House Republicans have assembled a $237 billion tax cut package with a bevy of provisions to bolster the economy and offset the impact of 40-year high inflation on American workers.
It includes upping the standard deduction on income taxes, expanding opportunity zones, slapping an excise tax on property purchases linked to China and Russia, rolling back some new requirements for reporting transactions to the Internal Revenue Service and restoring expired Trump-era business expense write-offs.
The House’s GOP tax writers face a complicated path forward, including opposition from President Biden and the Democrat-run Senate. The plan, however, lays down a marker on tax policy and invites debate and negotiation about Americans’ tax burden.
Under the Republican plan, the current standard deduction for singles or married couples filing separately would increase by $2,000 to $15,850. For married couples filing jointly, the standard deduction would increase by $4,000 to $30,700.
“With this provision in place, an American family of four will not pay a cent in federal taxes on their first $68,000 of income,” said House Ways and Means Chair Jason Smith, Missouri Republican. “This allows Americans to keep more of their hard-earned dollars to spend as they see fit to address their individual and family needs.”
Outside of lowering the tax burden, the bill expands opportunity zones to rural areas and imposes a 60% excise tax on the purchase of U.S. land by individuals and entities linked to Russia and China.
Most of the tax package’s provisions are aimed at boosting American manufacturing and small businesses.
The proposal includes overturning a provision from Mr. Biden‘s climate change law requiring third-party payment processors, including Venmo and PayPal, to report transactions above $600. Earlier this year, the IRS postponed the new reporting requirement until 2024.
“The IRS has no business going after Americans who sell things like an old couch or concert tickets on Facebook Marketplace or Craigslist,” said Mr. Smith.
Mr. Biden‘s climate bill instituted a similar reporting requirement for businesses that pay contractors more than $600 a year. GOP lawmakers are pushing to nix it, noting that the old threshold of $5,000 had not been changed since 1954.
House Republicans also want to make it easier for small businesses to immediately deduct investments in new equipment from their taxes. Currently, firms are allowed to deduct $1 million worth of investments in new equipment or other productivity measures. The GOP bill would boost that cap to $2.5 million.
The GOP bill would further restore a recently expired provision from the Trump-era tax cuts allowing companies to immediately deduct research and development costs. As of 2022, firms are required to spread out the cost of investments in research and development over a 5-to-15-year period.
To make up for increased interest rates, the legislation also expands the ability of companies to deduct a larger share of their borrowing costs.
Senate Finance Committee Chairman Ron Wyden said that some of the expensing provisions, especially for research and development, could be acceptable to Democrats.
“Democrats are on board with fixing business tax incentives like R&D expensing as long as Congress also passes support for the most vulnerable children and families on the same scale,” said Mr. Wyden, Oregon Democrat.
Mr. Wyden said that business tax benefits could move alongside a revived child tax credit expansion. The expanded tax credit, a COVID-era provision that gave parents with children under the age of six upwards of $300 a month, is a non-starter for Republicans.
Even if Republicans accept more child tax credits, plenty of other provisions within the GOP tax package likely make it unacceptable for Democrats. The biggest point of contention will be the GOP‘s push to pay for the tax cuts by rescinding more than $200 billion in green energy tax credits from Mr. Biden‘s climate law.
“It goes without saying that repealing landmark clean energy incentives from the Inflation Reduction Act is a nonstarter in the Senate,” said Mr. Wyden.
Democrats are also likely to oppose the bill’s repeal of a super fund tax on petroleum and the cancellation of electric vehicle tax credits that Republicans say have “ballooned in cost by over 700 percent since last year.”
“While Americans are sheltering inside to avoid the fallout of climate-spurred wildfires, Republicans think now is a good time to repeal the largest climate investment in our history to pay for their corporate handouts,” said Rep. Richard Neal of Massachusetts, the top Democrat on the Ways and Means Committee.
Democrats are not the only obstacle to the tax cut package. First, the legislation needs to garner enough support in the fractured House Republican Conference to pass the chamber.
Speaker Kevin McCarthy can only lose four votes on any legislation before having to rely on Democrats. At the moment, there are more than a dozen moderate House Republicans from high-tax blue states who are on the fence.
Their concern stems from the bill not addressing the level of state and local tax or SALT deductions. SALT allows taxpayers to write off certain taxes they pay to state and local governments.
It once provided significant relief in states such as New York and California, where property taxes and other fees are high. The Trump-era tax cuts capped the deduction to $10,000 per year.
“I won’t support any tax bill that doesn’t adequately address SALT,” said Rep. Mike Garcia, California Republican. “It doesn’t have to be a full removal, but it needs to be something.”
However, restoring the credit could make the tax package all the more difficult to pass given the spending limits imposed by the debt limit deal struck last month by Mr. McCarthy and Mr. Biden.
Under the deal, domestic spending will be flat for the upcoming fiscal year while boosting defense spending by three percentage points. It also put a 1% cap on spending growth next year.
The Joint Economic Committee estimates the tax package would cost $21 billion over the next decade, but only if the GOP succeeds in rescinding $216 billion worth of green energy tax credits.
Without the green energy clawback, the total cost of the $237 billion tax cut package could run afoul of the debt limit agreement.