House that the energy tax credit phaseouts would be strictly implemented. And sure enough, Trump signed an executive order July 7 directing Treasury to strictly enforce the phaseouts. We'll have to wait and see how this exactly plays out, but we expect Treasury to be issuing guidance around these changes soon, especially for those credits that expire this year.

David D. Stewart: Well, this was a lot of movement on tax. Is there anything left for Congress to take on? What's next to be tackled by Congress?

Cady Stanton: Well, I feel like Katie and I are just now catching our breath here, Dave, but I guess it's a pretty fair question that more could come this Congress. Just after final passage, House Speaker Mike Johnson already began talk of a second or even third reconciliation bill this Congress, while Republicans have control of the House, Senate, and White House. But given the early stages of these talks, it's really unclear if any of those bills will or won't include tax provisions. Another possibility, though certainly not in the near future, could be a bipartisan tax bill on tax extenders.

Now, I say that probably isn't going to come soon because, after the grueling past few months, Democrats don't really have a huge appetite for working with Republicans after this massive partisan package. And Congress has some other pressing matters, including a rescissions bill they're considering in the next few weeks and fiscal 2026 government funding, which needs to be addressed to avoid a government shutdown. So we'll have to see how the dust clears on that. It'll really come down to Democrats' appetite, as well as Republican recovery from a grueling process. I'm sure there's tax counsel and tax aides on the House Ways and Means and Senate Finance committees who are taking a well-deserved vacation right now.

Now, the possibility of either of those options likely grows the further you get from the present. This really big bill just passed, and so there's the recovery, there's the brainstorming for the next idea before that other process becomes feasible. But you also have to think about how next year in the fall, we have the midterms in 2026. And so, as you start to approach those or have the lame-duck period after, it can really change the probability of both of those ideas.

But something to really take into account is, as Katie mentioned earlier, there were some things left out of the bill and left undone. Some of the areas that come to mind are the tax treatment of cryptocurrency; a provision related to gambling deduction changes that has left quite a few people unhappy, including some Republican senators; expiring Affordable Care Act premium tax credits; and this kind of long-awaited tax agreement between the U.S. and Taiwan to address double taxation. So there's definitely extenders, other provisions that haven't been addressed floating around that could possibly fit together into some kind of package, but it's really hard to tell right now.

David D. Stewart: Well, I definitely appreciate both of you keeping on top of all this stuff for us and giving us this update here. And I'm sure that we'll be talking more as we delve into the details of this bill. But for now, Katie and Cady, thank you for being here.

Cady Stanton: Thanks for having us.

Katie Lobosco: Thanks so much.

David D. Stewart: That's it for this week. You can find me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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David D. Stewart

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Cady Stanton

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