Projected Senate deliberations on the FY2025 budget

As the House attempts to pass the FY2025 budget, we take a look at the Senate, where the "One Big Beautiful Bill Act" faces internal Republican divisions and procedural challenges.

Tax and revenue

The House seeks to extend the 2017 tax cuts (originally enacted under the Tax Cuts and Jobs Act), introduce new tax exemptions (e.g., for tips and overtime pay), and increase deductions for seniors.

Meanwhile the Senate's budget resolution permits up to $5.8 trillion in deficit increases over a decade, largely driven by extending the 2017 tax cuts. However, fiscal conservatives like Senator Rand Paul have raised concerns about the long-term impact on the national debt, consistent with his historical stance on deficit reduction. The Committee for a Responsible Federal Budget (CRFB) has similarly warned about the fiscal strain of such extensions without offsetting measures.

The Senate may modify or scale back certain tax provisions—such as limiting the scope of new exemptions—to address deficit concerns, setting the stage for negotiations with the House to reconcile their differences.

Medicaid and social safety net programs

While the House is set to cut Medicaid and other federal aid programs, reflecting a priority to reduce domestic spending, the Senate's budget resolution takes a less aggressive approach. Medicaid cuts are a perennial point of contention, with the House often favoring deeper reductions than the Senate. That will likely be true again, as the Senate seeks more measured reductions, including Sen. Hawley (R-MO).

Defense and border security

The House bill increases funding for defense and border security initiatives, emphasizing national security priorities. We expect bipartisan support for strengthening national security.

Energy and environmental policies

While the House aims to expand energy initiatives, potentially reducing clean energy subsidies to prioritize traditional energy sectors, the Senate budget resolution allows for increased energy sector spending but lacks detailed breakdowns. Significant rollbacks of clean energy incentives could face pushback from senators in states with strong renewable energy interests.

Fiscal responsibility and debt ceiling

The House includes a $4 trillion increase in the debt limit to accommodate new spending and tax cuts. The Senate proposes a $5 trillion debt limit increase but pairs it with fewer spending cuts than the House, raising fiscal sustainability concerns. The Senate may face pressure—internally from fiscal hawks and externally from economic observers—to incorporate more robust spending reductions or revenue enhancements to mitigate deficit risks and maintain fiscal credibility.

With a slim Republican majority, Senate Majority Leader John Thune must unify a caucus where dissenters like Rand Paul could derail the bill. The narrow House vote suggests the Senate’s path will be equally challenging.