Wealth Planning Commentary – June 23, 2025

Tax Bill Negotiations Heat Up as Senate Releases Draft

The Senate has officially released its draft of the sweeping tax and budget bill, setting the stage for negotiations with the House. While the House passed its version last month, the two chambers must reconcile key differences before any legislation reaches the president’s desk. This latest release from the Senate Finance Committee is best viewed as an opening offer, and with significant contrasts emerging, the bill's final shape remains uncertain.

Several provisions are consistent across both the House and Senate versions. These similarities are likely to survive the negotiation process and ultimately become law. They include an increase in the estate tax exemption to $15 million starting in 2026, the permanent extension of the income tax rates established under the Tax Cuts and Jobs Act (TCJA), and a permanent reinstatement of 100% bonus depreciation for businesses.

The Senate proposal diverges from the House bill in several meaningful ways. It raises the proposed debt limit by $5 trillion, compared to $4 trillion in the House version. The Senate also proposes increasing the senior tax deduction from $4,000 to $6,000 and keeping the Qualified Business Income (QBI) deduction at 20%, rather than the House’s proposed increase to 23%.

One of the most contentious differences centers around the cap on State and Local Tax (SALT) deductions. The Senate draft maintains the current $10,000 cap, while several House Republicans—particularly members of the SALT Caucus—have insisted on raising it to $40,000. Given the narrow Republican majority in the House, even a small group of dissenting members has the power to derail the bill entirely.

The treatment of pass-through entities also marks a significant point of departure. While many states have enacted Pass-Through Entity Taxes (PTETs) to allow businesses to bypass the SALT cap at the individual level, the House bill introduces a new limit on these deductions. In contrast, the Senate would permit the greater of $40,000 or 50% of PTET allocations—plus any unused portion of the individual SALT cap—to be deducted at the federal level. The Senate’s provision may continue to offer relief to business owners in high-tax states.

Medicaid funding has emerged as another area of concern. While the House version placed a moratorium on future increases in state Medicaid reimbursements, the Senate bill would cut the federal limit for provider tax reimbursements from 6% to 3.5% over the next six years—but only in states that expanded Medicaid. Bipartisan critics argue this could have severe consequences for rural hospitals and the broader healthcare system in those states.

The original goal for timing was to have the final bill ready by July 4. However, given the number of unresolved issues and the thin margin in the Senate—where nearly all Republican senators must vote in favor—that deadline now appears unrealistic. A more plausible timeframe for passage would be late summer or early fall, particularly as lawmakers will need to address the debt ceiling around that time.

This legislation continues to evolve rapidly, and we will keep you apprised of future developments. Please reach out to your Wealth Manager with questions.