House Republicans on Monday outlined plans for a vast tax bill that temporarily enacts President Trump's campaign. This pledges not to roll back taxation, overtime salaries, clean energy subsidies and create new types of tax investment accounts for children.
The bill, which will be officially addressed by the Ways and Means Committee on Tuesday, corresponds to the first full attempt to detail the Republican plan to cut taxes this year. But it soon faced criticism from some House Republicans. Most people need to support the law to pass on what is expected to be the opposition of a unified Democrat.
For example, the draft requires that state and local tax credit limits be increased from $10,000 to $30,000. A group of four Republicans from New York are upset by the much higher cap, calling the $30,000 limit proposed last week a “inhumanity.” New York Republican leader Nick Larota wrote on social media on Monday that he was “still in hell.”
The opposition cited challenges that could surface as Republican leaders strolled around for a vote and tried to meet various local concerns. Tax measures, most will be cut, but with some increases, are just one element of the broader law Republicans are hoping to enact in the coming weeks. Other parts of the bill focus on reducing Medicaid, healthcare programs for the poor, and food stamps.
But the heart of this effort is expanding several provisions from Trump's 2017 tax law, including a lower marginal income tax rate and a larger standard deduction. These measures are set to expire at the end of the year, motivating Republicans to pass the bill and avoid tax hikes for most Americans.
But Trump and Republicans on Capitol Hill are trying to go far beyond just saving the final tax cut. The law includes several new tax credits that continue throughout much of Trump's term and fulfill the president's campaign promises.
All of these tax cuts will be expensive, so Republicans are also planning to raise taxes as part of the package to make budget mathematics work. The law is expected to add at least $2.5 trillion to the deficit over the next decade.
Let's take a look at what House Republicans have in mind.
Trump approved tax cuts temporarily
When Trump first began rolling out a series of extraordinary tax cut proposals as a candidate, some Republicans on Capitol Hill quietly hoped their party could ignore them. That proved unlikely. Some of these tax credits will only be up to the law until 2029, when Trump resigns, but they are closer to the law.
If approved by Congress, these temporary cuts will be limited. For example, tip tax exemptions are usually only available to Americans in jobs that receive tips. The tax credit has an income limit of $160,000. Overtime pay engraving applies only to income tax, not pay tax, and with the same income limit.
Because Social Security finances are subject to special procedural protections in Congress, Republicans have chosen to construct Trump's pledge not to tax social interests as a broader tax cut. The bill takes the form of a $4,000 bonus deduction for older Americans who shrink as their income rises.
Trump's demands that Americans who rent a car will receive a tax credit, but that applies only if the car is made in the US. For single Americans making more than $100,000 a year, the tax credits will gradually progressively, step by step, step by step.
Republicans came up with some additional cuts of themselves. They proposed to increase the standard deduction for individuals by $1,000 and the child tax credit for $500, but those increases were also temporary and expire in 2029.
House Republicans also want to create a new type of investment vehicle known as the “MAGA account.” The vehicle will allow Americans to invest up to $5,000 a year on behalf of their children. The proceeds from these investments can be withdrawn to cover school expenses and vocational training, buy a home or start a business. Children born in the next few years will also receive $1,000 on their account.
Not all of Trump's campaign proposals have been cut. For example, there has been a shortage of pitches to change how Americans abroad are taxed.
Corporate tax reductions
Tax cuts for individual Americans and their families are flashy, but the bill also includes some sought-after tax cuts for businesses.
These include the ability to quickly amortize research and development costs, as well as investments in equipment and machinery. To encourage more domestic manufacturing, the top goal for Trump's term, the bill creates a new tax credit for building factories.
These provisions become temporary under the bill, if they disappoint lobbyists and experts who view investment amortization as the most effective tax policy for growing the economy.
One of the central provisions of the 2017 tax law is a new deduction for many business owners, often referred to as “pass-through.” This type of business is not directly taxed, but rather passes the revenue to the owner, and the owner pays personal income tax. This Republican bill not only makes that deduction a permanent part of the tax law, but also makes it even more generous, increasing it from 20% to 23%.
“This is a huge leap in ensuring a very competitive tax policy that attracts investment in the US and creates jobs here,” said Jay Timmons, chairman of the National Association of Manufacturers, a business lobbying group. He said his group strongly supports more generous treatment for pass-throughs and will push other business-centric elements to become permanent “as the process moves forward.”
Republican punching bag tax increase
To cover some of these tax cuts, Republicans are preparing to shake up President Joseph R. Biden Jr.'s agenda, universities and immigration, a familiar set of political targets.
Trump has long let go of the legislation of his predecessor's signature. This is a 2022 law passed by Democrats who threw companies producing solar, wind and nuclear energy with tax credits. Republicans want to close or limit many of these credits. The $7,500 consumer subsidies to buy new electric vehicles will be almost eliminated, but other clauses will be phased out over several years. The bill also adds some new rules that will likely make it difficult to build solar and wind power and receive tax benefits.
University funds are also included, with taxes on investment income rising from 1.4% to 21%. The Trump administration has clashed with several top universities over what they claim is widespread anti-Semitism on university campuses as Trump threatens to cut off Harvard and cancel tax exemptions.
Americans sending money abroad will also face a new 5% tax on these remittances, but American citizens are not borrowing taxes. Such levy could raise the costs of immigrants working in the US who send money abroad to support their families. The Trump administration is trying to remove millions of immigrants from the country.
Tony Romm contributed the report.
