Trump’s tax plan: Senate and House versions of ‘big, beautiful’ bill headed for a clash

The Senate this week released its version of the tax bill, which differs in substantial ways from the House version. It is currently working towards a final bill that can be voted on, at which point the House and Senate would need to come to agreement on a single version that they can send to President Donald Trump’s desk.

Three of the major sticking points:

• The Senate’s version of the bill calls for maintaining the current $10,000 cap on the state and local taxes (SALT) deduction, much lower than the $40,000 cap agreed to by the House, and a tough sell for Republicans in high-tax states such as New York, New Jersey and California.
• The Senate bill proposes deeper cuts to Medicaid than the House version, which moderate Republicans are less likely to agree to.
• Fiscal hawks are not happy with the cost of this sweeping tax package. The House bill would increase deficits by an estimated $2.8 trillion over the next decade, according to the most recent report by the Congressional Budget Office (CBO), a nonpartisan federal agency.

Still, it seems likely that lawmakers will pass a bill — if not by their stated goal of July 4, then at some point in August.

“Even the people who are arguing about provisions in the bill say they want a bill,” says Mark Luscombe, a CPA and principal analyst for Wolters Kluwer Tax & Accounting in Chicago.

“They say they would vote against the current bill, but they all say they want a bill. Somehow they will figure out a way to compromise on this, just like the House got it through on one vote. I would think the House and Senate probably will figure out something to compromise on too,” he says.

The House bill marked a major step forward in fulfilling key campaign promises made by Trump, including extending existing income tax rates and other provisions of the Tax Cuts and Jobs Act that would otherwise expire at the end of this year.

The House bill, which in addition to its tax provisions includes funding for new border control measures and makes steep cuts to Medicaid and other programs, passed the House with the slimmest of margins, with 215 lawmakers voting in favor and 214 against. The Senate bill includes similar provisions, though it would cut deeper into Medicaid benefits.

Lower-income taxpayers hit hardest

The “big, beautiful” tax bill would, if it becomes law, lead to drastically different results for U.S. taxpayers, depending on where they fall on the income spectrum.

The wealthy would see their income grow while the lowest income Americans would experience sharp cuts, according to a CBO report.

The Senate is currently debating its version of the bill. If the proposal passed by the House in May becomes law, then from 2026 to 2034, according to the CBO report:

• Wealthier taxpayers — those in the top 10 percent of income — would enjoy a 2.3 percent boost in resources, or an extra $12,000 per year on average.
• Middle-income taxpayers would see their resources rise, but by less than 1 percent of their income — an estimated extra $500 to $1,000 per year on average.
• Taxpayers in the lowest 10 percent of earners would see their resources drop by about 3.9 percent of their income — or about $1,600 per year on average.

The CBO report is based on the House version of the legislation. While it’s unclear what the final law will look like (or even if it will become law), it seems likely that, if lawmakers do enact this massive policy proposal, it will contain some combination of tax breaks — which tend to be more valuable the higher your income is — plus deep cuts to essential programs for lower-income Americans, including Medicaid and the SNAP food assistance program.

Key tax provisions in the House bill

Here are some of the key tax provisions of the House version of the bill. Notably, many of these tax benefits would take effect for the current tax year — 2025 — and then end four years later, at the end of Trump’s term.

The House bill would:

