Senate passes Trump’s big tax and spending cuts bill as Vance breaks a 50-50 tie
U.S. Senate Republicans passed President Donald Trump's massive tax-cut and spending bill on Tuesday by the narrowest of margins, advancing a package that would slash taxes, reduce social safety net programs, and boost military and immigration enforcement spending while adding $3.3 trillion to the national debt.
The legislation now heads to the House of Representatives for possible final approval, though a handful of Republicans there have already voiced opposition to some of the Senate provisions.
Trump wants to sign it into law by the July 4 Independence Day holiday, and House Speaker Mike Johnson said he aimed to meet that deadline.
The measure would extend Trump's 2017 tax cuts, give new tax breaks for income from tips and overtime pay, and increase spending on the military and immigration enforcement. It also would cut about $930 billion of spending on the Medicaid health program and food aid for low-income Americans and repeal many of Democratic former President Joe Biden's green-energy incentives.
The legislation, which has exposed Republican divides over the nation's fast-growing $36.2 trillion debt, would raise the federal government's self-imposed debt ceiling by $5 trillion. Congress must raise the cap in the coming months or risk a devastating default.
The Senate passed the measure in a 51-50 vote with Vice President JD Vance breaking a tie after three Republicans - Thom Tillis of North Carolina, Susan Collins of Maine, and Rand Paul of Kentucky - joined all 47 Democrats in voting against the bill.
The vote followed an all-night debate in which Republicans grappled with the bill's price tag and its impact on the U.S. healthcare system.
Much of the late horse-trading was aimed at winning over Republican Senator Lisa Murkowski of Alaska, who had signaled she would vote against the bill without significant alterations.
The final Senate bill included two provisions that helped secure her vote: one that sends more food-aid funding to Alaska and several other states and another that provides $50 billion to help rural hospitals cope with the sweeping cuts to Medicaid.
'NOT FISCAL RESPONSIBILITY'
The vote in the House, where Republicans hold a 220-212 majority, is likely to be close.
Johnson, the House speaker, said during an interview with Fox News' Sean Hannity that Republican leadership would seek to move the legislation through the Rules Committee on Wednesday morning and get it before the entire House before Friday's holiday, unless travel plans were upset by thunderstorms that have menaced the Washington area.
"Hopefully we're voting on this by tomorrow or Thursday at the latest, depending on the weather delays and travel and all the rest - that's the wild card that we can't control," Johnson said.
A White House official told reporters that Trump would be "deeply involved" in pushing House Republicans to approve the bill.
"It's a great bill. There is something for everyone," Trump said at an event in Florida on Tuesday. "And I think it's going to go very nicely in the House."
Item 1 of 11 People pass by the National Debt Clock in New York City, U.S., July 1, 2025. REUTERS/Brendan McDermid
An initial version passed with only two votes to spare in May, and several House Republicans have said they do not support the Senate version, which the nonpartisan Congressional Budget Office estimates will add $800 billion more to the national debt than the House version.
Republicans have struggled to balance conservatives' demands for deeper spending cuts to reduce the impact on the deficit with moderate lawmakers' concerns that the Medicaid cuts could hurt their constituents, including service cutbacks in rural areas.
The House Freedom Caucus, a group of hardline conservatives who repeatedly threatened to withhold their support for the tax bill, has criticized the Senate version's price tag.
"There's a significant number who are concerned," Republican Representative Chip Roy, a member of the Freedom Caucus, said of the Senate bill.
A group of more moderate House Republicans, especially those who represent lower-income areas, have objected to the steeper Medicaid cuts in the Senate’s plan.
Meanwhile, Republicans have faced separate concerns from a handful of House Republicans from high-tax states, including New York, New Jersey, and California, who have demanded a larger tax break for state and local tax payments.
The legislation has also drawn criticism from billionaire Elon Musk, the former Trump ally who has railed against the bill's enormous cost and vowed to back challengers to Republican lawmakers in next year's midterm elections.
House Democrats are expected to remain unanimously opposed to the bill.
"This is the largest assault on American healthcare in history," House Democratic Leader Hakeem Jeffries told reporters. "It's the largest assault on nutrition in American history."
The Senate bill would deliver some of its biggest benefits to the top 1% of U.S. households, earning $663,000 or more in 2025, according to the Tax Foundation. These high earners would gain the most from the bill’s tax cuts, the CBO has said.
Independent analysts have said the bill's tightening of eligibility for food and health safety net programs would effectively reduce poor Americans' incomes and increase their costs for food and healthcare. The nonpartisan Congressional Budget Office forecast that nearly 12 million more people would become uninsured under the Senate plan.
The bill's increase in the national debt effectively serves as a wealth transfer from younger to older Americans, nonpartisan analysts have said.
Senate Democratic Leader Chuck Schumer said the vote "covered this chamber in shame," adding that the bill would be "ripping health care away from millions of Americans, taking the food out of the mouths of hungry kids."
