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House Budget Committee Republicans outline tax policy proposals for Reconciliation

The New York Times reports that a document circulating within the House Budget Committee outlines an ambitious Republican agenda focused on tax cuts, scaling back green energy programs, reducing federal healthcare spending, trimming the social safety net, and limiting federal support for higher education. The document includes over 200 proposals, with a strong emphasis on spending reductions as a means to offset the cost of extending tax cuts.

House Budget Committee Chair Jodey Arrington has initiated the tax reform process with a sweeping 50-page proposal outlining potential policy changes. Released on January 17, the framework launches a complex budget reconciliation effort to address both expiring Tax Cuts and Jobs Act provisions and broader Republican tax objectives.

The proposal tackles the substantial challenge of funding TCJA extensions, which the Congressional Budget Office projects will cost $4.6 trillion over ten years. While including revenue-generating measures, the document also embraces traditional Republican policies that could expand the deficit.

The path forward requires careful coordination between House and Senate Budget Committees to craft resolutions guiding tax-writing committees. However, these initial proposals should be viewed as preliminary options rather than final policy. The complex reconciliation process and approaching TCJA expirations suggest a fluid legislative environment where new proposals may emerge, and existing ones could evolve significantly.

Taxpayers and businesses should monitor developments closely as this process unfolds, recognizing that the final legislation may differ substantially from these early proposals.  

The Hill reported that the document outlines projections for President-elect Trump’s proposed universal tariffs, the specific tax cuts he advocated during his campaign, modifications to the state and local tax (SALT) deduction, adjustments to the corporate tax rate, and reductions to the climate-focused Inflation Reduction Act championed by Democrats.

According to Grant Thorton’s analysis of the document, preliminary cost estimates for key Trump campaign promises include:

  • Tip income tax elimination: $106 billion
  • Overtime tax exemption: $750 billion
  • Foreign-earned income exemption: $100 billion
  • Auto loan interest deduction: $61 billion
  • Corporate rate reduction:
    • To 15%: $522 billion
    • To 20%: $73 billion

While these figures come mainly from non-government sources and lack detailed methodology, they provide the first concrete indication of the fiscal trade-offs Republicans must navigate among competing policy priorities.

Trump recently released a video addressing his support for a 15% corporate tax rate and advocating restoring 100% bonus depreciation. “My message to every business in the world is simple: Manufacture your products in America, and we’ll offer you some of the lowest taxes globally,” he stated. “We’re significantly reducing rates, even beyond the original Trump tax cuts, bringing the corporate tax rate down to 15% for businesses that produce in the U.S.”  For an entire rundown of all the potential tax policy change ideas being floated by the House Republicans, check out this article by the tax law firm Proskauer Rose LLP or the Cato Institute’s analysis as well for further reading.

Now, here are the potential changes, along with budgeting considerations. Let’s get into it.

1. State and Local Tax Deduction

The plan is considering three scenarios:

– Repeal SALT deduction ($1T in savings)

– Make $10k SALT cap permanent, but double to $20k for married ($100-200b cost).

– $15k single/$30k married cap ($500b cost).    

2. Home Mortgage Interest Deduction

The plan is considering two options:

> Eliminate the home mortgage interest deduction on primary residences ($1T in savings)

> Lower the deductible home mortgage interest limit from $750,000 to $500,000 ($50B in savings).   

3. Eliminate Tax on Tips

Tips received by employees are subject to income and payroll taxes.

This option would consider eliminating the income tax on tips ($106B cost).   

4. Eliminate Tax on Overtime

This exemption would prevent overtime earnings from being taxed.

The estimated cost is $750 billion in 10 years.  

5. Auto Loan Interest Deduction

Currently, the auto interest is not deductible.

This would allow Americans to deduct their auto loan interest payments from their taxes. 

The specifics are unclear at the moment ($61B in cost)   

6. Corporate Rate Changes

2 options are being considered:

– Lower the corporate rate to 15% ($522B in cost)

– Lower the corporate rate to 20% ($73B in cost)   

7. Eliminate Estate Tax

Estates exceeding a certain value ($13.9M per person) are subject to the federal estate tax (up to the maximum 40% tax rate).

This option would eliminate the estate tax ($370B in cost).  

8. Replace HSA

This option would replace Health Savings Accounts (HSA) with a Roth-style, $9,100 Universal Savings Account indexed to inflation.

This is estimated to raise revenue by $110 billion during the budget window.   

9. Eliminate Deduction of Interest on Student Loans

Taxpayers can deduct up to $2,500 of interest paid on student loans from their taxable income.

This option would eliminate the deduction for student loan interest ($30B in savings). 

10. Eliminate Credit for Child and Dependent Care

Taxpayers can claim a credit for a portion of their child and dependent care expenses (up to $2,100).

This option would remove the child and dependent care credit, yielding $55B in savings over 10 years.   

11. Repeal Green Energy tax credits.

This option would repeal credits created and expensed under the Inflation Reduction Act.

These credits are related to clean vehicles, clean energy, efficient buildings, home energy and more ($800 billion in savings).   

12. Eliminate exclusion of interest on state and local bonds

Interest earned on municipal bonds is currently excluded from taxable income.

This option would end the exclusion, making income from municipal bonds taxable ($250b in savings).  

13. Eliminate HoH Filing Status

The Head of Household filing status provides a larger standard deduction for unmarried individuals with children. 

The plan would eliminate the Head of Household filing status ($192B in savings).   

Conclusion 

Republicans soon need to decide whether to advance their priorities through a single reconciliation bill or split them into two and determine the revenue parameters for reconciliation instructions. They aim to pass a budget resolution in February, providing more precise insight into their approach to tax policy and other primary fiscal legislation.

With this and the impending expiration of the TCJA, 2025 is poised for significant tax changes. However, some proposals will likely face strong opposition, such as making municipal bonds taxable. This move could upend the muni bond market, as their primary appeal lies in their tax-exempt status. If municipalities must offer higher yields to attract investors, Can states and local governments afford the increased costs?

WRITTEN BY
tom-huckabee-startup CPA advisor
Thomas Huckabee, CPA

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