Policy Backgrounders

House Passes Reconciliation Bill and Senate Next Steps

May 29, 2025

Last week, the House of Representatives passed the reconciliation bill Republicans are hoping to use to enact the President’s legislative agenda of tax cuts, increased border security and defense spending, changes to energy policy, and other areas. The bill now moves to the Senate, where it will likely be amended.

• To assuage the concerns of fiscal conservatives concerned about the bill’s impact on the deficit and Republicans who wanted a higher cap on the state and local tax (SALT) deduction, House GOP leadership struck agreements that secured the support of both groups.
• The House Rules Committee adopted an amendment to the reconciliation bill with these changes, which moved to the House floor on Thursday, May 22, and passed by a vote of 215 to 214, with one Member voting present.
• The reconciliation bill now heads to the Senate, where Senate GOP leadership will have to manage dynamics between fiscal conservatives worried about the deficit and more moderate Republicans concerned about cuts to social safety net spending and the phase out of clean energy tax credits.
• Moody’s downgrade of the rating of US sovereign debt from its highest rating amplifies concerns about the impact of the bill on the deficit and debt.

House Passes Reconciliation Bill After Intense Negotiations

Over the past month, the House of Representatives held markup hearings on the reconciliation bill Republicans are hoping to use to advance the President’s legislative agenda. The House Committees on Ways and Means, Energy and Commerce, and Agriculture markups permanently extend the expiring provisions of the Tax Cuts and Jobs Act (TCJA), phase out the clean energy credits from the Inflation Reduction Act (IRA), and propose cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP) to offset the deficit impact of the tax cuts. Before the reconciliation bill could reach the House floor for a full vote, the bill needed to pass through the Budget Committee and Rules Committee.

House Budget Committee Votes

On Friday, May 16, the House Budget Committee conducted a hearing to compile the individual Committee markups of their portions of the reconciliation bill into one comprehensive package for a House floor vote. In that hearing, five fiscal conservatives from the House Freedom Caucus joined all Democrats on the panel in voting against advancing the bill, defeating the measure by a vote. These fiscal conservatives raised concerns about the deficit impact of the bill. The Congressional Budget Office analyzed the reconciliation bill’s budgetary effects and calculated that the complete package will raise the deficit by more than $2.3 trillion between 2025 and 2034 (excluding interactions with interest spending and economic growth).

The House Freedom Caucus released a statement vowing to continue negotiations over the weekend and GOP leadership scheduled another House Budget Committee vote for the night of Sunday, May 18. While the details of the amendments under consideration were not released, the group of Republican holdouts were sufficiently convinced about the prospects of the negotiations that four of the five dissenters voted “present” to permit the reconciliation bill to advance to the House Rules Committee by a vote of 17 to 16.

Negotiations during House Rules Committee Hearing

The next step in the process was a House Rules Committee hearing to pass a rule that would allow the bill to go to the House floor. This hearing was also the last chance for the House to consider amendments to the reconciliation bill before floor consideration. Before and during the hearing, House GOP leadership and the President negotiated with both conservatives from the House Freedom Caucus concerned about the bill’s deficit impact and moderates concerned about spending offsets and raising the cap on the SALT deduction.

Early in the week, House Majority Leader Steve Scalise (R-LA) hinted that GOP leadership was focusing on moving forward the start date of Medicaid work and community engagement requirements to appease House conservatives. In a meeting with House GOP lawmakers on Tuesday, May 20, the President urged recalcitrant Republicans to wind down negotiations, making a strong statement against further cuts to Medicaid and further negotiations on raising the SALT cap. The President also met with House Freedom Caucus members on Wednesday, May 21, with the goal of resolving their disagreements before the House’s self-imposed deadline of Memorial Day weekend to pass the reconciliation bill. All the while, House Speaker Mike Johnson (R-LA) emphasized, “Failure is simply not an option.”

The negotiations proved fruitful, as both House Freedom Caucus members and SALT-focused Republicans reached deals to secure their support for the reconciliation bill. House Republicans from high tax states like New York, New Jersey, and California reached an agreement to raise the SALT cap from $30,000 in the original bill to $40,000, though the deduction is limited to taxpayers earning below $500,000. The agreement also starts the higher SALT cap in tax year 2025 and raises the deduction and income cap by 1% annually over the ten-year budget window. To reduce the deficit impact of the bill, House GOP leadership struck an agreement to accelerate the phase out of IRA clean energy credits and Medicaid work requirements.

