The Republican Tax Bill Breakdown

It’s Here! House Republicans Introduce Tax Bill

The moment you’ve all been waiting for has arrived:? House Ways and Means Committee Republicans have introduced a package of three bills focusing on personal and business taxes. Dubbed “The American Families and Jobs Act”, the measure consists of The Tax Cuts for Working Families Act, The Small Business Jobs Act, and the Build It in America Act.

What’s in it?

The package includes several business tax provisions, including:

• Restoring the immediate deductibility of research and development costs under Section 174 of the internal revenue code that had been eliminated by the Tax Cuts and Jobs Act (TCJA).
• Increasing the limit on immediate expensing of equipment purchases by small businesses to $2.5 million.? This provision is designed to soften the blow of the? TCJA’s elimination of bonus depreciation.
• Eliminating some IRS reporting requirements for some businesses.
• Expanding tax incentives to encourage investments in S-Corporations.
• Repealing green energy tax provisions enacted in last year’s Inflation Reduction Act (IRA).

The package also includes some individual income tax provisions, including a guaranteed $4,000 annual deduction for the next two years.

What’s not in it?

Some provisions are noticeably absent from the package, including:

• There is no language to make permanent the Section 199A deduction for certain pass-through business income. The deduction was created by the TCJA and expires in 2025.
• The package is silent on the TCJA’s $ 10,000 cap on the deduction of State and Local taxes (SALT). The SALT issue is critical to many House members in high property tax states in the northeast and California, and could be a dealbreaker for those members in a House where Republicans have a very narrow margin.
• It is also silent on the 15% corporate minimum tax that was created in the IRA to bring the US in line with its commitment to adhere to the OECD's Pillar 2 proposal. It is surprising that the legislation does not address the minimum tax given the vehement opposition to it by the business community and many House Republicans. It could be that Republicans see the issue as a deal breaker or nonstarter to their Democrat colleagues and the White House.

Where does it go from here?

Ways & Means Committee chair Jason Smith (R-MO) has put the legislation on the fast track. In what may be a record for this polarized and gridlocked Congress, the Committee marked up and approved the bill on Tuesday just days after it was introduced, sending it to the House floor for consideration by the full House.?

Despite the quick trip out of the committee, it is not likely that the legislation has a chance of surviving on Capitol Hill in this Congress.?

Reaction to the legislation upon introduction was not exactly warm on the Democratic side.? Reuters reported ?that the White House Press Secretary called the bill a “tax scam”.? Others in the Administration said the proposal was a giveaway to the rich. Rep Richard Neal (R-MA), the senior Democrat on the Ways & Means Committee was also critical and Sen Ron Wyden (D-OR), chair of the Senate Finance Committee issued a statement saying that the bill would never get support from Democrats.

If by some legislative miracle the package was to land on President Biden’s desk, it would most certainly be subject to the veto pen given that the law would eliminate green tax measures that serve as a cornerstone of Biden’s environmental and climate change policies.

One barrier to adoption could lie in the cost of the tax cuts being proposed as the debate over the recent debt ceiling drama illustrated. Many lawmakers are concerned about doing anything to add to the federal deficit as significant tax cuts are known to do.? The Joint Committee on Taxation has estimated enacting the package will add approximately $21 billion to the deficit over 10 years. Such a cost could jeopardize the votes of deficit hawks in the House Republican caucus.

What’s the point?

If the package is DOA, what is the point of this exercise??

Chairman Smith’s motive may be to lay the groundwork for a future tax bill. Expectations are high in Washington that Smith and House Republicans will pursue a major tax bill to make many of the expiring TCJA provisions permanent later in this Congress or the next one. This package is most likely Chairman Smith’s shot across the Democrat’s bow and will serve as the basis for negotiating a major tax bill down the road.

State Taxation

This week, New Jersey moved a step closer to joining the parade of states lowering their corporate tax rates. The Garden State's Senate Budget Committee approved a bill to revamp the state’s business taxation. The bill cuts the state’s taxation of certain foreign income, called global intangible low-taxed income or GILTI, from a rate of roughly 50% to 5%.

Global Taxation

It was a slow week in global taxation, but there will be some news later this week when Switzerland holds a vote to adopt a new corporate tax rate of 15% to bring the country in line with the OECD’s global minimum tax. (Corporate taxes in Switzerland currently average about 11%.)? The Swiss Government supports adoption of the new rate, as do most Swiss citizens, according to recent polling.

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