Senate GOP Unveils “One Big Beautiful Bill” Finance Plan
Summary
As promised, we’re back to give you the rundown of key changes that the Congressional Finance Committee made on Monday to HR1, or the One Big, Beautiful Bill Act. Many of the changes address taxes, but a few implement more spending cuts and entitlement changes that deviate from the House-passed version of the legislation. Also included in the changes are debt ceiling relief, border and defense funding, and Medicaid changes.
Here’s the breakdown:
Key Tax Provisions
Child Tax Credit is reduced to $2,200 per child, down from $2,500 in the House plan. It’s worth noting that 2024’s Child Tax Credit was $1,700 for a refundable amount, and up to $2,000 per qualifying child.
Permanent extensions for business incentives implemented during Trump’s 2017 cuts to corporate taxes, including full expensing of equipment investments and R&D credits.
Overtime & Tips Deductions: While the House version of the bill contained no caps in its clause regarding no federal tax on overtime or tips, the Senate has implemented caps of $12,500 (overtime) and $25,000 (tips). The tax break may not be available to everyone, though—there’s also a cap on income.
Senior Deduction: Seniors gain a $6,000 deduction (vs. $4,000 in the House bill). This is a huge jump from the current deduction at only $1,950 for Head of Household filing, or $1,550 if filing jointly.
Carried Interest remains taxed under the existing rules, a rejection of Trump’s proposal to reclassify it as ordinary income.
State and Local Tax (SALT) Cap
The Senate text sets a placeholder SALT deduction cap at $10,000 (far below the House’s $40,000 target). Senators have said the cap is currently just a placeholder, not finalized, and still being negotiated. And if you’re wondering, yes, the SALT committee is upset that their deal with Speaker Johnson has been reneged.
Medicaid Changes
Provider Tax Cuts: For Medicaid expansion states (including Pennsylvania), the provider tax rate would fall from 6 percent to 3.5 percent by 2031, deepening cuts beyond even the House’s proposal. A new provision would also impact states without Medicaid expansion by capping those states’ ability to raise provider taxes to accrue more federal funding.
Work & Verification Requirements: The Senate version of the bill expands work requirements to receive Medicaid, and states that able-bodied adults without dependents must work, train, study, or volunteer 20 hours weekly to maintain coverage, with eligibility checks conducted every six months. As we talked about last week, there are a number of Senators still not on board with this change.
Scope Limitations: The bill ends Medicaid coverage for abortion services, gender‐transition procedures, and bars undocumented immigrants without permanent legal status from receiving benefits.
Impact on Pennsylvania: While Pennsylvania expanded Medicaid under the ACA, steeper provider tax cuts will reduce state revenue and could strain rural hospitals already operating on thin margins. Advocacy groups warn that leaner provider taxes may force states to backfill shortfalls or scale back provider reimbursement rates. For more about how this will impact rural hospitals and providers, click here.
Energy & Retirement Provisions
Energy Tax Credits: The Senate plan softens the phase-out of key Inflation Reduction Act credits, perhaps a result of the House’s efforts to lobby against a full-fledged phase out, extending support for clean-energy projects longer than the House version allowed. The text eliminates a stringent green energy tax credit provision in the House bill, ridding the measure that would have “required climate-friendly energy sources to start construction within 60 days of the bill’s enactment to qualify for tax credits at all.” This extends the flexibility for how quickly construction projects must be completed to qualify for tax credits.
IRA Subsidies: Hundreds of billions in Inflation Reduction Act subsidies, most notably the electric vehicle credit and “lease loophole”, will be eliminated immediately, similar to the House bill.
Debt Ceiling & Other Items
The package raises the federal debt limit by $5 trillion, topping the House’s $4 trillion increase. This has the potential to sink the bill, if the rumors are to believed—GOP economics hardliners are still saying that the bill doesn’t do enough to address the growing deficit and offset spending.
Sports Team Owners’ Breaks: A House measure limiting tax breaks for teams is dropped, preserving existing deductions.
Bottom Line for Pennsylvania
We’ve talked at length about the changes made and the challenges states will face if the “One Big, Beautiful Bill” passes. The Finance Committee’s significant changes to the bill will undoubtedly cause uncertainty in benefit calculations, Medicaid coverage, and potentially impact the state’s ability to fund programs like Medicaid. What remains to be seen is where the SALT deduction cap will land, and if extended clean-energy credits and business incentives might jumpstart more investment in renewable energy/manufacturing sectors in Pennsylvania. The bill now moves forward for floor debates, and we’ll see how lawmakers will react to these changes, and what might change before the bill ultimately goes for a vote. Stay tuned.
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