The One Big Beautiful Tax Bill: What’s In It, What’s Out

Congress is racing to pass the One Big Beautiful Tax Bill before the July 4 
deadline.

In this episode, Kyle Hulehan and Erica York break down what just 
happened over the weekend, what’s actually in the bill, and what comes 
next as the House and Senate try to reconcile their differences.

Learn more: 

“Big Beautiful Bill” Senate GOP Tax Plan: Preliminary Details and Analysis: 
https://taxfoundation.org/research/all/federal/big-beautiful-bill-senate-gop-tax-plan/

Budget Reconciliation Tracker: https://taxfoundation.org/research/all/federal/trump-tax-cuts-2025-budget-reconciliation/

“Big Beautiful Bill” House GOP Tax Plan: Preliminary Details and Analysis: https://taxfoundation.org/research/all/federal/big-beautiful-bill-house-gop-tax-plan/

The Good, the Bad, and the Ugly in the One, Big, Beautiful Bill: https://taxfoundation.org/blog/one-big-beautiful-bill-pros-cons/

House Tax Package Could Double Economic Growth Impact by Prioritizing Permanence for TCJA Business Provisions: https://taxfoundation.org/blog/house-tax-plan-economic-growth-impact-business-tax-permanent/

A More Generous SALT Deduction Cap in the Big, Beautiful Bill Would Cost Revenue and Primarily Benefit High Earners: https://taxfoundation.org/blog/salt-deduction-cap-increase-proposal-analysis/

House “One Big Beautiful Bill” Riddled with Temporary Tax Policy: https://taxfoundation.org/blog/house-one-big-beautiful-bill-temporary-tax-policy/

Current Trump Tariffs Threaten to Offset Benefits of Promised Tax Cuts: https://taxfoundation.org/blog/trump-tariffs-tax-cuts/

House GOP’s Approach to the IRA Clean Energy Tax Credits: Five Things to Know: https://taxfoundation.org/blog/ira-clean-energy-tax-credits-house-gop-ways-means-bill/

Transcript

Kyle Hulehan: 0:00

Hello and welcome to the Deduction a Tax Foundation podcast. I'm your host, Kyle Houlahan, and we are back today with another episode with my co-host, Erica York, and we are talking once again about the one big beautiful Bill. So Erica, we're gonna dive right in here. What happened over the weekend? There's been a lot of news. There's the house bill, there's the Senate bill. What's going on?

Erica York: 0:22

It was a very busy weekend in Washington, um, for, for policymakers. So late Friday night, the Senate released a new version of its text of the one big beautiful bill act. It is now a 940 page bill. Um, so a lot to dig through in there. Not I. Just tax policy, but a lot of spending stuff as well. Um, and then the Senate spent the weekend, um, working up toward a procedural vote that took place on Saturday night. This was a key vote that allows debate to continue moving forward on the bill. Um, and it took several hours, but the, um, Senate did end up advancing the bill. Um, that initial vote was 51 49 and two GOP Senators actually voted against. Um, against that, that wasn't the final vote, I should say. That was again, just like this key procedural vote to get to continue moving forward in the process. And now that's exactly what they're doing. Um, this morning, Monday morning.

Kyle Hulehan: 1:21

So then what are, or what do we see as like the major differences between the House and Senate bills as they're continuing to go through reconciliation?

