capital building

This Week:

The Senate confirmed several Trump administration nominees and passed legislation to establish a regulatory framework for stablecoins (see below). It also passed a resolution urging all television providers, including streaming services, to carry C-SPAN. The House was out of session.

Next Week:

The Senate will continue to confirm Trump administration nominees and plans to vote on a reconciliation package (see below). The House will vote on two immigration enforcement bills and a resolution condemning the riots in Los Angeles this month. It will also vote on the Military Construction-Veterans Affairs spending bill for fiscal year 2026.

The Lead

Reconciliation Update.

The Senate Finance Committee this week released the largest portion of the “One Big, Beautiful Bill,” covering taxes, Medicaid and other important areas. Senate Republicans plan to bring the bill to the floor next week with the goal of passing the bill before July 4th. The bill still would need to go back to the House. We highlight some key provisions in the Senate’s bill below.

  • Senate Parliamentarian. As we have noted, the Senate is able to pass a reconciliation bill with only a simple majority (without meeting the 60-vote procedural threshold applicable to most legislation), but there are restrictions on what can be part of a reconciliation package. A key hurdle that any reconciliation bill must pass is known as the “Byrd bath.” Named after former Senator Robert Byrd (D-WV), this is the process in which the Senate Parliamentarian scrubs the bill for “extraneous” provisions that don’t have a primary budgetary purpose. Elizabeth MacDonough, the Senate Parliamentarian, is not a household name, but she wields considerable power in this process. She has started to make decisions on specific provisions in the bill and we will continue to hear about her rulings throughout next week. During the consideration of the reconciliation bill passed by Democrats in 2022, she ruled that a provision to increase the minimum wage to $15 an hour was not in order. For this bill, she already has ruled against provisions to dramatically cut funding for certain federal agencies, including the Consumer Financial Protection Bureau. We are also watching a proposal that would ban state regulation of AI for ten years. The Parliamentarian’s rulings in the coming days will determine whether significant provisions remain in or are stripped out of the reconciliation bill.
  • State and Local Tax Deduction. The Senate draft keeps in place the current $10,000 cap for the state and local tax (SALT) deduction. Senate Republicans acknowledge that this is just a placeholder for negotiations, but the move has drawn the ire of House members from high tax states (including New York, New Jersey and California). They had fought hard to increase the SALT cap to $40,000 in the House bill (with a phase-out for those with incomes over $500,000) and have signaled that they will oppose the Senate bill if it lowers the deduction below that level. This issue will continue to be one of the thorniest in the bill. While Republican Senators do not want to increase the cap, they understand that it must be increased for this bill to become law. It remains unclear exactly where the cap will land at the end of this process. However, the cap will need to be substantially higher than today’s $10,000 cap, though the higher it goes, the stricter the income limitation will be.
  • Business Taxes. The Senate bill makes a number of changes to the House bill on tax provisions important to businesses. The small business deduction is made permanent under the Senate bill, but it is slightly less generous (20% deduction versus a 23% deduction in the House bill). The Senate version also permanently extends expensing for research and development, which is important to a number of sectors, including defense and pharmaceuticals. Also, there is a permanent extension of 100% bonus depreciation for business investments in machinery, equipment and other short-lived assets. As with any bill of this size, there are a number of moving parts. Generally speaking, business did well.
  • Trump Priorities. On the campaign trail, President Trump made pledges on no taxes on tips, no taxes on overtime wages and a tax cut for seniors. With prodding from President Trump, both the House and Senate versions have relevant provisions. However, there are some differences between the two bills. For example, the Senate bill is more generous to seniors with a $6,000 deduction that begins to phase out at an income of $75,000 ($150,000 for married couples). The Senate did not agree to all of President Trump’s priorities. For example, the Senate bill does not have a change to the tax treatment of carried interest that President Trump wanted. President Trump was involved in the process and the final bill is likely to include several of his campaign promises.

Other Issues

Stable Passage.

The Senate early this week finally passed its bill to establish a regulatory framework for stablecoins (digital assets issued by private entities but backed by other assets including fiat currencies like the dollar). It was able to do this after successfully sidestepping votes on controversial amendments (including one aimed at credit card interchange fees that banks argue would harm consumers and curb rewards programs) that could have jeopardized progress on the bill. The bill would require stablecoins to be backed by high-quality assets. It also would subject issuers to capital and other prudential requirements. Since stablecoins are intended to be payment vehicles, there is a prohibition on the payment of interest. The House has a similar version of the bill, which it would like to pair with more complicated and contentious legislation dealing with digital asset market structure. However, with the strong vote out of the Senate, the House faces pressure from President Trump and others to simply pass the Senate version.

Iran Response Disputes.

As the conflict between Israel and Iran escalates by the day, the question of the US’ involvement looms large. President Trump is weighing the option of joining Israel in attacking Iran’s nuclear program and has used that option as a tactic to try to bring Iran to the negotiation table. The potential of the US’ direct involvement has caused a rift among Republicans between the isolationist and hawkish wings of the party. On one side, there are Republicans who support US military involvement to quell the nuclear threat and force a regime change in Iran. On the other are Republicans who are against the US getting entangled in a new war in the Middle East. A key campaign promise by Trump was to end the US’ involvement in risky and expensive overseas conflicts. However Trump ultimately decides, tensions and criticism will remain high among the isolationist and interventionist factions of the Republican Party.

SEC House Cleaning.

Under former Chair Gary Gensler, the SEC had a very active regulatory agenda whereby it finalized close to 40 rules and faced legal challenges on some of those rules. When Chair Gensler left office in January, he left a backlog of pending proposals that awaited finalization. Last week, the SEC took the formal step of withdrawing over a dozen of these proposals. Many of these proposals were controversial and received significant pushback from industry and from Congress. The proposals included two remaining ones to overhaul equity markets (one that would require retail orders for stocks to go through a complicated auction process) and another to address potential conflicts of interest associated with use of predictive data analytics by brokers. These proposals were unlikely to go anywhere in a Trump administration, but the SEC’s recent actions officially close the door.

The Final Word

Rising Political Threats.

The tragic shooting of a Minnesota state lawmaker and her spouse (and the attack on another lawmaker and his spouse) sounded yet another alarm on political violence in the US. As politically motivated violence continues to increase in prevalence, lawmakers across the board are increasingly finding themselves on the frontlines, often with little security and even less preparation. This past weekend's attack is far from the first instance in recent memory. The threats impact every level of government from the attempted assassinations of President Trump last year to the threats many local lawmakers receive. Many officials are trying to balance being accessible and open to their constituents with protecting themselves and their families. The effects of these threats are already being felt as some officials quietly reconsider whether public service is worth the danger.