(Bloomberg) — Senate Republicans took a major step toward enacting President Donald Trump’s tax cut agenda and increasing the US debt ceiling, potentially injecting a small degree of certainty into financial markets roiled by the president’s tariff policies.
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The Senate early Saturday morning passed the budget resolution by a 51-48 margin after an overnight marathon of votes on amendments. Two Republican senators, Susan Collins of Maine and Rand Paul of Kentucky, joined all Democrats in opposing the budget resolution.
The measure allows congressional Republicans to craft legislation to extend Trump’s 2017 tax cuts for individuals and closely held businesses that expire at the end of 2025. Even so, spending cuts remain caught up in a lingering dispute between House and Senate GOP members.
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It also permits for $1.5 trillion in new tax cuts over a decade, and calls for a $5 trillion increase to the federal borrowing limit to avert the Treasury Department hitting the debt ceiling this summer.
The vote comes at a perilous moment for the economy after Trump unveiled tariffs on nearly every country this week, causing global stock markets to tumble and sparking fears of a worldwide recession.
Republicans have described the tax cuts — a proposed total of $5.3 trillion over 10 years in the Senate version and $4.5 trillion in the House’s — as the next phase of Trump’s two-part economic agenda after the tariffs. The president’s allies argue that a fresh round of levy reductions will boost markets and provide certainty for businesses to invest. However, it’s not clear if the scope of the tax package counter the tariff fears gripping investors.
Congressional Republicans say renewing the expiring portions of Trump’s first-term cuts are imperative to avert a tax hike on US households next year.
“A typical family of four making $80,000 a year would end up sending an additional $1,700 to the government next year,” Senate Majority Leader John Thune said.
The budget also calls for $150 billion in new funds for the military and $175 billion for immigration efforts, two top spending priorities for Trump, despite broader efforts to slash the federal workforce and budget.
Political Posturing
Democrats said the GOP plan will skew tax benefits toward affluent households, at a time economists say lower-and-middle class individuals are poised to bear the brunt of the price hikes from tariffs on imported goods.
“This is the Republican agenda, plain and simple: billionaires win, American families lose,” said Senate Minority Leader Chuck Schumer of New York.
The budget resolution heads to the House next week where Speaker Mike Johnson will be faced with the challenge of wrestling the measure through his fractious group of Republicans, where he can only afford to lose a handful of votes.
“I look forward to working with House leadership to finish this crucial first step and unlock legislation that strengthens our economic and fiscal foundations,” Treasury Secretary Scott Bessent, who was involved in developing the Senate plan, said in a statement.
Some fiscal hawks among House Republicans, including Kentucky’s Thomas Massie and Ralph Norman of South Carolina, have grumbled about the plan for not calling for enough spending cuts.
Texas Representative Chip Roy, a spending hawk and Freedom Caucus member, said he’d vote against the Senate budget if it were brought to the House floor. In contrast, the House version “establishes important guardrails to force Congress to pump the brakes on runaway spending,” he said on X.
The Senate budget resolution provides for at least $4 billion in spending reductions over a decade. That’s significantly lower than the $2 trillion target envisioned in an earlier House version.
Spending Squabble
“The Senate response was unserious and disappointing, creating $5.8 trillion in new costs and a mere $4 billion in enforceable cuts, less than one day’s worth of borrowing by the federal government,” House Budget Chairman Jodey Arrington of Texas said Saturday in a statement. He said he’ll work to ensure the final package has large spending cuts.
Senate leaders drastically scaled back the spending cut parameters after several Republicans warned that widespread reductions would likely harm benefits for their constituents, including Medicaid health coverage for low-income households and those with disabilities.
If the House rejects the Senate budget, a new compromise would need to be worked out between the two chambers before their can begin crafting the tax legislation.
Republicans have a series of hard — and potentially divisive — choices to make to squeeze their long list of tax cut proposals into the $1.5 trillion ceiling they set for themselves.
Senate Finance Committee Chairman Mike Crapo has said has received more than 200 requests for tax cuts to include in the bill.
Atop the list are several campaign trail pledges from Trump, who’s called for eliminating taxes on tipped wages and overtime pay. The president has also said he wants to create a new deduction for car buyers and seniors.
A group of House lawmakers have demanded an increase in the $10,000 cap on the state and local tax deduction, and most Senate Republicans back a repeal of the estate tax.
The budget also calls for using a gimmick to count the extension of Trump’s 2017 tax cuts — estimated to cost nearly $4 trillion — as $0 for official scoring purposes.
This decision will have to get the approval of the Senate parliamentarian before the legislation goes for a final vote, a risky gambit that could leave the GOP rushing at the last-minute to scrounge for offsets for the tax cuts.
Republicans agree on a relatively narrow universe of spending cuts to include in the legislation, including reductions to food stamps, Pell Grants and renewable energy subsidies.
The Trump administration is also weighing a handful of tax increases to offset the costs — a surprising development for a party that was once universally opposed any levy hikes.
Among the measures under consideration are introducing a new income tax bracket for those earning $1 million or more, rolling back the corporate state and local tax deduction, and repealing the carried interest break used by the hedge fund and private equity industries.
Lawmakers envision enacting the final tax package sometime between the May and August. As long as legislation adheres to the rules detailed in the budget resolution, it can pass with just Republican votes.
(Updates with Bessent statement in 13th paragraph.)
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