Revisions Paved The Way For Passage
Refer to our previous article for a rundown of the tax provisions in the bill passed by the House Ways and Means Committee last week. Below are the more significant revisions that paved the way for the bill's passage:- Individual state and local tax (SALT) deduction would be increased to $40,000, phases out for individuals earning more than $500,000, and the cap would increase by 1% each year for 10 years;
- Clean energy tax credits would phase out more quickly, with most projects required to begin construction within 60 days of the bill's enactment and be placed in service before 2029;
- Cuts to Medicaid, the health care program for low-income Americans, would be accelerated to ‘no later than December 31, 2026,' rather than 2029;
- States would be reimbursed for border security expenses incurred in recent years.
Onward To The Senate
The focus will now shift to the U.S. Senate, where lawmakers have a much different set of priorities, and have recently unanimously passed a separate No Tax on Tips Act that would accomplish President Trump's campaign pledge of "no tax on tips," which was ultimately adopted by Democratic candidate Kamala Harris and many other Democrats.
Democrats say they are uniformly opposed to the House-passed legislation, citing studies that the bill would cut benefits for low-income Americans while boosting after-tax income of higher-income Americans.
Additional Considerations
In addition to the Senate, the bond markets will be a key indicator of the fate of the bill and its impact on the U.S. economy. Long-term interest rates on U.S. Treasuries, a key indicator of the perceived riskiness of government-issued debt, have been rising in recent months. Moody's rating agency recently downgraded its rating of U.S. Treasury debt, citing persistent budget deficits, growing public debt, and a lack of political will from both political parties to put the government on a more balanced fiscal trajectory. The current bill, if enacted, would exacerbate this situation.
Congressional Republicans have stated that the enactment of this legislation on or before July 4 is their goal. GBQ will continue to provide you with updates as the Senate considers the bill and the two versions are reconciled.
In search of additional tax insight? Check out these resources:
Proposed Tax Legislation Offers Relief For Domestic R&D Expenditures
