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The Senate Finance Committee released the text of its critical portion of the Big Beautiful Bill late Monday afternoon. The big thing to note is that the Senate does pick fights with two motivated House factions: the “SALT Caucus” that wants bigger tax breaks for high-income earners who deduct state and local taxes, and the Freedom Caucus that wants quicker phaseouts for clean-energy tax credits. But in the health care title, the bill actually got worse, and will be more immiserating for patients, hospitals, and states, particularly blue states.
Here’s what we know so far while we continue to dig into it:
Health care: As we reported on Monday, the brief flirtation with tackling the biggest source of waste and fraud in the entire health care budget, Medicare Advantage overpayments, was quickly extinguished. Instead, we have a health care title that, against all expectations, is actually worse on net than the House version.
The only Medicare policy change is a limitation on coverage for certain immigrants. (Specifically: refugees, aliens granted asylum, aliens granted parole for at least one year, abused spouses, victims of trafficking, and Haitian entrants. Cuban entrants, in a nod to Cuban Republicans, still get coverage.) Other House provisions that cost money, like inflation adjustments on doctor reimbursements, and the Accelerating Kids’ Access to Care Act, were stripped out. In addition, all the health savings account (HSA) changes that the House put in to allow older workers and some Medicare recipients to gain the tax advantage were stripped by the Senate.
One positive here: The “orphan cures” provision, an attempt to hobble the Medicare price negotiation process established in the 2022 Inflation Reduction Act by exempting certain expensive classes of drugs from negotiations, was also removed. This means that price negotiations will have fewer restrictions from going after high-cost drugs.
On Medicaid, the two major differences with the House version will lead to fewer resources for states to administer their programs. The House had already limited the Medicaid provider tax, a gimmick that 49 states use to generate more federal funding. It’s complicated, but generally speaking it works like this: States tax health providers like clinics and hospitals, but then cover the tax through higher Medicaid reimbursements. But states don’t pay all of that reimbursement; they get a large share from the federal government. So it’s a way for states to get more federal dollars into their systems.
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The House version mostly prohibited further rate expansions and new provider taxes. But the Senate version would actually cap the rate of provider taxes over time by reducing them by 0.5 percent per year starting in 2027, with an eventual cap at 3.5 percent by 2031. That would cut federal Medicaid dollars coming into the states, bit by bit over time.
There are two important caveats to this. First, nursing homes would be exempt, so states could maintain nursing home provider taxes at the same rates. (It’s not entirely clear, according to sources familiar, whether nursing homes would be exempt from all provider tax provisions or just this phased reduction.) Perhaps more important, the ten states that did not expand Medicaid would not have the rate cap; instead, their provider taxes would be frozen at current rates, like in the House version.
This is a huge benefit for those ten non-expansion states (Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin, and Wyoming) that denied some of their poorest citizens access to health coverage. They will maintain current rates for the provider tax while the other 39 states will see them cut. As it happens, some of those states, like Alabama, Mississippi, South Carolina, and Tennessee, are among the biggest users of Medicaid provider taxes.
Non-expansion states also get a better deal from a change to so-called “state-directed payment” (SDP) arrangements. These are reimbursements from the federal government to states that agree to pay higher reimbursement prices to providers to treat Medicaid patients. Without these arrangements, Medicaid patients are the most unattractive for providers since the rates are so low, making it hard to find a doctor who will accept the insurance.
Most SDPs allow states to pay at commercial insurance rates; the federal government just approved SDPs for 15 states that amount to a $9 billion bonus for Medicaid. But in the Senate version of the bill, existing SDP reimbursements would be cut by 10 percent every year until they reduce to Medicare rates. Once again, this will reduce the amount that the government pays to states. But non-expansion states get their SDPs capped at 110 percent of Medicare rates, a little added boost.
So what does this all mean? Outside of nine conservative states (plus Wisconsin, which until recently had a locked-in conservative legislature) where the Senate is exhibiting rampant bias, the Senate bill deprives states of resources to manage their Medicaid programs. None of the other cuts to Medicaid in the House bill—the added work requirements, changes to enrollment procedures, premium increases and co-payments for Medicaid patients, repeal of the safe staffing rule for nursing homes, slashes to the Medicare Savings Program that allows poor recipients to cover medical costs, and more—were changed by the Senate, despite claims of “concern” by Sens. Josh Hawley (R-MO), Jim Justice (R-WV), Shelley Moore Capito (R-WV), and others.
