This afternoon, the House Committee on Ways and Means released Chairman Jason Smith’s amendment in the nature of a substitute (AINS) that will serve as the legislation to be marked up in Committee tomorrow at 2:30pm. Dubbed “The One, Big, Beautiful Bill,” it augments and, in some instances, modifies the provisions Ways and Means released Friday evening, which related mostly to the expiring individual Tax Cuts and Jobs Act (TCJA) tax provisions.
A full score of the complete tax package is not yet available from the Joint Committee on Taxation (JCT), though we anticipate it likely will be later this evening. In the meantime, legislative text is available here, and the JCT description of the package is available here. The Ways and Means section-by-section is available here.
Critical areas addressed in today’s substitute amendment include the addition of certain expired TCJA business tax provisions; inclusion of President Trump’s favored policy provisions including reduced taxes on tipped and overtime income, social security income, and certain auto loan interest; significant changes to the energy tax incentives from the Inflation Reduction Act (IRA); provisions relating both to individual and pass-through SALT; and various additional revenue raisers detailed below.
Schedule
Ways and Means intends to mark tomorrow afternoon and through the evening, as do the Committees on Energy and Commerce (2:00pm) and Agriculture (7:30pm). Once completed, the House Budget Committee will convene (as early as this Friday) to combine each of the House committee bills into one reconciliation bill for floor action. The Budget Committee’s markup is largely ministerial and no amendments are permitted; any changes, if necessary, could be made in advance of floor consideration at the Rules Committee early next week before Leadership brings the bill to the floor.
A sampling of the provisions included in Chairman Smith’s AINS include:
Individual Taxation:
- Permanent extension of individual tax rates, with an increased standard deduction, and an enhanced child tax credit, both indexed for inflation
- $30,000 SALT limit which phases down for those with income above $400,000
- Permanent extension of the Section 199A qualified business income deduction (QBI), increased from 20 percent to 23 percent
- Estate tax exemption increased from $14M to $15M, adjusted for CPI
- Deduction for certain tip income (including independent contractors) or overtime wages (on overage time), both of which are subject to income and other various limitations
- Deduction of up to $10,000 annually of auto loan interest for cars assembled in the U.S. (phaseout begins at income over $200,000)
- Creates additional $4,000 deduction for senior citizens (phases down beginning at $150,000).
Business Taxation:
- 100 percent expensing of domestic R & D costs (5-year extension)
- Net business interest deductible at 30 percent of EBITDA (5-year extension)
- 100 percent bonus depreciation with new eligibility added for factory structures as well as additional qualified production property (5-year extension)
- Increases Sec.179 small business expensing limits to $2.5 million
- Repeal of 1099-K (de minimis rules for third party network transactions)
- Increased allocation and modifications to LIHTC
- Opportunity Zone expansion
International Tax:
- Freezes the FDII, BEAT and GILTI rates at current levels
- Includes a variation of Chairman Smith’s Defending American Jobs and Investment Act with a delayed effective date to allow time for negotiations with countries that have implemented taxes deemed discriminatory or extraterritorial, including UTPR and DSTs
Inflation Reduction Act:
- Terminates clean vehicle credits
- Terminates EV vehicle refueling property credit
- Terminates energy efficient home improvement credit
- Terminates residential clean energy credit
- Terminates new energy efficiency home credit (45L)
- Terminates clean hydrogen credit (45v)
- Phase-out of the clean electricity production tax credit and clean electricity investment credit, with restrictions layered on both
- Phase-out and restrictions on zero-emission nuclear power production credit (through 2031; no transferability after 2027)
- Repeals transferability of clean fuel production credit in 2027
- Tech-neutral phaseout by 2031, beginning in 2029
- Phaseout of 45x and 45z by 2031, beginning in 2029 (with restrictions)
Additional Revenue Raisers:
- Terminates the Employee Retention Tax Credit
- Sports franchise amortization changes
- Imposes additional tiered excise taxes on investment income of certain university endowments and private foundations
- Limits excess business losses of noncorporate taxpayers
- Includes a 1 percent floor on deduction of charitable contributions made by corporations
- Includes several provisions aimed at removing taxpayer benefits for illegal immigrants, including a 5 percent excise tax on remittance transfers
Miscellaneous Provisions:
- Terminates IRS Direct File program
- Repeals Obamacare tanning excise tax
- Revokes tax-exempt status from nonprofits that materially support terrorism
- Restricts regulations of the use of contingency fees for tax return preparers
Notable Tax Provisions Not Included in the Chairman’s AINS:
- Limitations on the deductibility of corporate SALT
- Changes to the taxation of carried interest
- An increase in the excise tax on stock buybacks
- Any change in the top marginal income tax rate or creation of a new top marginal tax bracket
- Changes to private activity or municipal bonds
Note: Limitations on executive compensation were included, but in scaled back form.
OUTLOOK/ANALYSIS. Despite bearish reports in the media throughout the process, the House and Senate have remained largely on track with their budget reconciliation timeline. We believe all three remaining House committees will successfully complete their markups this week, readying a combined legislative package for the House floor next week.
While the committee products are expected to pass in their current forms tomorrow/Wednesday, there are likely to be additional changes at the House Rules Committee before the bill comes to the floor. Negotiations are ongoing with potential holdouts, including SALT state Members, deficit hawks, and moderate/politically vulnerable Members concerned about savings achieved in social safety net programs like Medicaid and SNAP.
It’s too early to predict whether Leadership will be able to bring the bill to the floor next week, but as before, we wouldn’t bet against them. The House and Senate GOP have been working cooperatively, and should the House move this month we expect the Senate to follow in June, with differences to be worked in July, ahead of Sec. Bessent’s projected debt limit X date in August.
###