Republicans rejected the cost estimate generated by the CBO's longstanding methodology and have argued the Medicaid cuts would only root out "waste, fraud, and abuse" from the system.
The U.S. Senate's massive budget bill that passed on Tuesday will make it harder to develop wind and solar energy projects, despite the removal of some contentious provisions, industry advocates and lawmakers said.
The Senate dropped a proposed excise tax on solar and wind energy projects that don't meet strict standards after last-minute negotiations with key Republican senators seeking better terms for renewables.
Iowa Senator Joni Ernst, fellow Iowa Senator Chuck Grassley, and Alaska Senator Lisa Murkowski, whose votes were crucial to the bill's passage, had introduced an amendment calling for the removal of that tax, which caught lawmakers by surprise after it made it into the last draft text.
Many Republican states host large renewable energy industries.
The Senate also changed language about which solar and wind projects can use the 2022 Inflation Reduction Act’s tax credits. In the Senate's final version, projects will be able to use the lucrative credits if they begin construction before 2026. A previous version was based on when the projects entered service.
But overall, the Senate bill will make it too challenging to move forward with many new wind and solar energy projects, likely depriving the United States of added electricity capacity at a time of soaring energy demand, critics said.
That could mean higher consumer bills and lost jobs around the country at project sites dependent on the credits.
"Senate Republicans just voted to trigger the largest spike in utility bills in American history," said Lena Moffitt, executive director at climate advocacy group Evergreen Action.
The Trump administration has brushed off criticism of the bill's aggressive phase-out of renewable energy tax credit and its impact on grid stability and power prices, saying that ending these subsidies will pave the way for preferred baseload energy like gas and nuclear.
"The One Big Beautiful Bill removes the nonsense and distortions from energy markets and unleashes American business to produce energy that works WITHOUT subsidies!" Energy Secretary Chris Wright said on X.
Research firm C2ES estimated that the United States will lose 2.3 million jobs as a result of the bill.
Another research firm, Energy Innovation, projected that the bill would result in a fall of 300 GW of electricity capacity at a time of soaring demand due to data center and AI growth.
The Senate bill effectively phases out renewable energy tax credits after 2026 if projects haven't started construction. Otherwise, wind and solar projects whose construction starts after that must be placed in service by the end of 2027.
Community solar project developers warned that the bill would stop in their tracks thousands of projects already under development.
"This bill will strand thousands of energy projects under development, jeopardize billions of dollars in private investment, and kill hundreds of thousands of good-paying American jobs — from electricians to contractors to local landowners and farmers who rely on these projects for stability," said Jeff Cramer, president of the Coalition for Community Solar Access.
Meanwhile, the bill included a new tax credit for coal used in steel making that had been typically available only for critical minerals used in weapons making and green energy.
Opponents said that could lead to hundreds of millions of dollars in subsidies for an industry that has suffered in recent years.
Heather Reams, president of conservative clean energy group Citizens for Responsible Energy Solutions, praised the bill for preserving tax credits to boost hydrogen, nuclear energy, geothermal, and hydropower, as well as carbon capture technologies.
But she urged House lawmakers to try to make the wind and solar tax credits more usable.
“As this bill moves back to the House, we encourage members to maintain their support for these critical tax provisions, which bolster domestic energy generation to secure true American energy dominance,” she said.
The Republican-led U.S. Senate voted overwhelmingly on Tuesday to remove a 10-year federal moratorium on state regulation of artificial intelligence from President Trump's sweeping tax-cut and spending bill.
Lawmakers voted 99-1 to strike the ban from the bill by adopting an amendment offered by Republican Senator Marsha Blackburn. The action came during a marathon session known as a "vote-a-rama," in which lawmakers offered numerous amendments to the legislation that Republicans eventually hope to pass.
Republican Senator Thom Tillis was the lone lawmaker who voted to retain the ban. The Senate later passed the tax bill on a 51-50 vote.
The Senate version of Trump's legislation would have only restricted states regulating AI from tapping a new $500 million fund to support AI infrastructure.
Major AI companies, including Alphabet's Google (GOOGL.O), open new tab and OpenAI, have expressed support for Congress taking AI regulation out of the hands of states to free innovation from a panoply of differing requirements.
Item 1 of 3 The U.S Capitol and an office are reflected in a window inside the Hart Senate Office Building as Republican lawmakers struggle to pass U.S. President Donald Trump's sweeping spending and tax bill, on Capitol Hill in Washington, D.C., U.S., July 1, 2025. REUTERS/Nathan Howard
[1/3]The U.S Capitol and an office are reflected in a window inside the Hart Senate Office Building as Republican lawmakers struggle to pass U.S. President Donald Trump's sweeping spending and tax bill, on Capitol Hill in Washington, D.C., U.S., July 1, 2025. REUTERS/Nathan Howard Purchase Licensing Rights, opens new tab
Senator Maria Cantwell, the top Democrat on the Commerce Committee, praised the vote, saying "We can't just run over good state consumer protection laws. States can fight robocalls, deepfakes, and provide safe autonomous vehicle laws."