• Increase the standard deduction for 65-and-older Americans by $4,000, in addition to the current standard deduction and on top of the current extra standard deduction for older Americans, for tax years 2025 through 2028. The amount would phase out for single filers with modified adjusted gross income of $75,000 or more, and for married couples with income of $150,000 or more.
• Eliminate taxes on tips and overtime pay, starting in 2025 and going through 2028. While a separate idea to eliminate taxes on Social Security benefits — something oft-cited by President Donald Trump as a goal — is not included in this proposal, the higher standard deduction for 65+ taxpayers is seen as an alternate way to ease older Americans’ tax burden, and hiking the standard deduction is a much easier legislative path forward than changing how Social Security benefits are taxed.
• Create a new tax-deferred savings account for children. The accounts, which could be opened for children age 8 or under, would be called “Trump accounts.” These accounts would allow contributions of up to $5,000 per year (with some exceptions) until the child is 18, at which point distributions could begin. Any distributions used for qualified expenses, including certain education costs, small-business expenses and first-time homebuyer costs, would be taxed at long-term capital-gains rates (which are generally lower than income tax rates). Non-qualified distributions would face income tax rates and a 10 percent penalty if the beneficiary is under age 30. An added bonus for U.S. citizen children born from 2025 through 2028 (in other words, during Trump’s term): The accounts would be funded with an initial $1,000 from the federal government.
• Raise the child tax credit to $2,500, from its current $2,000, effective from 2025 through 2028. After 2028, the child tax credit would drop back to $2,000.
• Raise the state and local tax deduction (SALT) cap to $40,000, up from the current $10,000 cap, starting in 2025. The bill calls for the deduction to phase out for taxpayers with modified adjusted gross income of $500,000 or more. Those numbers apply to all taxpayers except those who are married and file separately. For married-filing-separately taxpayers, the cap would rise to $20,000, from $5,000 currently, and would start to phase out at income of $250,000. Some Republicans from high-tax states such as California, New York, and New Jersey had pushed for a higher SALT cap.  
• End the popular Direct File program — which offers an online free guided tool that lets taxpayers file their taxes directly with the IRS — within 30 days of the bill becoming law. The bill also calls for the development of a public-private partnership to create a new free tax filing program that would replace the existing Free File program, and that would be available to up to 70 percent of all taxpayers, according to a report in Tax Notes, a publication of the nonprofit Tax Analysts. About 170 Democratic lawmakers sent a letter on April 25 demanding that the U.S. Treasury maintain the Direct File program.
• Make the popular qualified business income deduction permanent and hike the value of this deduction to 23 percent from its current 20 percent. This tax deduction is for pass-through entities such as S corporations, partnerships and sole proprietorships.
• Eliminate the electric vehicle tax credit as of the end of 2025. However, the bill would allow an exception for manufacturers who have yet to sell 200,000 vehicles.
• Create a tax deduction for car loan interest, available even to taxpayers who don’t itemize their deductions, from 2025 through 2028. The deduction would phase out for single filers with income of $100,000 or more, and for couples with income of $200,000 or more. 
• Create a deduction that would allow non-itemizers to claim charitable contributions up to $150 per single filer and $300 per married couple, effective from 2025 through 2028.

How tax laws may change

While it’s unclear what the final law will look like, it’s highly likely that some type of tax-law overhaul will happen this year.

Under the 2017 Tax Cuts and Jobs Act (TCJA), key changes were made to individual tax laws, including the near-doubling of the standard deduction and increasing the child tax credit to $2,000, from $1,000. Plus, the top tax rate for high-income earners was reduced to 37 percent, from 39.6 percent, and a new 20 percent deduction was created for certain types of business income.

While some of the TCJA’s provisions were permanent and others are set to expire at the end of 2025, U.S. lawmakers can include just about any tax provision they want in a new comprehensive tax bill — assuming they can get it passed.

As a result, along with the high likelihood of extending the TCJA’s expiring provisions — which would effectively maintain the status quo for U.S. taxpayers — there’s a strong chance that lawmakers will change other tax laws as well.

During his presidential campaign and now as president, Trump has promised a variety of tax breaks, including:

• Eliminating taxes for people who earn less than $150,000. This is not in the current version of the tax bill.
• Removing the current $10,000 cap on the deduction for state and local taxes. The current version of the tax bill in the House proposes lifting the cap to $40,000. The Senate version currently holds it at $10,000.
• Eliminating taxes on tip income, overtime pay and retirees’ Social Security benefits. The first two tax benefits are in the current versions of the bill, both in the House and Senate. For retirees, the House bill proposes an extra $4,000 standard deduction for Americans aged 65 and older — that’s instead of a tax break on Social Security benefits. The Senate version includes a more generous proposal: A $6,000 additional standard deduction.
• Creating a tax deduction for car loan interest payments for American-made cars. This tax break is in both the Senate and House versions of the bill.

Learn more: Standard deduction vs. itemized deductions: Pros, cons and how to decide