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 Americans.
It includes increasing the standard deduction on income taxes, expanding opportunity zones, slapping an excise tax on property purchases linked to China and Russia, rolling back some requirements for reporting transactions to the Internal Revenue Service and restoring expired Trump-era business expense write-offs.
The House’s Republican tax writers face complications, including opposition from President Biden and the Democratic-run Senate. The plan lays down a marker on tax policy and invites debate and negotiation about Americans’ tax burdens.
Under the Republican plan, the 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 Committee Chairman 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.”
Other than 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 provisions are intended to stimulate American manufacturing and small businesses.
The proposal would overturn Mr. Biden’s climate change law provision requiring third-party payment processors, including Venmo and PayPal, to report transactions above $600. Earlier this year, the IRS postponed the 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,” Mr. Smith said.
Mr. Biden’s climate bill instituted a similar reporting requirement for businesses that pay contractors more than $600 a year. Republican lawmakers are pushing to nullify the requirement. They note that the former 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 may deduct $1 million worth of investments in new equipment or other productivity measures. The Republican bill would increase that cap to $2.5 million.
The Republican bill would 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 costs of investments in research and development over a five- to 15-year period.
The legislation expands companies’ ability to deduct larger shares of their borrowing costs to make up for increased interest rates.
Senate Finance Committee Chairman Ron Wyden, Oregon Democrat, said members of his party could accept some expensing provisions, especially for research and development.
“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,” Mr. Wyden said.
Mr. Wyden said 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 younger than 6 more than $300 a month, is a nonstarter for Republicans.
Even if Republicans accept more child tax credits, plenty of other provisions likely make their package unacceptable to Democrats. The biggest point of contention will be the Republicans’ 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,” Mr. Wyden said.
Democrats are also likely to oppose the bill’s repeal of a superfund tax on petroleum and the cancellation of electric vehicle tax credits that Republicans say have “ballooned in cost by over 700% 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 obstacles to the tax cut package. To pass the House, the legislation first must garner enough support in the fractured Republican Conference.
Speaker Kevin McCarthy can lose only four Republican votes on any legislation before relying on Democrats, and more than a dozen moderate House Republicans from high-tax Democratic-leaning states are on the fence.
They are concerned that the bill does not address the level of state and local tax, or SALT, deductions on IRS forms.
The deduction 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 at $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.”
Mr. Smith and other Republican leaders said they are working to amend the Republican bill to address the SALT issue.
Restoring the deduction could make the tax package all the more difficult to pass, given the spending limits imposed by the debt limit deal that Mr. McCarthy and Mr. Biden struck last month.
The deal keeps domestic spending flat for the upcoming fiscal year while boosting defense spending by 3 percentage points. It also caps spending growth next year at 1%.
The Joint Economic Committee estimates that the tax package would cost $21 billion over the next decade, but only if Republicans succeed 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.
• Haris Alic can be reached at halic@washingtontimes.com.
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