A group of 17 Republican governors had urged Congress to abandon the moratorium.
"We will now be able to protect our kids from the harms of completely unregulated AI," said Arkansas Governor Sarah Huckabee Sanders.
Blackburn presented her amendment to strike the provision a day after agreeing to compromise language with Senate Commerce Committee chair Ted Cruz that would have cut the ban to five years and allowed states to regulate issues such as protecting artists' voices or child online safety if they did not impose an "undue or disproportionate burden" on AI.
But Blackburn withdrew her support for the compromise before the amendment vote.
"Until Congress passes federally preemptive legislation like the Kids Online Safety Act and an online privacy framework, we can't block states from making laws that protect their citizens," the Tennessee Republican said.
There has been much discussion of the so-called "Trump put" for equities, but perhaps more attention should be paid to the administration's effective "Treasury Put".
Given the high U.S. public debt burden, the government must keep interest rates under control, and that appears to be the primary motivation for the Trump administration's recent push to relax a key bank regulatory requirement.
A line chart showing the growth of interest payments on US federal debt from 1980 to the present
U.S. Treasury Secretary Scott Bessent, on May 27, discussed progress made to relax the Supplementary Leverage Ratio (SLR) requirement for U.S. banks.
The SLR was introduced in early 2018 as part of the Basel III bank regulations to help ensure large banks hold sufficient capital. The SLR is a second layer on top of the normal capital requirement, which is why it is considered "supplementary".
What is special about the SLR is that banks' holdings of Treasuries incur a capital charge, in contrast to the normal capital requirement, which assigns government bonds a zero-weighting for risk purposes.
Based on the current SLR, large banks in the U.S. are charged a 5% capital fee, while smaller banks are charged 3%.
NECESSARY REFORM
It is widely accepted that the SLR needs to be relaxed because it appears to be hurting large banks' ability and capacity to provide market liquidity, a particular concern given how much Treasury issuance has exploded since the pandemic.
Outstanding U.S. Treasuries, including those held by the Federal Reserve, rose from 100% of GDP before 2020 to around 120% now, exacerbating the disconnect between supply and demand.
Fed Chair Jay Powell has weighed in, commenting in February 2025, "The amount of Treasuries has grown much faster than the intermediation capacity has grown, and one obvious thing to do is to lower the bindingness of (the SLR)."
Chart depicting growing treasury market
The Trump administration is supporting efforts to do just that, with an agreement to relax the SLR expected this summer.
COST CONTROL
Even though SLR reform is intended to improve liquidity and thereby support bank lending and economic growth, one of the Trump administration's other key motivations is clearly keeping a lid on government borrowing costs.
Treasury Secretary Bessent indicated as much in his May 27 interview, stating that relaxing the SLR could "bring yields down by tens of basis points."
With the caveat that it is very difficult to estimate the yield impact of SLR reform econometrically, there's reason to believe that Secretary Bessent could be right.
A line chart titled "US 10-year Treasury yield" that tracks the metric over time.
Reducing the SLR should, in theory, lower yields by boosting bank demand for Treasuries. Market estimates suggest that a one percentage point SLR reduction could lower the 10-year Treasury yield by 10-50 basis points, depending on the circumstances.
Based on this estimate, dropping the SLR charge by two percentage points – a likely reform – could double that. Based on that assumption, we would expect to see a 0.50 percentage point reduction in the 10-year yield, which is consistent with Secretary Bessent's statement of "a few tenths of a percent".
'BOND PUT'
The Trump administration is keeping a close eye on the bond market. Secretary Bessent has long been clear that getting the U.S. fiscal deficit under control is one of his top priorities, but this will be difficult to achieve if interest rates are too high relative to economic growth.
The Secretary's repeated references to a relatively obscure issue like SLR relaxation and its potential impact on Treasury yields only highlight this focus.
Importantly, this is not just a matter of watching out for bond market ructions, which any administration would do. It's about taking action to try to keep yields down.
In other words, there is more likely to be a Trump "bond put" rather than a Trump "equity put". Or to put it another way, the strike price on the former is likely to be a lot higher.
LOOKING FORWARD
Given the Trump administration's focus on the bond market and recent trends in U.S. inflation and economic activity, it is reasonable to assume that the 10-year U.S. Treasury yield could trade below 4.00% in the fourth quarter, down from its current level around 4.30%.
While yields remain elevated, likely because of perceived fiscal risks, a prospective relaxation of the SLR could have the opposite effect by boosting demand for U.S. government bonds.
To be sure, other economic, geopolitical, or market factors could complicate this scenario.
But if we do see lower bond yields, this should support risk assets and be negative for the dollar, and, perhaps most importantly, it may buy more time for the U.S. to deal with its fiscal challenges.
(The views expressed here are those of Stephen Jen, the CEO and co-CIO of Eurizon SLJ asset management).
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