capital building

This Week:

The Senate confirmed several Trump administration nominees. The House passed a number of law enforcement related bills for “Police Week.” 

Next Week:

The Senate will continue to vote on Trump administration nominees and may consider stablecoin legislation. The House is expected to vote on the reconciliation package (see below).

The Lead

One Big Beautiful Bill Update.

House Republicans made progress this week in advancing aspects of their reconciliation package through certain committees. Most notably, the Ways and Means Committee approved all of the tax provisions, while the Energy and Commerce Committee approved controversial Medicaid cuts as a means of paying for some of the tax cuts. The next step is to package all of the tax and spending provisions into one large bill. House Republicans hope to pass that bill next week before they break for Memorial Day. However, they still face hurdles as Republicans from high tax states like New York and New Jersey look for more relief from the SALT deduction cap and some conservative Republicans criticize the bill for not having enough spending cuts. Specific provisions remain in flux as House Republicans try to build sufficient support for the package. A summary of the tax portion of the bill can be found . Below are some of the key tax provisions: 

  • Individual Rates: Permanent extension of current individual tax rates, including the 37% top ordinary income tax rate. There is an additional year (effective after December 31, 2025) of inflation adjustment for income bracket thresholds for rates below the top 37% rate.
  • Standard Deduction: Permanent extension of inflation-adjusted increased standard deductions.
  • SALT Deduction Cap: Increase to $30K with income limitations.
  • Child Tax Credit: Permanent extension of the increased $2,000 child tax credit, with a temporary increase to $2,500 from Dec. 31, 2024, to Dec. 31, 2028.
  • Small Business Deduction: Permanent extension and increase (from the current 20% deduction to 23%).
  • Estate Tax and Gift Tax Exemption: Permanent extension and increase, with an increase in unified estate and gift tax exemption to an inflation-adjusted $15 million effective after Dec. 31, 2025.
  • Bonus Depreciation: Property acquired and placed in service after Jan. 19, 2025, and before Jan. 1, 2030, would be entitled to full 100% bonus depreciation.
  • Research and Development: Reinstatement of immediate expensing for domestic R&D expenditures.
  • Opportunity Zones: A new round of Opportunity Zones to spur investment in undercapitalized communities with tax incentives.
  • Section 179 Expensing: Increase in the maximum amount a taxpayer may expense under Section 179 to $2.5 million. Increase of the phaseout threshold amount to $4 million.
  • Green Energy: The bill phases-out or cancels green energy tax credits from the Inflation Reduction Act (IRA).
  • No Tax on Tips and Overtime: Income tax deductions for tips and overtime compensation.
  • Tax Deduction for Seniors: An increase in the standard deduction by an additional $4,000 for seniors at the age of 65 and older.

China Truce.

This past weekend’s high-level meetings between the US and China yielded a temporary truce in the trade war that brought tariffs down from 145% to 30% for a 90-day period. This was an important development that effectively will allow trade between the two countries to resume (albeit at a still high level of tariffs) and will provide a runway for further negotiations on a bigger deal. This will not be easy. Across multiple administrations, the US has sought to have China make structural changes to its economy that China has resisted. China knows the US is unlikely to drop tariffs any lower and will want to proceed slowly. However, President Trump may become frustrated by the lack of results. While the Trump administration has had positive comments about China recently, China will be sensitive to the rhetoric coming out of the US and to any restrictions on China in deals the US strikes with other trade partners. Given the strategic competition between the US and China and bipartisan political concerns in the US about China, it will be much tougher for the Trump administration to declare victory (relative to its efforts to reach deals with other trading partners) on a preliminary deal with China that contains only minor concessions. Whether within or without the 90-day window, a resumption of trade tensions with China seems likely.

Reciprocal Efforts.

The US continues to have discussions with other trading partners as part of the 90-day pause on reciprocal tariffs. That pause is set to end on July 8th, and President Trump may look to the July 4th holiday as a point in which to celebrate any preliminary deals that have been reached. Given that these agreements are likely to be light on details, the development of actual trade agreements will need to extend well beyond the 90-day pause. The celebration of initial agreements with some trading partners may be juxtaposed with a ratcheting up of tariffs with other trading partners (if no agreement is reached). Indeed, the EU has been taking preparatory steps towards raising tariffs on select US goods if tariffs on EU goods go back to the reciprocal levels. Additionally, the Trump administration continues to lay the groundwork for sectoral tariffs (in areas like pharmaceuticals and semiconductors) that could be imposed in the coming weeks. The pause on reciprocal tariffs does not mean that heightened tariffs for some countries and some products won’t come back.