Erica York: 1:31

So some of the key changes in this version of the Senate bill compared to the initial version are, um, to some of these big ticket items that we've been hearing a lot of debate about, um, like the state and local tax deduction. Some of these international provisions. Um, so some of those key changes, the, the initial Senate version of the bill had a$10,000 salt cap, so it would've maintained the cap on the itemized deduction for state and local taxes paid that we have under current law. Um, that was a really big sticking point with the house because the house version of the bill would've permanently increased that cap to$40,000 phased out for higher income individuals and allowed that cap to be inflation adjusted over time. Uh, the Senate kind of takes a compromise approach to that. And this latest version, they do a$40,000 cap with the same phase out. That's only through 2029 and then the cap is scheduled to go back down to$10,000. So that's one of the really big changes between both the House and the Senate as well as these, um, different versions of the Senate bill. We also saw, um, the Senate has taken a different approach to international taxes, which is a pretty complicated area of the tax system, but the Senate generally makes some good improvements on a permanent basis there. Makes some pay fors that may not be the, the best policy, but overall end up, um. Being a pretty good spot for international taxes. This version of the Senate bill does include some changes there, um, both with the house version and with the previous Senate version. So some of the more, I would say controversial elements of international taxes. Um, you may have heard of the, the remittance tax. The Senate takes a much softer approach to, that takes a lot of the teeth out of that design compared to the house bill and then actually entirely eliminates. Um, what has been called the, the revenge tax, um, because separately the Treasury Department has been working, um, internationally secured in agreement amongst the G seven countries to tone back some of these discriminatory international taxes. So now this. Um, revenge tax has fallen out of the Senate bill. What a lot of these changes mean though is that the cost of the Senate bill has gone up. So we saw a few changes to tax provisions to try to reduce cost elsewhere. Um, particularly changes to the alternative minimum tax, a slightly smaller increase to the standard deduction. Um, some changes around inflation adjustments. So lots of moving pieces. Um, but big picture between the House and the Senate. What we see is the Senate makes more permanent changes while the house has relied on a lot of temporary changes to reduce what it looks like the bill costs. Um, so overall we see much more permanence on the Senate side, which means. We see a stronger economic effect from this bill. We're still working on our final numbers, um, but our, our GDP effect for the Senate version of the bill is probably gonna be somewhere between a 1.1 to 1.2% increase in long run GDP while the house bill was a 0.8% increase. So you can see a pretty substantial improvement because the Senate makes key provisions, especially on the business side, like full expensing, like we like to talk about, um, for research and development for short live investment. Those are permanent in the Senate bill. So we see that stronger boost, but we also see a larger price tag. Um, again, we're still working on those cost estimates, but if you look at the Congressional Budget office scores, um, the CBO has estimated a total deficit increase from the house version at$2.77 trillion over the decade. For the Senate version, it's 3.25 trillion. So you can see roughly$500 billion, um, more over the, the budget window. For the Senate version, we'll probably be even a little bit higher than that. Um, because our scoring indicates that some of these business investment provisions tend to reduce revenue by more than, than what the, um, official scorekeepers estimate. Either way, we're looking at a really big increase, um, in, in budget deficits under this bill, even when we factor in the more pro-growth version of, of the Senate's bill.

Kyle Hulehan: 5:43

And, and so maybe the, the elephant in the room with this is a little bit, as you know, we're talking about cost. Why does the cost matter for everyone in the US right now? Why does the debt matter so much? Where do we stand with that?

Erica York: 5:56

So our, our baseline debt, the debt that already exists. Is very large. Historically speaking, deficits are very large, historically speaking. So the gap between spending and revenue that we have right now before any changes Congress makes is much larger than you would expect to see, um, at a, at an economic time like this. We also have relatively high interest rates, which means that interest payments on the debt are becoming an even larger part of the federal government's budget. Um, so if you look at like the past year, we spent more on interest than we did on defense, and that's only scheduled to grow. That's gonna get even costlier, if Congress passes a bill, that further increases the deficit. That means we're adding to the debt rather than stabilizing it, which means interest costs are going to grow. And over time, that really erodes the fiscal capacity of the government. We want the government to have resources to spend on certain programs, whether it's. Defense, whether it's support for the elderly, um, whether it's support for low income households, the more that the government has to spend on interest payments, um, the less they have to spend on these other programs. And it really puts us on the wrong track long term towards addressing the debt and just getting it to a, to a stable place. I think this also relates to one, uh, another, one of the key differences we see between the approach that the house has taken and the approach that the Senate has taken. One of the first things that the Senate voted on, um, this morning was okaying the idea to say, Hey, the extension of the tax cuts that are in place today isn't gonna actually cost anything. Now, we all know like, if, if you cut taxes, that's gonna reduce revenue. So that costs, but what Congress is talking about, what the Senate in particular is talking about is saying. We are just gonna say that this doesn't add to the debt or deficits. So that's a really big difference in approach between the house and the Senate, where the house was pretty concerned about deficits, where they had, um, a requirement in their reconciliation rules to say. If we increase the deficit by any more, then the tax cuts have to come down, or the spending cuts have to go up because they wanted to pay for a certain amount of the tax cuts that they were looking at. Whereas the Senate is saying, we are just gonna pretend to erase this nearly$4 trillion of cost and then just count this, this other part over here. Um, so again, it, it all comes back to fiscal responsibility and whether lawmakers. Are really serious about reducing debt and deficits, or whether they're going to do budget gimmicks and allow deficits to grow and interest costs to rise.

