Article | Tax alert

House approves sweeping tax reform, spending cuts bill; now heads to Senate

May 22, 2025 · Authored by Jessica L. Jeane

On the morning of May 22, 2025, the House of Representatives passed a sweeping reconciliation bill that includes major tax reform and spending cuts, some of which would become effective this year. By the narrowest of margins, the titled “One, Big, Beautiful Bill Act” now heads to the Senate after clearing the House by a 215-214 vote. While this is a major step forward in advancing the president’s agenda, it is critical to note that Senate Republican leadership has forewarned that the tax bill as currently drafted will require changes before it can pass the upper chamber. As the saying goes, beauty is in the eye of the beholder, and it remains to be seen just how beautiful the Senate views the House-approved bill.

As such, we expect further negotiations over the legislation’s more controversial provisions once the Senate returns from recess on June 2, such as the increase of the state and local tax (SALT) deduction, the repeal and phaseout of certain Inflation Reduction Act (IRA) credits, and Medicaid reforms, all of which could imperil overall prospects for passage given Republicans’ narrow majorities in Congress and competing priorities, as previously covered in detail in our Policy Pulse space. Senate leadership can only afford to lose three Republican votes to pass it's not-yet revised bill.

“The Senate’s focus will be permanency,” a senior Senate Republican aide told Baker Tilly on May 22. Notably, most of the business-favorable provisions are revived temporarily under the House bill. In that vein, Senate Finance Chair Mike Crapo (R-ID) has said his reconciliation objective is to make more of the tax cuts permanent.

As discussed in our recent tax alert, the legislation would make permanent several individual provisions enacted by the Tax Cuts and Jobs Act (TCJA) that are currently set to expire on Dec. 31, 2025. Additionally, the House-approved bill includes principal tax-related promises made by President Trump during his campaign to include deductions to offset the income tax on tips, overtime and Social Security income.

That said, a few noteworthy changes and clarifications introduced by way of a 42-page manager’s amendment to the original bill before its advancement include, but are not limited to:

• SALT cap: An increase to $40,000 for the SALT cap starting in 2025, with a phasedown for taxpayers making more than $500,000 a year. The income and deduction caps would increase by 1% each year through 2033 before staying the same thereafter.
• Pass-through entity tax note: The amendment does not change – yet clarifies – that pass-through entities that are considered a specified service trade or business under section 199A (i.e., businesses in the fields of health, law, accounting, consulting, etc.) are denied deductions for state and local income taxes incurred at the entity level and would be required to separately state these payments, essentially eliminating the benefit of these state workarounds for these businesses.
• Limitation on itemized deductions: Permanently removes the section 68 “Pease” limitation on itemized deductions and would implement a two-pronged phaseout.
• IRA: Accelerates the termination of the section 45Y clean electricity production credit and the section 48E clean electricity investment credit, ending the credits for any qualified facility not under construction within 60 days of the bill’s enactment or that is placed in service after the end of 2028. The zero-emission nuclear power production credit under section 45U would terminate after 2031.
• FDII/GILTI: The original bill would have extended the current law preferential rates on Global Intangible Low-Taxed Income (GILTI) and Foreign-Derived Intangible Income (FDII). The manager’s amendment changes the deduction for corporations as of 2026 to 49.2% of their GILTI and 36.5% of their FDII. 
• BEAT: The current law Base Erosion and Anti-Abuse Tax (BEAT) rate of 10% on modified taxable income would be increased to 10.1% as of 2026.

Stay tuned for additional tax insights, which will provide a closer look at industry-focused, key provisions of the House-approved bill. Please note, however, that we remain far from final legislation. As noted above, significant changes are anticipated in the Senate.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.