House Republicans on Monday outlined their plans for an expansive tax bill that would temporarily enact President Trump’s campaign pledges not to tax tips or overtime pay, roll back subsidies for clean energy and create a new type of tax-advantaged investment account for children.
The bill, which the Ways and Means Committee will formally take up on Tuesday, amounts to the first full attempt at detailing Republicans’ plans for cutting taxes this year. But it quickly faced criticism from some House Republicans, nearly all of whom will need to support the legislation in order for it to pass over what is expected to be unified Democratic opposition.
For example, the draft calls for increasing the limit on the state and local tax deduction to $30,000 from $10,000. A group of four Republicans from New York have agitated for a much higher cap, and called the proposed $30,000 limit “insulting” last week. Representative Nick LaLota, Republican of New York, wrote on social media on Monday that he was “still a hell no.”
That opposition signaled the challenges that are likely to surface as Republican leaders scrounge for votes and try to satisfy various intraparty concerns. The tax measures, mostly cuts but also some increases, are just one component of broader legislation that Republicans hope to enact in the coming weeks. Other pieces of the bill focus on making cuts to Medicaid, the health care program for the poor, and food stamps, all while increasing spending on the military and immigration enforcement.
The heart of the effort, though, is extending several provisions from Mr. Trump’s 2017 tax law, including lower marginal income tax rates and a larger standard deduction. Those measures are set to expire at the end of the year, motivating Republicans to pass a bill and avoid a tax increase for most Americans.
But Mr. Trump and Republicans on Capitol Hill have sought to go far beyond simply preserving their last tax cut. The legislation includes several new tax breaks that would last through most of Mr. Trump’s term and fulfill the president’s campaign promises not to tax tips, overtime and Social Security.
All of those tax cuts will be expensive, so Republicans are also planning to raise taxes as part of the package to help make their budget math work. The legislation is expected to add at least $2.5 trillion to the deficit over the next 10 years.
Here’s a look at what House Republicans have in mind:
Trump-Approved Tax Cuts, Temporarily
When Mr. Trump first started rolling out a series of unusual tax cut proposals as a candidate, some Republicans on Capitol Hill quietly hoped their party could ignore them. That proved improbable. Several of those tax breaks are close to becoming law, albeit only until 2029, when Mr. Trump will leave office.
Those temporary cuts, if approved by Congress, would come with limitations. The tax exemption for tips, for example, would be available only to Americans in jobs that typically receive tips. The tax break would also be subject to an income limit of $160,000. The carve out for overtime pay would also apply only to income taxes, not payroll taxes, and come with the same income restriction.
Because Social Security’s finances are subject to special procedural protections in Congress, Republicans chose to structure Mr. Trump’s pledge to not tax social benefits as a broader tax break. In the bill, it takes the form of a $4,000 bonus deduction for older Americans that shrinks as income rises.
Mr. Trump’s request that Americans who borrow to buy a car receive a tax break is also in the bill, but that would apply only if the car was made in the United States. The tax break gradually phases out for single Americans making more than $100,000 annually.
Republicans came up with a few additional cuts of their own. They proposed raising the standard deduction by $1,000 for individuals and the child tax credit by $500, though those increases are also only temporary and would expire in 2029.
House Republicans also hope to create a new type of investment vehicle, called a “MAGA account,” into which Americans could invest up to $5,000 per year on behalf of their children. Earnings on those investments could be withdrawn to cover school expenses and job training, buy a home or start a business. Children born in the next few years would also receive $1,000 in the account.
Not all of Mr. Trump’s campaign proposals made the cut. A pitch to change how Americans overseas are taxed, for example, has so far fallen short.
Tax Breaks for Businesses
While the tax cuts for individual Americans and their families are flashier, the bill also includes several sought-after tax breaks for businesses.
Those include the ability to immediately write off the cost of research and development, as well as investments in equipment and machinery. To encourage more domestic manufacturing, an overriding goal of Mr. Trump’s term, the bill creates a new tax break for building factories.
Disappointing some lobbyists and experts who view investment write-offs as the most effective tax policies for growing the economy, those provisions would be temporary under the bill.
One of the central provisions of the 2017 tax law was a new deduction for the owners of many businesses, often called “pass-throughs.” This type of business is not directly taxed but passes earnings onto its owners, who then pay individual income taxes on them. Not only does this Republican bill make that deduction a permanent piece of the tax code, but it makes it even more generous, increasing it to 23 percent from 20 percent.
“This is a great leap forward in securing very competitive tax policy that will attract investment and create jobs here in the United States,” said Jay Timmons, the president of the National Association of Manufacturers, a business lobbying group. He said his group strongly supports the more generous treatment for pass-throughs and would push for other business-focused elements to be made permanent “as the process moves forward.”
Tax Hikes for Republican Punching Bags
To cover some of the cost of these tax cuts, Republicans are preparing to shake down a familiar set of political targets: President Joseph R. Biden Jr.’s agenda, universities and migrants.
Mr. Trump has long railed against his predecessor’s signature piece of legislation, a 2022 law passed by Democrats that showered companies producing solar, wind and nuclear energy with tax credits. Republicans want to shut down or limit many of those credits. A $7,500 consumer subsidy for purchasing a new electric vehicle would be largely eliminated, while other provisions would be phased out over several years. The bill would also add several new rules that are likely to make it harder for companies building solar and wind power to receive tax benefits.
University endowments are also being targeted, with a tax on their investment income rising as high as 21 percent from 1.4 percent. The Trump administration has clashed with several top universities over what it claims is widespread antisemitism on college campuses, with Mr. Trump cutting off Harvard and threatening to revoke its tax exemption.
People in the United States sending money overseas would also face a new 5 percent tax on those remittances, though American citizens would not owe the tax. Such a levy could raise costs for migrants working in the United States who send money overseas to help support their families. The Trump administration is trying to remove millions of migrants from the country.
Tony Romm contributed reporting.
