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Mike Johnson, Speaker of the US House of Representatives, has said he has reached agreement with Republican holdouts over the state tax deductions that have proved an obstacle to Donald Trump’s showpiece fiscal legislation.
Johnson said he would take the $3tn-plus bill to the floor of the House of Representatives, where the Republicans have a slim 220 to 213 majority, as soon as Wednesday.
“We plan to do it tonight if possible,” he said.
Global markets have been watching progress of the bill, amid warnings from economists about the US’s growing fiscal deficit and signs of anxiety in the bond markets about the country’s debt burden.
Longer-dated Treasury yields rose as traders bet that the budget bill would lead to a surge of issuance in government debt. The 30-year Treasury yield rose 0.05 percentage points on Wednesday to 5.02 per cent.
A number of Republican lawmakers from high-tax states had threatened to derail the passage of the legislation, which the president has dubbed his “big, beautiful bill” and includes sweeping tax breaks and deep cuts to spending programmes such as Medicaid.
But on Wednesday, Johnson said that an “agreement” had been reached over raising the cap on the amount of state and local taxes, known as Salt, that can be deducted from federal levies.
“I think the Salt caucus, as they call themselves, it’s not everything they wanted, but I think they know what a huge improvement that is for their constituents and it gives them a lot to go home and talk about,” Johnson said.
The legislation would need to be subsequently passed by the Senate, which is also controlled by the Republicans. Democrats in both chambers are expected to vote against the bill.
Johnson had spent the night trying to unite the warring factions within the House Republican conference on a host of issues in the legislation.
To earn the votes of a handful of Republicans in New York, New Jersey and California, Johnson offered to raise the Salt deduction cap to $40,000 with certain income limits.
The bill would be the centrepiece of Trump’s legislative agenda in his second term in office and extend many of the tax cuts he delivered in 2017.
Its passage would mark a big political victory for the president, whose approval ratings have been languishing following weeks of market turmoil triggered by his trade war.
Trump himself went to Congress on Tuesday to try to quell a pocket of Republican opposition to the bill.
But its proposed tax cuts have also spooked investors who are concerned that the bill would increase the US’s debt burden and damage its fiscal position. Some Republicans have sought deeper tax cuts, while others have called for more spending to be slashed.
It would also extend individual income tax cuts, as well as an increased standard deduction and child tax credit, as well as slashing taxes on tips and overtime pay, as Trump pledged on the 2024 campaign trail.
The non-partisan Committee for a Responsible Federal Budget estimates the bill will increase US national debt by more than $3.3tn over the next decade.
This would increase the federal government debt held by the public from about 98 per cent of GDP today to a record 125 per cent of GDP by the end of that period, according to the committee.
Moody’s last week stripped the US of its triple-A credit rating on fears of the ballooning deficit, and long-term Treasury yields have risen.
Trump has tried to appeal to moderates by saying that the bill does not cut anything “meaningful”, just “waste, fraud and abuse”.
Russell Vought, director of the Office of Management and Budget, has said that the legislation includes the most significant spending cuts in the past three decades. However, conservatives have pushed for further cuts.
During his Tuesday meeting with the lawmakers Trump “made it clear he wants us to pass this bill”, Dusty Johnson, a South Dakota Republican, told the Financial Times. “He wants us to quit screwing around.”
Additional reporting by Kate Duguid
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