02 June 2025

What to expect in Washington (June 2)

As Congress returns to session from the one-week Memorial Day recess, the focus remains on how the Senate will change the House-passed One Big, Beautiful Bill Act (OBBBA, H.R. 1), the GOP-only budget reconciliation bill to extend Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025 and cut mandatory spending, and how quickly they will act. The Administration has set a July 4 target for enactment of the bill, and the debt limit increase it would provide — or at least a temporary extension — likely needs to be in place before the August recess. Senator Kevin Cramer (R-ND) said in a Semafor report this morning that "I'm not sure the Fourth of July is a legitimate deadline" and the Senate should instead commit to getting the bill done by September 30.

Some provisions in the bill approved by the House May 22 may change because of member opposition. Inflation Reduction Act (IRA) rollbacks, which total more than $550 billion under the House-passed bill, have raised concerns among some Senate Republicans. "Senator Lisa Murkowski of Alaska said she's seeking to soften aggressive phaseouts of tax credits for clean electricity production and nuclear power," Bloomberg Government reported this morning. "She has the backing of at least three other Republicans, giving her enough leverage to make demands in a chamber where opposition from four GOP senators would kill the bill." Other provisions, including the TCJA extensions that are the centerpiece of the plan, may be changed because of the Senate Byrd Rule that sets strict revenue-related parameters for bills considered under the budget reconciliation process. The current policy baseline used by the Senate, which doesn't count the cost of TCJA extensions, has yet to be cleared by the Parliamentarian.

Still others may change because the Senate has more money to spend in its bill, in part because of the current policy baseline. Even prior to the recess, there was the expectation that the temporary, five-year extensions of TCJA pre-cliffs on bonus depreciation, IRC Section 163(j) interest deductibility, and IRC Section 174 R&D expensing could be made permanent by the Senate, which has $5.3 trillion in leeway for tax cuts under the budget resolution — $1.5 for tax cuts under the Finance Committee instruction, on top of the $3.8 trillion for TCJA extensions under the baseline — rather than the $4 trillion total the House afforded itself.

A story In the May 28 Washington Post said, "Sen. Mike Crapo (R-Idaho), who is playing a critical role in drafting the bill as chairman of the Finance Committee, said his top priority is making permanent several business tax breaks that the House bill would allow to expire after a few years." He previously said in a May 25 Punchbowl News report, "We're looking at the entire bill, and I'm not going to go through and say this is all the pieces that we may or may not fix. I'll say one thing, and that is I'm very confident that we will work to make permanence in the entire TCJA, including the business taxes that were not made permanent."

Senate Majority Leader John Thune (R-SD) said May 20 of differences between the House bill and what the Senate will produce: "I think one of the principal differences, at least right now, in some of the House versions that I've seen, and I can't speak because they haven't passed it yet, is they have cliffs in some shorter … timeframes when it comes to some of the tax policies. We believe that permanence is the way to create economic certainty and thereby attract and incentivize capital investment in this country that creates those good-paying jobs and gets our economy growing and expanding and generates more government revenue. So, there are different, you know, views about what the length of some of these tax policies ought to be, and we'll have an opportunity to be heard on that when it comes to the Senate."

On CBS This Week May 26, House Speaker Mike Johnson (R-LA) said Senators should want to vote for the bill with controversial revenue offsets including Medicaid changes because it's "an historic thing, once-in-a-generation legislation." In meeting with GOP Senators, Speaker Johnson said, "I encouraged them to make as few modifications as possible, remembering that I have a very delicate balance on our very diverse Republican caucus over in the House." On Meet the Press June 1, Speaker Johnson said the bill won't add to the deficit and will increase growth. "This is going to be jet fuel … We're incentivizing U.S. manufacturing again. We're bringing jobs back to the U.S. That's going to help everybody … " He also said, "This is not the only reconciliation bill. We're going to have a second budget reconciliation bill that follows after this … "

President Trump has weighed in on potential Senate changes, saying May 25: "I want the Senate and the senators to change, you know, to make the changes they want, and we'll go back to the House, and we'll see if we can get them. In some cases, those changes maybe are something I'd agree with, to be honest." He is set to urge Senators to resolve differences and pass the bill, as he did prior to the House vote. The Wall Street Journal (WSJ) reported June 1, "President Trump plans to push lawmakers on his tax-and-spending megabill this week as he tries to overcome GOP concerns about deficit spending … " The report said, "Trump is expected to amplify calls for Republican unity around what the party has branded the 'big, beautiful bill' and speak with [Senate Majority Leader Thune] about the next steps as lawmakers return from recess … "

Like IRA energy credit rollbacks, Medicaid changes have raised concerns among some Senate Republicans. Politico May 22 referenced the concerns of Senator Josh Hawley (R-MO) and said Senators Susan Collins (R-Maine) and Murkowski said they expected significant changes. "There are some things that we want to address on the Medicaid side that I think are challenging for us in Alaska," Senator Murkowski said.

Perhaps the Senator with the most overarching objections to the bill is Ron Johnson (R-WI), who said on CNN State of the Union May 26: "The first goal of our budget reconciliation process should be to reduce the deficit. This actually increases it … We should have immediately returned to a pre-pandemic level spending, but President Biden averaged $1.9 trillion of deficits over his four years … And, I'm sorry, the House bill would probably add, I have calculated $4 trillion." He called for a more deliberative approach: "Part of the problem here is, we have rushed this process. We haven't taken the time. We have done it the same old way … " He concluded, "I think we have enough to stop the process until the President gets serious about spending reduction and reducing the deficit."