After a nearly 22-hour hearing, the House Rules Committee finally voted on a manager’s amendment memorializing these agreements to advance the amended reconciliation bill to the House floor by a vote of 8 to 4. In addition to the revised SALT cap, the amended reconciliation bill moved up Medicaid work requirements from 2029 to the end of 2026, accelerated the phase out of IRA clean energy tax credits (except for credits for advanced nuclear reactors), and reduced the excise tax on certain remittances from 5% to 3.5%.

Passage on the House Floor

The amended reconciliation bill, now titled the “One Big Beautiful Bill Act”, headed to a vote on the House floor on the morning of Thursday, May 22. After a week of intense negotiations, House Republicans successfully passed the bill by a vote of 215 to 214, with one Member voting present. Reps. Thomas Massie (R-KY) and Warren Davidson (R-OH) joined all Democrats in voting against the bill. House Freedom Caucus Chairman Andy Harris (R-MD) voted “present,” and Reps. Andrew Garabino (R-NY) and David Schweikert (R-AZ) were absent from the vote. Despite the narrow margins in the House, Speaker Johnson and the President can claim credit for successfully completing this portion of the reconciliation process.

Prospects in the Senate

The reconciliation bill now heads to the Senate, where it will likely be amended. As in the House, there are competing factions within the Senate Republican caucus, which can only afford to lose three votes in the upcoming debate on the reconciliation bill. Some fiscal conservatives are unhappy with the increases to the deficit and debt limit and lack of spending cuts in the bill. Other more moderate Senators are focused on preserving Medicaid coverage for their constituents and a more measured approach to the phase out of the IRA clean energy tax credits. Crucially, no Republican Senators come from California, New York, and New Jersey, so the increased cap on the SALT deduction that was a primary concern of some House Republicans will likely have no Republican supporters in the Senate. The Senate must also contend with the Byrd Rule as part of reconciliation, which limits the provisions that can be considered as the Senate advances the reconciliation bill.

One fiscal conservative side, Senator Rand Paul (R-KY), has come out against the bill because of the $4 trillion increase in the debt limit included in it. Senator Ron Johnson (R-WI) is also currently against the bill. Senator Johnson said, “We need to be responsible, and the first goal of our budget reconciliation process should be to reduce the deficit. This actually increases it.” Senator Johnson claimed he has enough votes to stop the process as he works to address his concerns, likely referring to Senators Paul, Mike Lee (R-UT), and Rick Scott (R-FL).

On the other side of the Senate GOP conference, more moderate Senators are concerned about spending reductions to Medicaid and the quick phase out of the IRA clean energy tax credits. Senator Josh Hawley (R-MO) has emerged as a strong supporter of Medicaid benefits, though he is not opposed to Medicaid work requirements. Senator Hawley has written that cutting health insurance for the working poor “is both morally wrong and politically suicidal.” He continued, “Republicans need to open their eyes: Our voters support social insurance programs. More than that, our voters depend on those programs.” Senators Susan Collins (R-ME), Lisa Murkowski (R-AK), and Jerry Moran (R-KS) have also come out against further reductions to Medicaid spending. Regarding the IRA clean energy tax credits, several Republican Senators have stated that the House’s accelerated phase out of the credits will change in the Senate to prevent reduced investment in energy technologies and job losses, Finally, Senate Agriculture Committee Chair John Boozman (R-AR) is concerned about increased state cost-sharing for SNAP, and Senator Mike Rounds (R-SD) has national security-related issues with the auctioning of spectrum in the House bill.

Conclusion

It will be up to Senate Majority Leader John Thune (R-SD) and the President to negotiate a compromise among Senate Republicans that also maintains the delicate balance in the House sufficient to ensure passage of a revised bill. Given the inclusion of a debt ceiling increase in the reconciliation bill and recent Treasury Department projections, Congress likely has until the August recess to pass the reconciliation bill before the Treasury Department exhausts its extraordinary measures and the Federal government defaults on the national debt.

Animating concerns about the deficit is Moody’s downgrade of the rating of US sovereign debt on May 16, becoming the third of the three major rating agencies to downgrade the US national debt from its highest rating. Moody’s highlighted “the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns” in its statement explaining the downgrade. News of Moody’s credit rating downgrade and the imminent passage of the reconciliation bill in the House contributed to a selloff of government bonds globally last week, sending the US 30-year Treasury yield above 5% and causing increases in US 10-year Treasury yields.