Other Issues

Stable Return.

Congress came into this year with a lot of pent-up interest in advancing crypto legislation into law. The committees of jurisdiction in both the Senate and House moved quickly in passing bipartisan bills to establish a regulatory framework for stablecoins (digital assets issued by private entities but backed by other assets including fiat currencies like the dollar). There was a setback last week when a vote on the stablecoin bill failed on the Senate floor. Since that time, there have been negotiations to address Democratic concerns about the bill by strengthening provisions on consumer protections, anti-money laundering and national security. A new provision also was added that would limit the ability of large tech companies to issue stablecoins. There is a tentative agreement at this point that could pave the way for the bill to pass next week. Stablecoin legislation could be one of precious few bipartisan wins this Congress.

Fentanyl.

Early in his administration, President Trump placed a total of 20% tariffs (10% in February and 10% in March) on China for having high amounts of trafficking in the chemical ingredients used to make fentanyl. In recent weeks, officials from China reached out to the Trump administration to clarify on how to address the fentanyl problem. This helped open the door for both countries to agree to meet in person this weekend on trade and other issues. This is not the first time the US and China have used addressing fentanyl as a means of de-escalation. In 2019, the Trump administration criticized China for the influx of fentanyl entering the US. China in turn banned the production of fentanyl in 2019 (the chemicals to make fentanyl are what is being trafficked out of China now). While the ice may be thawing on the gridlock between the two countries, the meetings this weekend mark a first step in a long and challenging road ahead.

Middle East Trip.

President Trump just completed a six-day trip abroad to Saudi Araba, Qatar and the United Arab Emirates. It was his first major foreign trip during his second term. The trip was accompanied by announcements of technology-oriented investments in the US by Persian Gulf states. Trump also announced the removal of sanctions on Syria. Additionally, he used a mixture of cajoling and pressuring to try to get Iran to come to a nuclear agreement with the US. Meanwhile, Russia and Ukraine were set to have their first direct negotiations since 2022, but Russian President Vladimir Putin refused to attend. Foreign trips can be an opportunity for presidents to showcase their command of issues of global importance. Beyond the handshaking and investment deals, the big question coming out of this trip is whether Trump can make any meaningful progress with Iran.

Parliamentarian Authority.

The Senate parliamentarian is an important position in Congress of which most people are unfamiliar. The parliamentarian holds no constitutional or legal authority but wields significant influence by interpreting Senate rules and guiding what legislation can proceed under fast-track procedures like budget reconciliation. That advisory role is about to grow even more consequential. As the House continues their work on advancing the reconciliation bill, Senate Republicans have been having conversations with the parliamentarian to try and gauge what may or may not be allowed under budget reconciliation rules. Both parties have had policies stripped out of their budget reconciliation bills over the decades. Much of what the Senate is able to accomplish will come down to quiet rulings from the parliamentarian, so be ready to see this obscure position referenced frequently in the coming months.

The Final Word

Who Wants to be a Senator? 

Georgia’s RepublicanGovernor Brian Kemp recently decided to pass on a Senate bid. He is a high-profile addition to a growing list. Governors Beshear (D-KY), Kelly (D-KS), Mills (D-ME), Sununu (R-NH), Walz (D-MN) and Whitmer (D-MI) all declined to make a bid for the Senate seat next year. While Democrats are hopeful they can entice Governor Cooper (D-NC) into running, he’s shown no signs that he will agree. While each governor has individual reasons for declining to run, this phenomenon is surprising. Governors have long been thought of as prized Senate candidates given their statewide name recognition and strong political bases. It historically has been common for governors to become Senators, so much so that the Senate has a Former Governors Caucus. Additionally, at least three sitting Senators (Bennett (D-CO), Blackburn (R-TN), and Tuberville (R-AL)) are either running for governor in their state or strongly considering it. Historically, becoming a governor was seen as a steppingstone to serving in the Senate and increasing their political profile, but that trend seems to be falling away as legislators have come to prioritize the autonomy of the governor’s mansion over the slow pace of the Senate.