The House passed a $79 billion collection of business- and family-centered tax breaks in a lopsided 357-70 vote that could spur the Senate to quickly take up the bipartisan package.
House Ways and Means Committee Chair Jason Smith, R-Mo., a coauthor of the bill, called it a collection of “pro-growth, pro-worker, pro-American” tax policies and claimed it would spur corporate investment, particularly in research and development.
Just the day before, even though House Speaker Mike Johnson, R-La., had given his full-throated endorsement of the bill, the scheduling of a January 31 vote appeared to be in jeopardy. While the bill passed, evening and late-night meetings ahead of the vote between members of the state and local tax deduction (SALT) caucus, Johnson, and Smith only convinced some blue-state Republicans to cast a yes vote, not all.
As reflected in the vote, the debate featured both Democrats and Republicans claiming the bill would make American companies more competitive and lift children out of poverty. But numerous Democrats on the left and Republicans on the right opposed the bill, describing it, respectively, as either overly favoring corporations at the expense of families or as both corporate and individual welfare.
The bill undoes large changes to corporate tax breaks the Tax Cuts and Jobs Act scheduled for 2022 and 2023 to help pay for cuts to business and individual tax rates. While Democrats were unsuccessful at bringing back the level of the expanded child tax credit they passed for 2021 as pandemic relief, they were able to win comparatively small increases of the credit for lower-income families. The legislation also includes an expansion of the low-income housing tax credit, disaster relief, and authorization for the administration to negotiate a U.S.-Taiwan tax agreement.
The tax package arrives in the Senate facing steadfast demands from Republicans for the opportunity to change its details, possibly slowing down its progress through the chamber. Congress has already blown past an initial deadline to have the bill done by the start of filing season, and the Senate begins a two-week recess February 12, leaving only a week to get the bill done before the end of February.
But the strength of the bipartisan vote could at least lead to the Senate voting on procedural matters and perhaps on passage during the week of February 5. However, if the package gets hung up as stand-alone legislation, there is likely to be at least one spending-related bill that could turn into a tax vehicle in late February.
Raucous Debate
Democratic concerns mainly centered on what they saw as a disparity between tax breaks for businesses and families.
“I can’t support a bill that provides generous tax breaks to large corporations, while offering minimal tax relief for working families,” said Ways and Means Committee member Linda T. Sánchez, D-Calif.
House Appropriations Committee ranking member Rosa DeLauro, D-Conn., an outspoken advocate for the child tax credit, told reporters ahead of the vote that she planned to vote against the bill because of what she called a “lopsided” distribution between the credit and business tax breaks.
“I think we had an opportunity, and it's a missed opportunity,” DeLauro told reporters. “I will make a presumption that people tried as hard as they can, but you can't tell me that something is better than nothing. . . . If the business interests had a red line, then where was our red line?”
But members from both parties described the package as a boon to both businesses and families.
“This is not about giving business a tax break; this is about investing in America and American jobs,” said Ways and Means member A. Drew Ferguson IV, R-Ga.
Ways and Means ranking member Richard E. Neal, D-Mass., defended the bill’s expansion of refundable child tax credits, noting many studies that say refundability cuts child poverty.
“I can’t believe that we would stand here tonight and sit here tonight and hear that addressing child poverty is welfare,” Neal said.
Despite claims that the corporate tax breaks would spur investment and the overall economy, the Joint Committee on Taxation found that the bill’s impacts on GDP “are estimated to be so small relative to the size of the economy and the degree of uncertainty associated with the estimate as to be negligible over the 10-year budget window.”
“This is not a tax bill, it is a welfare bill in drag,” said Rep. Matt Gaetz, R-Fla., claiming, as several House Republicans did, that the children of parents in the country illegally would get the refundable credit.
Ways and Means member Lloyd Smucker, R-Pa., pointed out that the bill has the same requirements, including that the child have a Social Security number, as the expanded refundable child tax credit had in the TCJA. That was a change from requiring only a taxpayer identification number.
Rep. Chip Roy, R-Texas, acknowledged that the work requirements in the bill were the same as they were in the TCJA.
“Right. So what? It’s still wrong,” he said.
Johnson reiterated his support for the bill in a statement prior to the vote calling the bill “important bipartisan legislation to revive conservative pro-growth tax reform.”
He said that the legislation “ends a wasteful COVID-era program,” referring to the much-maligned employee retention credit. An early sunset to the ERC plus new enforcement powers for the IRS are estimated by the Joint Committee on Taxation to almost fully pay for the $79 billion tax bill.
SALT Marriage Sidecar?