Senator Rand Paul (R-KY) continues to oppose the major increase in the debt limit that the reconciliation bill includes. On Face the Nation June 1, Senator Paul said of like-minded members, "I think there are four of us at this point, and I would be very surprised if the bill at least is not modified in a good direction. Look, I want to vote for it. I'm for the tax cuts. I voted for the tax cuts before. I want the tax cuts to be permanent. But, at the same time, I don't want to raise the debt ceiling $5 trillion."

President Trump posted on social media May 31: "If Senator Rand Paul votes against our Great, Big, Beautiful Bill, he is voting for, along with the Radical Left Democrats, a 68% Tax Increase and, perhaps even more importantly, a first time ever default on U.S. Debt. Rand will be playing right into the hands of the Democrats, and the GREAT people of Kentucky will never forgive him! The GROWTH we are experiencing, plus some cost cutting later on, will solve ALL problems. America will be greater than ever before!"

Senator Ron Johnson said on Fox June 1 that he shared concerns about the debt ceiling. "I don't want to just do $5 trillion. I'm happy to give the president — increase the debt ceiling for one year so we can come back and get serious about returning to a pre-pandemic level of spending, because, right now, based on the House bill, it doesn't look like anybody is," he said.

Global tax - There has been significant attention on the House bill's new IRC Section 899, which would increase income tax and withholding tax rates and expand the application of the BEAT rules on foreign-parented groups, applicable to residents of countries with certain "unfair foreign taxes," including the undertaxed profits rule (UTPR), digital services tax (DST), and diverted profits tax (DPT). It would apply to inbound investors, including individuals, foreign governments, private foundations, trusts, and partnerships.

As an EY Alert noted, "the Report of the Committee on the Budget accompanying the House Bill includes footnotes on proposed IRC Section 899 that were not present in the earlier report from the Joint Committee on Taxation, which accompanied the original proposal. For example, one footnote explains that proposed IRC Section 899 would not apply to income that is explicitly excluded from the application of the specified tax because it would only increase the specified rates of tax. As an example, the footnote notes that the provision would not apply to portfolio interest that is excluded from the tax imposed on fixed or determinable annual or periodical gains, profits and income."

Semafor reported May 30, "Wall Street is alarmed by a tax provision in Trump's mammoth spending bill that targets foreign investors … Analysts are divided as to whether the clause will make it into law, given the bill's tight vote in the House and the prospect of changes in the Senate." The Economist said, "If enacted, this would render America all-but-uninvestable for many foreigners and clog up the supply of capital to American firms. Perversely, companies that had been successfully cajoled by tariffs into scaling-up their American operations would be punished with a surcharge on any cash they sent back to their headquarters overseas. Capital flight could cause bond-market tremors."

The WSJ said May 30: "The proposed change would give the U.S. power to impose new taxes of up to 20% on foreigners with U.S. investments, hitting governments, individuals and companies with U.S. outposts … The provision could reduce appetite for some U.S. assets and weigh on the dollar at a time when Trump's trade war and the country's budget deficit already have some investors rethinking their U.S. exposure." A subsequent WSJ editorial defended the provision: "Misunderstanding is now rife, but this isn't a catch-all protectionist provision. House tax writers are trying to deter foreign taxes arising from the global corporate-tax harmonization project devised by the Organization for Economic Cooperation and Development and endorsed by the Biden Administration."

The Financial Times reported that, "even if Treasuries were not directly taxed, Section 899 would represent another concern for international holders of US debt when many are wary of the country's gaping deficit and vacillating tariff policies."

Recently posted EY Alerts include:

  • "US House approves tax reconciliation bill, with minor rate changes in international tax provisions" (Tax Alert 2025-1143)
  • "Tax reconciliation bill passed by House could significantly affect individual taxpayers" (Tax Alert 2025-1161)

Trade — In a May 29 order, the US Court of Appeals for the Federal Circuit (CAFC) granted an immediate administrative stay that prevents a US Court of International Trade (CIT) decision from going into effect while the Trump Administration's appeal of the CIT decision is pending. Further, the CAFC temporarily reinstated certain US tariffs. On May 28, the US CIT ruled that Congress did not authorize the President with unbounded authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA) and halted certain tariffs enacted by the Trump Administration under the law.

An EY Alert, "Court of International Trade rules tariffs under International Emergency Economic Powers Act unlawful; appeals court temporarily reinstates tariffs as case proceeds," is available here.

Congress — The Senate is back today (Monday, June 2) with a vote at 5:30 p.m. related to the nomination of Michael Duffey to be Under Secretary of Defense for Acquisition and Sustainment.

The Senate Finance Committee has set a vote on the nomination of former Rep. Billy Long (R-MO) to be IRS Commissioner for Tuesday, June 3 at 9:30 a.m., immediately prior to a hearing to consider the nominations of Joseph Barloon to be a Deputy United States Trade Representative, with the rank of Ambassador; Janet Dhillon to be Director of the Pension Benefit Guaranty Corporation; and Brian Morrissey, Jr. to be General Counsel for the Department of the Treasury.

The House is back on Tuesday, June 3, with suspension votes on bills under the jurisdiction of the Oversight and Accountability Committee and Small Business Committee. Later in the week are votes on measures including an Energy and Commerce Committee bill, the SUPPORT for Patients and Communities Reauthorization Act (H.R. 2483).

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Contact Information

For additional information concerning this Alert, please contact:

Washington Council Ernst & Young

Document ID: 2025-1168