Senate Republicans Release Updated Tax Bill With 35% SALT Cap Increase

Senate Republicans released an updated draft of their comprehensive domestic package late Friday, aiming to bring it to the floor for voting starting Saturday. The push is to meet President Donald Trump’s July 4 deadline, but securing the necessary 50 votes remains uncertain. Despite efforts by Senate GOP leader John Thune to expedite floor action by Saturday afternoon, several Republican senators remain undecided.

Lindsey Graham, chair of the Budget Committee, published the revised text encompassing contributions from nearly every committee, except for the crucial Finance section. This section includes the overhaul of Medicaid and the rewritten tax plan, which were not finalized in time. The Finance Committee met with the Senate Parliamentarian late Friday night, but Graham’s team did not complete the final edits before releasing the text.

The new version of the bill reflects efforts to appease various factions within the Republican Party. Notably, Republicans retained a tentative deal on the State and Local Tax (SALT) deduction with the House, raising the cap from $10,000 to $40,000 for five years starting in 2025, before reverting back. After 2025, the cap increases by 1% each year. This deal followed internal disputes over preserving the tax break, which primarily benefits higher-income states. It is part of a broader $4.2 trillion tax cut proposal that Republicans aim to pass before the holiday to align with Trump’s economic agenda.

To address concerns from moderate senators, the bill now includes $25 billion for rural hospitals to mitigate Medicaid cuts. However, Senator Susan Collins from Maine deemed this amount insufficient, having advocated for $100 billion. Negotiators also introduced a one-year delay to the 3.5% cap on Medicaid provider taxes, moving the start date from 2031 to 2032. This tax maneuver allows states to receive more federal matching funds, benefiting those that have budgeted around it.

Another adjustment extends the hydrogen production tax credit through 2028 for any project starting construction before then. The previous version ended this credit in 2025, and energy lobbyists had advocated for its extension. Additionally, the bill includes language to raise the debt ceiling by $5 trillion, aiming to prevent a government default that could occur as early as August.

The updated text also confirms the GOP’s decision to eliminate tax credits for electric vehicles (EVs). The bill ends the $7,500 credit for new EVs and $4,000 for used EVs on September 30. The previous proposal allowed new car buyers 180 days and used car buyers 90 days after passage to claim the credit. Now, the phaseout is sooner and more definitive, also cutting lease deals for EVs that do not meet North American assembly requirements.

In contrast, the House GOP version maintains the new EV credit until the end of 2025, and through 2026 for automakers who haven’t sold 200,000 units yet. These differences could complicate reconciliation between the two chambers, especially if House Speaker Mike Johnson faces challenges in maintaining caucus unity when the bill comes up for final approval next week.

The Senate version also removes fines for automakers who do not meet federal fuel economy rules, known as Corporate Average Fuel Economy (CAFE) standards. This rollback aims to provide relief to automakers struggling to meet rising fuel targets set under the Biden administration. A provision that would have blocked federal judges from issuing nationwide injunctions unless a financial bond was posted was removed due to a ruling by the Senate Parliamentarian that it violated the Byrd Rule, which limits what can pass through reconciliation. However, the bill now includes funding for a government study on the cost of broad injunctions and training money to help agencies navigate legal delays caused by district court rulings affecting national policy.

The Senate text is still subject to further edits during debate, and leadership has indicated a willingness to amend the bill on the floor if necessary to secure votes. However, time is running short, and the final outcome remains uncertain.