Revised Senate GOP Tax Bill: Debt Ceiling Raised to $5 Trillion, Tax Breaks Expanded

TradingKey - On Monday, U.S. Senate Republicans unveiled a revised version of President Trump's multi-trillion-dollar economic plan, focusing on tax and healthcare provisions. This latest iteration expands certain tax breaks and raises the debt ceiling to $5 trillion, permanently enacting three corporate tax breaks, though it leaves the State and Local Tax Deduction (SALT) unresolved.

Debt Default Looms as Senate Seeks Quick Passage

The revised version proposes a $5 trillion increase in the debt ceiling, compared to the $4 trillion cap approved by the House. Reports indicate that the revised bill largely mirrors the framework of the House version, as Senate Republican leaders aim to expedite the legislative process without getting bogged down in substantive negotiations.

The Congressional Budget Office (CBO) had warned as early as June 9 that without an increased debt ceiling, the U.S. government's ability to borrow using "extraordinary measures" could be exhausted between mid-August and the end of September. Should the Treasury be unable to employ these unconventional debt limit measures, the U.S. might face the risk of a default. Senate Republican leaders anticipate a vote on the bill will occur next week.

Permanent Corporate Tax Breaks to Benefit Specific Industries

A major change in the new version is the permanent extension of three corporate tax breaks that were originally set to expire in 2029. That includes the research and development deduction, a provision expanding debt interest writeoffs and expensing for new equipment, including most machinery and factories. 

The reform of interest expense deductions is expected to benefit banks, while research-heavy sectors like pharmaceuticals and information technology, will gain from the longer research and development break. 

The new bill also introduces several additional tax cuts, including Trump's campaign promise to eliminate taxes on tips and overtime pay.

Analysts suggest that advancing the bill under the current timeline remains a formidable challenge.

Discrepancies Remain as SALT Deduction Cap Negotiations Continue

The draft lacks an agreement on SALT deductions. According to Financial Times, the Senate version of the bill does not propose raising the SALT deduction cap, which is currently at $10,000. This omission could impede the bill's passage.

In stark contrast, the House version proposed raising the cap to $40,000 annually. If this version were enacted, homeowners in high-tax states like New York, New Jersey, and California would receive significant tax relief, as these states bear some of the highest property taxes in the nation.

Senate Finance Committee Chairman Mike Crapo and other Republican senators have pushed to lower the $40,000 cap in the House version. However, representatives from high-tax states have vowed to oppose the bill if the SALT deduction cap is reduced.