May 16, 2025, 2:00 pm — Update: Federal Tax and Spending Bill Stalls Amid Budget Disputes
The House’s sweeping tax and spending package, intended to deliver on major federal tax cuts and program reductions, faces significant hurdles as conservative members demanded deeper cuts to Medicaid and other federal programs.
Some lawmakers also pushed for stricter work requirements for federal aid programs to begin immediately, rather than the proposed 2029 start date. Meanwhile, lawmakers from states with significant state and local tax obligations continue to advocate for a larger SALT deduction — an increase that would substantially drive up the bill’s cost.
These demands stalled progress on the 1,116-page bill, signaling continued challenges in securing enough votes for passage. House leaders vowed to negotiate throughout the weekend to bridge the divide and move the bill to the House floor next week.
The most immediate concerns for Maryland and its counties include proposed Medicaid work requirements, cost-sharing shifts in SNAP, and new caps on provider taxes. These changes could impose greater financial strain on county-run health services, food assistance programs, and infrastructure projects.
As the US House of Representatives moves forward with budget reconciliation, House committees have marked up their sections of the budget bill, setting the stage for significant impacts on county governments nationwide.
According to an analysis by the National Association of Counties (NACo), the reconciliation process, designed to streamline budget-related legislation, presents a mixed bag for county governments, with both new funding opportunities and significant fiscal challenges.
Opportunities for Counties
The House proposal includes several provisions that could benefit counties across the country:
- Municipal Bonds: The bill preserves the tax exemption for municipal bonds, a crucial tool that allows counties to finance critical infrastructure projects like schools, roads, and water systems at lower costs.
- Major Event Preparedness: The bill sets aside $1.6 billion for local and state preparation for the 2026 World Cup and 2028 Olympics, funneled through FEMA’s State Homeland Security Grant Program, providing vital support for counties hosting these events.
- Secure Rural Schools (SRS): Reauthorized through 2027, this program provides essential funding for counties with limited taxable land, supporting schools, emergency services, and infrastructure in rural areas.
- Conservation Funding: The bill integrates $13 billion from the Inflation Reduction Act into the Farm Bill baseline, expanding USDA conservation programs. This move supports county investments in soil, water, and land stewardship, enhancing resilience to environmental challenges.
- Renewable Energy Revenue Sharing: Counties would receive 25% of revenue from wind and solar energy produced on federal lands, mirroring existing revenue-sharing models for oil and gas.
- Low-Income Housing Tax Credit: The bill increases the credits available for low-income housing by 12.5% and lowers the private activity bond financing requirement, empowering counties to expand affordable housing initiatives.
Significant Concerns for Counties
Despite several positive provisions, the House proposal introduces potential challenges for county governments:
- AI Regulation Freeze: A 10-year moratorium would block counties from enforcing local AI regulations, limiting local governments’ ability to manage new technologies in public services.
- Medicaid Work Requirements: Starting in 2029, able-bodied adults on Medicaid would face new work requirements, increasing administrative burdens for county-run health departments and potentially reducing access to care for vulnerable populations.
- SNAP Cost Shifts: The bill would raise the state and county share of administrative costs for the Supplemental Nutrition Assistance Program (SNAP) from 50% to 75%, straining local budgets and increasing costs for essential services.
- Provider Tax Restrictions: New caps on state provider taxes, which many counties use to fund Medicaid services, could jeopardize local health programs.
SALT Deduction
The proposed increase to the State and Local Tax (SALT) deduction cap from $10,000 to $30,000 for individuals earning under $400,000 brings a mixed impact for Maryland.
On the surface, it offers relief for residents in high-tax states like Maryland by allowing them to deduct a larger portion of their state and local taxes from their federal taxable income. However, this shift could have broader implications for local revenue.
The 2017 federal tax changes, which capped the SALT deduction at $10,000, led many Maryland taxpayers to switch from itemizing deductions to claiming the larger federal standard deduction. This shift inadvertently boosted state and local revenue, as fewer residents deducted state and local taxes on their federal returns, resulting in a broader taxable income base at the state level.
By raising the SALT cap, more Maryland taxpayers would likely revert to itemizing their deductions, claiming the higher SALT deduction, and reducing their overall federal taxable income. This change would not only lower their federal tax bills but also carry over to their Maryland state returns, where the SALT amount gets added back in.
The result? With more residents itemizing their deductions and claiming larger SALT write-offs, Maryland taxable income at the state and local level would shrink. This reduction could tighten revenue streams for counties, which rely on local income tax collections to fund essential services like public safety, education, and infrastructure projects.
As Maryland navigates broader fiscal pressures, understanding the implications of a higher SALT cap will be crucial for county budget planning and fiscal stability.
Is the Bill Final?
No, not yet. The current version of the budget reconciliation bill can still change. The House Budget Committee and the House Rules Committee can amend the text before it heads to the House floor for a final vote.
The bill may also see adjustments to ensure it passes the US Senate. According to the “Byrd Rule,” only budget-related provisions are allowed in reconciliation, letting it pass with a simple majority. As such, non-budget items are vulnerable to being stricken.
What’s Next?
Each committee’s approved sections now head to the House Budget Committee, which will consolidate them into a single bill. That markup is scheduled for Friday, May 16, moving the process closer to a House debate and vote.
Stay tuned to Conduit Street for more information.
Useful Links
NACo: US House committees mark up budget reconciliation titles: What it means for counties
MACo Deep Dive: Medicaid Reform Calling: What’s on the Line for Maryland?
