WASHINGTON — The House’s nearly $4 trillion tax package is set for a makeover in the Senate starting this week when lawmakers return to Washington. It’s not clear yet how extensive the changes will be, but lawmakers and interest groups see plenty of opportunities for tweaks to suit their needs.

Senate Republicans have a more permissive tax allowance under the budget resolution that technically could allow them to write a tax bill that costs over $5 trillion. But the additional wiggle room is hardly a blank check, as whatever the Senate passes will get sent back to the other chamber.

House fiscal hawks have made clear they won’t tolerate a bill that increases tax cuts beyond the current level — a little over $3.9 trillion over 10 years by the most recent estimate — without commensurate spending cuts.

Republican members of the Finance Committee have said they want a trio of business tax breaks, including deductions for research and development investments and full expensing of machinery and equipment purchase, to be made permanent. The House bill would make those tax breaks more generous for five years.

Some would also like to see a more gradual wind down of clean energy credits included in the 2022 budget law. The House bill would require businesses collecting credits for investment and production of clean electricity to start construction within 60 days of enactment and be up and running before 2029.

The Senate also presents an opportunity for interest groups to try again to get favored policies into the package and for those who found themselves targets of the measure’s revenue-raising provisions to get policies softened or removed.

The House tax title’s increased excise taxes on endowment investment returns for philanthropic foundations and universities are likely targets for lobbying campaigns, one lobbyist with GOP ties said.

Reciprocal taxes

Another lobbyist with Republican connections pointed to a provision imposing retaliatory taxes on foreign individuals and companies from jurisdictions that have increased taxes on U.S. firms as another target for removal or tempering.

The provision is Republicans’ response to countries that have levied taxes on U.S. tech companies through digital services taxes, as well as to nations that seek to impose higher rates on the profits of U.S. companies facing a lower tax rate at home, as proposed by the Organization for Economic Co-operation and Development. The Biden Treasury Department signed off on that arrangement as part of a global tax deal.

Foreign multinationals with business in the U.S. are urging senators to reconsider the House bill’s provision, saying that it will discourage investment and has already had a chilling effect on future plans, the lobbyist said. The provision would raise about $116 billion over 10 years, but in the final two years of the budget window would reduce expected revenue by about $13 billion, according to the Joint Committee on Taxation, possibly because of its dampening effect on investment.

House Ways and Means Chairman Jason Smith, R-Mo., defended the provision in comments Friday during a panel discussion at the Reagan National Economic Forum in Simi Valley, Calif. He said the alternative would be to allow foreign governments to tax that income rather than letting it be deployed in the U.S.

“A big concern is foreign governments, based on agreements entered by the Biden administration, is trying to suck away billions of dollars from U.S. companies, in fact $120 billion from U.S. companies,” Smith said. “And this is a way to help put them in check so that they understand that if they do that to U.S. businesses there will be consequences for their actions. Hopefully it will never take effect.”

One fear that’s been expressed about the provision is that it could impose a tax on interest earned from bold holdings, including foreign ownership of U.S. Treasury debt.

But as the report accompanying the House bill explains, “portfolio interest” income — interest paid to foreign individuals or corporations holding U.S.-issued bonds — are exempt from the new tax, as Ways and Means spokesman J.P. Freire pointed out in an X post Friday.

It’s not clear whether Republican senators will be persuaded by the foreign-based businesses concerned about the tax. But they’re thought to be a more sympathetic audience than their counterparts in the House, the lobbyist said.

Business interests also have their hopes set on making tax breaks for income earned abroad more generous. The House bill made permanent tax breaks for foreign-earned income, while the last-minute manager’s amendment adopted on the floor made those deductions slightly less generous.

Multinational corporations want a bill introduced by Sen. Thom Tillis, R-N.C., making those tax breaks more generous than they are currently to become part of the package, the lobbyist said. The bill would allow a greater portion of tax credits to be counted against tax liability on that type of income.

Just enough SALT?

Another part of the House tax package GOP senators may want to take another look at: the increased state and local tax deduction cap.

Out of deference to Republicans from high-tax states like New York, New Jersey and California, House GOP leaders agreed to quadruple the current $10,000 “SALT” cap. Though the increased amounts phase out above $500,000 in household income, the move still would cost several hundred billion dollars over a decade relative to simply continuing the current cap beyond its scheduled expiration later this year.

There are no Senate Republicans that represent those blue states whose constituents would benefit, so there is much less interest in that chamber in a more generous SALT cap. But again, senators have to be mindful of any tweaks that would upset the carefully constructed coalition that resulted in narrow House passage before the recess.

Smith said throughout the entire process House Republicans have been working “hand in glove” with Senate Finance Chairman Michael D. Crapo, R-Idaho, and Senate Majority Leader John Thune, R-S.D. — including making sure they’re aware of the House’s challenges.

“I think when you look from the tax perspective 90 to 95 percent will stay about the same and you’ll see some minor changes over there” in the Senate, Smith said Friday at the California event. “We have a delicate balance.”

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Paul M. Krawzak contributed to this report.

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