In a pivotal step toward advancing their sweeping economic agenda, Senate Republicans on Monday unveiled their version of a multitrillion-dollar tax and spending package, aiming for passage before the July 4 recess.

Highlights of the Current Senate Proposal for Income Tax Provisions

The Senate Finance Committee’s proposal preserves key elements of President Trump’s first-term tax cuts while introducing new provisions he championed on the campaign trail, including a controversial plan to eliminate taxes on tips.

While the bill mirrors the House-passed version in several respects, it diverges significantly on tax credits, business incentives, and clean energy policy — setting the stage for intense negotiations as GOP leaders race to reconcile differences and deliver a final bill to the president’s desk.

Here are some highlights from the proposed bill:

  • Qualified Business Income: One Senate change of importance to farmers is that, in the Senate bill, the Section 199A deduction for qualified business income would become permanent but remain at 20%. The House bill would raise the deduction to 23%.
  • Business Tax: The Senate draft’s biggest change is making permanent business tax breaks that in the House version expire after 2029. That includes a provision expanding business interest expense write offs, and expensing for new equipment, including most machinery.
  • Research and Experimentation Deduction: The House proposal permitted a short-term allowance for immediate deductions of domestic research and experimentation expenditures, which under the Tax Cuts and Jobs Act (TCJA) are required to be capitalized and deducted over five years. The Senate would make this immediate deduction permanent and would permit taxpayers to accelerate deductions of expenditures they previously capitalized or, in some cases, amend prior year returns to retroactively deduct the expenditures.
  • Special Depreciation Allowance for Manufacturing Property: The Senate’s proposal mostly follows the House’s special depreciation allowance, which would provide a first-year depreciation deduction of 100% of the cost of newly-constructed manufacturing facilities, including agricultural production facilities. The only major difference is the Senate’s deadline for placing the property in service – in the House version, the property must be in-use before January 1, 2033. The Senate speeds up that timeline and requires the property be completed and in-use before January 1, 2031.
  • State and Local Tax Deductions: The House plan to lifts the cap to $40,000 for married couples with incomes up to $500,000. The Senate’s language maintains the current $10,000 cap for non-passthrough entity state taxes.
  • Pass-through Entity Tax SALT Deduction: The House bill would eliminate the federal deductibility of state Pass-through Entity Taxes (PTET) imposed on service businesses such as doctors, lawyers, and accountants. Senate Republicans do not target service businesses, but do impose a cap on PTET deductions for entity owners, allowing PTET deductions for these groups, limited to the greater of $40,000, or 50% of the individual’s share of the state PTET.
  • Estate and Gift Tax Exemption: As in the House version, the Senate bill would permanently raise the estate and lifetime gift tax exemptions to $15 million for individuals ($30 million for couples) starting in 2026, with future increases tied to inflation.
  • Clean Energy Credits: The House passed bill included steep cuts to the clean energy tax credits that had been enacted under the Inflation Reduction Act. The Senate Finance Committee version would modify the House bill to extend lifelines for sources like geothermal and nuclear power but still contains quicker phase outs for wind and solar technologies than set out in the IRA.
  • Clean Fuel Credits: The Section 45Z tax credit, established by the Inflation Reduction Act, provides a tax credit for the production and sale of low-emission transportation fuels, including biofuels. Both House and Senate proposals for reconciliation would extend 45Z tax credit through 2031 but vary on how to disincentivize foreign feedstocks. Under the House reconciliation bill, the credit could only apply to fuels made with feedstocks from the United States, Canada or Mexico. The Senate Finance version would cut the value of the credit by 20% if the fuel uses feedstocks grown outside the United States.

Farm Bill Provisions

House and Senate Republicans are largely in agreement on the farm bill provisions within their respective budget reconciliation proposals. A key difference is that the Senate bill lets farmers automatically receive the higher payment between the Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) programs, regardless of their original choice. USDA would calculate which program pays more for each farmer.

In contrast, the House bill requires a new signup for PLC and ARC this year. Additionally, the Senate bill allows producers to buy Supplemental Coverage Option insurance while still enrolling in ARC.

The Political Outlook

Republicans are racing to pass the reconciliation bill before the July 4 recess, putting pressure on Senate leaders to deliver a version acceptable to the House. But internal divisions are making that difficult.

All Senate Democrats have formally opposed the GOP’s fiscal package, and several Republican senators have also raised concerns. Senate Majority Leader John Thune (R-S.D.) is facing GOP pushback on multiple provisions, including the federal deficit, SALT deductions, and clean-energy incentives. With only three votes to spare, GOP leaders must navigate tensions between hardliners and moderates to secure the 51 votes needed.

House Republicans may also resist Senate changes, especially if the final bill exceeds the $4 trillion tax-cut cap. That could trigger opposition from deficit hawks demanding at least $1.5 trillion in spending cuts.

With slim majorities in both chambers and a tight deadline, GOP leaders face a tough path to getting the bill to President Trump by July 4.

Pinion’s government and public affairs and tax teams will continue to monitor developments around the proposed Senate bill language and its route to passage. Please reach out to a Pinion tax advisor with questions.