Kyle Hulehan: 8:36

Yeah, and I think we kind of, you gotta stay in. Why do we have government, you know, there's supposed to be this mutual exchange of services. We pay taxes, we get things we're. Safer, military, all of these other things. And when they're just paying interest, when most of our money is going to interest, we don't get anything. And it, and it's just really that simple, like if you wanna think about the debt in that way, I feel like that's a really simple way to break it down for people. So I really appreciate that. So then what do we see is happening next? What, what are the next steps that are gonna play out here?

Erica York: 9:04

Everyone is still aiming for this July 4th deadline, which of course is just a, a handful of days away. Um, if they are to keep that, this voter aama and the Senate, um, probably wraps up Monday night so the Senate could vote on the final version of the bill, which could change because of course voter means senators are offering amendments. To all of these different provisions, um, throughout the day. Some of those may be approved so we could see, you know, the tax and the spending side still change, but ultimately we're looking at a Senate vote. Late Monday night, very early Tuesday morning, then the bill would have to go back to the house because the house has approved a different version. They would need to approve this Senate version in order to get this to the President's desk by Friday. The big question of course is does the house agree with all of the changes the Senate has made? Or is the house going to wanna make its own changes? And then we're back at this process of the Senate and the House still have to reconcile a final version of the bill. Um, so there's a potential path for this thing to get done this week, but it is still pretty uncertain. I. Ultimately though, I think, um, what we've kind of seen with this house passed version with the version the Senate is working on now is that there's agreement on the bulk of the provisions being discussed here. You know, both the House and the Senate want to extend all of the expiring tax cuts they want to, in some form or fashion. Um, enact the President's campaign promises like no tax on tips. Auto loans, um, overtime, a provision for seniors. Then there are a bit, uh, uh, the di differences come in on some of the trickier provisions like business expensing, like international, like the state and local tax deduction. I think those are areas where compromise can still be worked out though. Um, so the, the devil's in the details, but I think what this all means is that we are moving toward final passage of the one big beautiful bill act. Maybe Friday, maybe it takes a little bit longer.

Kyle Hulehan: 11:07

Yeah. And so I'm wondering maybe what the, the big takeaway from all of this is, you know, when we talk about tariffs, uh, I, I feel like it's always a little bit bleak because it's like, oh, this is just really bad and this is all really bad. So I, I, I'm curious what your overall takeaway is from this. Is it maybe a little bit more mixed and not quite as dire as, as tariffs?

Erica York: 11:27

it's probably a missed opportunity. So the. You know, the, the expiration, the need to do tax reform could have yielded something that really set the United States on a more fiscally responsible trajectory and improved the tax code for individuals and businesses. We're probably looking at something that that does improve the tax code for individuals and businesses, particularly if the Senate version of the expending provisions goes through and we have. Permanent. Um, that's, that's a very historically good bill for investment incentives in the United States. It's also a bill that's going to significantly increase deficits. It's going to add a lot of uncertainty because of the temporary provisions related to the president's campaign promises. So on the one hand, you're getting some certainty, you're getting better economic incentives. On the other hand, you're getting a really large increase in the deficit and a lot more complexity added to the tax code. Um, so while it does prevent these tax increases on individual taxpayers that would occur. If Congress did nothing. While it does make improvements to investment incentives, it certainly falls well short of, of what we would say would be an ideal tax package.

Kyle Hulehan: 12:42

Okay. That, that makes sense. I mean, it, it does seem like it, it has some mixed results, but yeah, full expensing is something we talk about a lot here, and that would definitely help businesses and, uh, boost our economy. So, so there's, there's a mixed bag here. it's not all bad, it's not all good. Um, but Erica. Thank you for being on the show. Thank you for giving us all this information today. Uh, and before we sign off, I just wanna let you guys know if you have any questions, you can comment on YouTube. You can DM us on Twitter, you can email us at podcast@taxfoundation.org, or you can, you know, slide into our dms if you want. Thank you for listening.