All they did in the Senate was make the bill worse for states, worse for patients as states react by cutting programs back, and worse for hospitals as they lose more and more insured patients. The coverage losses will likely be worse than in the House, which also means more people will die as a result of the Senate’s actions.
SALT: One of the big mysteries is how the Senate would treat the state and local tax deduction, something that’s a huge red line for certain House members from high-tax states. The House raised the cap for deductions from $10,000 to $40,000 for everyone earning $500,000 a year or less. (To be clear, only relatively well-off people itemize and therefore take this deduction; SALT is a regressive tax cut that primarily benefits high-income people.)
The Senate rolled that cap all the way back to $10,000. But that is a “placeholder” as negotiations between the House and the Senate go forward. The section-by-section language in the bill says explicitly, “Notwithstanding this extension, the amount of the individual SALT cap is the subject of continuing negotiations.”
House Republicans from New York, California, and New Jersey have vowed to tank the bill over this provision, and have yet to back down.
Clean energy: The Senate opted for a longer phaseout of clean-energy production tax credits from the IRA. For solar and wind, the phaseout begins in 2026 and doesn’t fully phase out until 2028. For other technologies like hydropower, nuclear, and geothermal, the phaseout doesn’t start until 2034, and fully phases out by 2036. The advanced manufacturing tax credit for producers of clean-energy components actually got extended in the Senate version, though makers of wind components will lose the tax credits early.
The bill also ends the solar and wind leasing credit for residential customers, which was a key financing mechanism for rooftop solar, for example. And the “foreign entity of concern” provisions, which would restrict access to tax credits for any facility where construction starts in 2026 or later that includes a certain threshold of “material assistance” from foreign entities like China, were retained in this draft, although it’s much weaker than the House version, which nixed the tax credits for virtually any use of materials from China.
The problem for the Senate is that tighter tax credit phaseout timelines, which required facilities to be under construction within 60 days of the enactment of the bill in the House version, was the main policy win for the House Freedom Caucus, which wants every scrap of clean-energy tax credits to be rolled back as soon as possible. So that now creates a real impasse between the chambers, with the added complication of the 13 House Republicans who called for a longer phaseout recently.
In a bit of a surprise, the Finance Committee removed the electric-vehicle and hybrid “car tax” that was intended to have owners of those vehicles who didn’t consume as much (or any) gas pay into the Highway Trust Fund.
Taxes: On the tax side, the bill looks broadly similar to the House version: The 2017 Trump tax cuts are extended and made permanent, new tax cuts on tips and overtime and auto loan interest are included, estate tax exemptions are even higher for inherited wealth, and a tax break for seniors is added. But there are some changes.
For example, the House raised the Child Tax Credit, which was at risk of falling to just $1,000, to $2,500. The Senate inched that back to $2,200. Both bills exclude the lowest-income families by including a phase-in, but only the House bill excludes families from taking the credit unless both parents have a Social Security number; only one parent must have an SSN in the Senate version.
The Senate also capped the deductions for no taxes on tips and overtime, limiting the benefit to the first $25,000 of tips per person and the first $12,500 (or $25,000 for married couples) on overtime.
The increase in the standard deduction for seniors, which is the Republican version of “no tax on Social Security benefits” for this bill, because in budget reconciliation you can’t actually make any changes to Social Security, is larger in the Senate version, up to a $6,000 increase. This doesn’t cleanly map onto Social Security taxes, as some people who get this new deduction won’t be collecting Social Security, and some people who collect Social Security won’t get the deduction.
A tax on university endowments that matched the top rate to the 21 percent corporate tax rate in the House was lowered in the Senate so that the top rate is just 8 percent. A tax on charitable foundations was removed by the Senate. The so-called “revenge tax” on foreign countries that allegedly “discriminate” against the U.S. was limited in implementation but is largely the same functionally in the Senate bill.
The big thing that the Senate wanted was making three major business tax deductions permanent, as we discussed on Monday. They got that, instead of the five-year extension in the House version.
Extra tax breaks for pass-through income that were in the House bill appear to be out of the Senate bill. A special tax break for primarily one hedge fund headquartered in the U.S. Virgin Islands has also fallen out of the bill, although in that section of the bill text it merely says, “[Reserved].”
We want to hear from you. If you’re a Hill staffer, policymaker, or subject-matter expert with something to say about the Big Beautiful Bill, or if there’s something in the legislation you want us to report about, write us at info(at)prospect.org.
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