After bellyaching by blue-state Republicans advocating for the inclusion of a raise in the SALT cap, Smith and Johnson made a commitment to members of the SALT Caucus to “a process to allow a SALT bill to ultimately come to the floor,” Rep. Nick LaLota, R-N.Y., told reporters.
“The next step in that process will be a bill that removes the marriage penalty from the SALT deduction, so taking you from $10,000 for individuals, to $20,000 for married couples, maybe an income cap around $500,000,” LaLota said January 31. “We would expect some good support from both sides of the aisle on that.”
Rep. Michael Lawler, R-N.Y., introduced the SALT Marriage Penalty Elimination Act (H.R. 339) in January 2023, which could make the adjustment described by LaLota.
The bill would go through the Rules Committee and go through the floor quickly, according to LaLota, and would mark a win for a caucus of vulnerable Republicans in an election year.
A House GOP leadership aide said SALT Caucus members have the commitment of the speaker to work together to move forward on SALT, but the timing is fluid and multiple ideas have been discussed.
Johnson previously made a similar commitment to SALT Caucus members in October 2023 when he was elected speaker, promising the members that a tax bill wouldn’t see a floor vote this Congress without a raise in the SALT cap, according to multiple caucus members.
What’s Next in the Senate?
Senate Finance Committee ranking member Mike Crapo, R-Idaho, is still seeking a chance for Senate Republicans to amend the legislation through a markup in committee and declined to make a prediction on how fast the chamber might move the deal once that desire is met.
“There is a legislative process in Congress where one body works then defers to the other body,” Crapo said. “The Senate has its own processes. I think we need to have a markup — a hearing probably and then a markup on the bill and then see what kind of issues may be raised.”
Finance member Thom Tillis, R-N.C., also said he hopes for an amendment process on the bill, so long as those amendments stay related to the areas of tax the bill covers.
On the other hand, a markup could also open an opportunity for further child tax credit expansion amendments, something DeLauro hopes will happen.
“We're looking at passing what came out of the agreement, and by the way . . . [House] Democrats, were not at the table. This was Senator [Ron Wyden, D-Ore.,] and Chairman Smith,” DeLauro said.
Wyden, who is Senate Finance Committee chair, said prior to the House vote that he was waiting to see the outcome before making decisions on next steps, but confirmed he’s been in conversations with Senate leadership about getting the bill on the floor quickly.
“But if there's a big vote in the House of Representatives, I think families and businesses and others are going to say: ‘Let's not have a lot of Washington razzmatazz that holds up getting this help.’ They're going to want to get it done,” Wyden said.
When it comes to timing, the bill comes to the Senate with a lot of momentum, said Rohit Kumar of PwC. If that timing slips, the Senate vote could be skipped and the tax package could be added to whatever legislation addresses the March 1 and March 8 partial government shutdown deadlines Congress created.
Legislation heading off a shutdown will also need to contain an extension of Federal Aviation Administration excise taxes, such as passenger and aviation taxes, which otherwise expire March 8.
“On or before March 8 we have to do FAA excise taxes again, so there’s going to be a revenue measure,” Kumar said. Anytime a revenue measure is added to an appropriations bill, it tends to open up the spending bill for the addition of tax extenders and other bipartisan tax matters.
It’s in the Details
The bill:
rolls back the requirement that began in 2022 for companies to write off domestic R&D costs over five years and foreign costs over 15 years ($8.5 billion over 10 years);
delays the beginning of the phaseout of 100 percent bonus depreciation from 2023 to 2026 ($3 billion);
returns the calculation for net interest expensing from earnings before interest and taxes to earnings before interest, taxes, depreciation, and amortization ($18.8 billion);
adjusts the child tax credit for inflation (rounded down to nearest $100) in 2024 and 2025; increases the partial refundability maximum for the child tax credit to $1,800 for 2023, $1,900 for 2024, and $2,000 for 2025; and bases calculation for partial refundability on number of children ($33.5 billion);
provides relief for double taxation between the United States and Taiwan (no revenue impact);
increases limitations on expensing depreciable business assets ($2.5 billion);
contains disaster provisions that extend rules for tax treatment of disaster-related personal casualty losses; excludes compensation for wildfire losses from income; and funds East Palestine, Ohio, disaster relief ($4.9 billion);
boosts the low-income housing tax credit ceiling and lowers the bond-financing threshold ($6.3 billion); and
increases the 1099-NEC and 1099-MISC reporting thresholds for work done by contractors, subcontractors, and others from $600 to $1,000 ($1.5 billion).
All but $399 million of those costs would be paid for by provisions barring ERC claims after January 31 and increasing IRS enforcement powers regarding claims. The JCT estimates those measures would save $78.6 billion.