Senate lawmakers have changed language in the One Big Beautiful Bill Act that would have caused a tax hike for lawyers, accountants, dentists, and other service providers.
The late change will please many business allies of the GOP. But it will raise the cost to the Treasury of the Senate bill by $37 billion.
The House was trying to protect the SALT cap from being bypassed through workarounds used by businesses that file through the individual side of the tax code — also known as “pass-through” businesses.
Specifically, the House planned to limit deductions for state-level pass-through entity taxes, or PTETs, which many states implemented to help business owners bypass the $10,000 SALT deduction cap, imposed by the Republican 2017 Tax Cuts and Jobs Act.
However, the limitation only applies to businesses singled out by the 2017 law as primarily service providers — dentists, lawyers, brokers, accountants, and others. It does not apply to pass-through manufacturers, design firms, and others.
Still, the situation is complicated because the House bill quadrupled the SALT cap to $40,000, which should benefit most pass-throughs. Notably, the Senate agreed to keep that $40,000 cap in place, with some changes.
Lawyers and accountants were crying foul over the House provision, and are sure to be cheering the Senate moving to excise it. Sen. Steve Daines (R-MT) said Friday that he supported the change from the House bill.
“I prefer to see fewer examples of picking winners and losers,” Daines told the Washington Examiner. “And in that case, it’s making it less restrictive for other, call it legitimate pass-through type businesses.”
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But the move is another wrinkle for House and Senate deficit hawks who have been pushing for bigger spending cuts in the One Big Beautiful Bill Act, as well as other cost reductions and efficiencies. The Joint Committee on Taxation estimated the House provision would have raised just over $37 billion in 10 years.
The Senate is now faced with passing the tax cuts and spending legislation in what will likely be a marathon of debate and amendment votes. House Speaker Mike Johnson (R-LA) will then have to shepherd the legislation through the House once again for a vote.
