US Senate Republican Party Releases Revised Bill: Expanding Tax Relief and Raising the Debt Ceiling by $5 Trillion

The Zhitong Finance App learned that US Senate Republicans announced a revised version of President Donald Trump's iconic economic plan, proposing trillions of dollars in tax cuts for households and businesses. The plan comes at the cost of cutting health insurance coverage for some low-income Americans and increasing the US deficit.

The new version of the bill extends some tax relief while raising the debt ceiling by 5 trillion US dollars (the version passed by the House of Representatives is 4 trillion US dollars). The move by Senate Republican leaders is aimed at avoiding lengthy negotiations on the substance of the bill — if delayed until mid-August, when the Treasury can no longer use unconventional debt ceiling measures, the US may face the risk of default on debt.

The draft clearly lacks an agreement on state and local tax credits (SALT), leaving only the current deduction limit of 10,000 US dollars as a placeholder. Lawmakers will continue to discuss this politically sensitive relief policy. Senate Majority Leader John Thune told reporters on Monday: “We understand this is a negotiation. Obviously, we need to set benchmarks first. We are ready to discuss and determine the final plan with our Senate colleagues.” He added that the Senate plans to vote on the bill next week to send legislation to Trump in time for July 4.

Senate Finance Committee Chairman Mike Crapo and other Republicans pushed to lower the deduction limit of 40,000 dollars in the House version, but members of the House of Representatives representing high-tax states threatened that if the upper limit were lowered, they would block the passage of the bill. The current law sets a maximum SALT deduction limit of 10,000 USD for individuals and couples, and the limit expires at the end of the year.

The biggest change in the committee's draft is to make the three corporate tax breaks permanent (in the House version, these policies expire after 2029), including R&D deductions, extended debt interest relief, and cost-based deductions for new equipment (including most machinery and factories). Interest expense deduction policy adjustments will benefit banks, while R&D-intensive industries such as pharmaceuticals and information technology will benefit from longer R&D relief.

However, the bill curtailed the House's proposal to raise the commercial deduction for closely held companies from 20% to 23%, and the Senate plans to make the current 20% deduction rate permanent (the policy was originally scheduled to expire at the end of the year). Democrats quickly criticized the legislation in favor of the rich and business owners.

Compared to policies passed by the House of Representatives, the plan's cuts to Medicaid (Medicaid) programs for low-income and disabled people are more aggressive: the Senate went further than the House of Representatives, limiting the options for states to self-fund Medicaid. House bill suspends new taxes or tax increases on health-care providers, while the Senate draft cuts the amount states that have not expanded Medicaid under the Affordable Care Act levy taxes on health-care providers to fund projects. Even within the Republican Party, Medicaid cuts have sparked political divisions, and some senators warned that the move could hurt voters' interests.

The bill also expands the House version of the child tax credit, making the $2,200 credit per child permanent (the House bill is $2,500 but only temporarily in effect), adding a $6,000 credit for the elderly, and establishing a new deduction for charitable donations for taxpayers who have not made separate returns.

In terms of energy credits, the bill will end the $7,500 electric vehicle tax credit within 180 days of entry into force and eliminate subsidies for wind and solar energy. The draft also removes credits for companies that rent rooftop solar systems, such as Sunrun, and homeowners who buy solar equipment directly. Uncertainty about clean energy incentives is already impacting the market, and the cancellation of the credit will hit the already shaky solar industry.

Although consensus has yet to be reached on a number of key policy issues, the Senate is pressing ahead with legislation on a tight timeline — Republicans aim to pass the bill by July 4 and return it to the House of Representatives for final approval. Trump has pressured lawmakers to agree on legislation he calls the “Great Beauty Act,” which will be central to his legislative agenda.

As the Senate bill comes out, Trump's allies are launching a propaganda campaign to defend the presidential tax cuts for his first term. Recent academic research by White House National Economic Council Director Kevin Hassett shows that the corporate tax reform promoted by Trump in 2017 has stimulated corporate investment over the years. The analysis found that for every 1 percentage point reduction in capital usage costs, the investment rate will increase by 1.68 to 3.05 percentage points. But other economists have warned that Trump's tax cuts will exacerbate the government's already soaring deficit and keep borrowing costs high for businesses and households.