House Ways and Means Republicans unveil second phase of sweeping tax package

Following last week’s initial release of the first portion of the Ways and Means Committee’s tax bill, focused primarily on select expiring individual and business tax provisions, House Republican taxwriters have now unveiled the second part of their legislative package, which is presented as an Amendment in the Nature of a Substitute. Accompanying the legislation, the Ways and Means Committee released a section-by-section summary of the full bill, while the Joint Committee on Taxation (JCT) released a technical description of the bill (JCX-21-25). As of press time, a revenue estimate from the JCT has yet to be released.

The second part of the tax bill is significantly broader and more comprehensive, incorporating many of the administration’s key policy priorities, some of which include proposals to exempt tipped and overtime income from taxation, a reinstatement of expensing for domestic research and experimental expenditures, and implementation of additional provisions aimed at delivering further tax relief to American taxpayers.

Also included in today’s tax package is one of its most contentious provisions: a revised cap on the state and local tax (SALT) deduction. With the current $10,000 cap set to expire at the end of the year absent congressional action, the debate over whether to modify or allow it to sunset has divided Republicans – particularly those from high-tax states who argue it has unfairly burdened their constituents. The new proposal introduced by GOP taxwriters would raise the cap to $30,000 for taxpayers with income under $400,000 (those amounts are halved for single filers) with the amount above $5,000 for singles and $10,000 for married couples phased out for higher-income taxpayers. Notably, similar proposals have been rejected in the past as providing too little relief, and several Republicans – particularly those from high-tax states – remain dissatisfied not only with the income threshold but also with the cap itself, signaling that the provision remains a key point of contention in ongoing negotiations.

To help offset the cost of the tax package, House Republicans have proposed rolling back a number of clean energy incentives from the Inflation Reduction Act (P.L. 117-169), including the electric vehicle tax credit. They’ve also modified the excise tax rates on investment income of private colleges and universities as well as increased the tax rates on investment income of certain private foundations.

Despite efforts to offset its cost, the House GOP’s tax package carries a significant price tag. The JCT released revenue and distributional estimates for a portion of the measure, projecting that just the pieces unveiled on Friday would cost nearly $5 trillion, an amount that surpasses the limits set by the budget resolution adopted by House Republicans last month for net tax reductions. The broader package released today includes some provisions that will raise revenue and some that will further reduce it; how those interact will be reflected in a forthcoming revenue estimate from the staff of the Joint Committee on Taxation. (For prior coverage of House Republican’s passage of a budget blueprint.

This projected cost presents a challenge in light of the fiscal parameters outlined in the recently adopted budget resolution. That resolution includes a reconciliation instruction allowing the House Ways and Means Committee to advance legislation that, on net, increases the deficit by up to $4.5 trillion over 10 years. However, it also includes a separate provision requiring that instruction be reduced dollar-for-dollar if other committees fail to produce at least $2 trillion in spending cuts over the same period. Given expectations that other panels will fall short of their targets for spending cuts, Ways and Means Committee Chairman Jason Smith of Missouri was said to be targeting $4 trillion for the total net cost of this package.