On May 23, by a narrow 215 to 214 vote after an all-night debate, the House of Representatives passed the $6+ trillion reconciliation bill, H.R.1. The Congressional Budget Office (CBO) projects that the measure as passed by the House would, over 10 years, add $2.42 trillion to the federal deficit. H.R.1 contains a $3.8 trillion tax package. CBO also projected that Trump tariffs would reduce the deficit by $2.5 trillion over 10 years.
The tax package represents a significant win for NAIFA. It does not include a cap on corporate deductions for state and local taxes (SALT), nor does it change carried interest tax rules or a new top tax rate for high-income taxpayers. It also includes a significantly limited provision that would expand the section 162(m) deduction rules for high-paid executive compensation. It also left out any life insurance-specific provisions, like an adverse proposal on private placement life insurance.
On the win side, the House-passed bill increases and makes permanent the Section 199A deduction for qualifying non-corporate business income. The new deduction level is 23 percent, up from current law’s 20 percent. It also prevents current law income tax rates and the current standard deduction from expiring at the end of the year, and reverting back to the higher rates in effect in 2016.
The bill includes a special four-year (2025-2028) deduction for senior citizens. It increases the estate tax exemption to $15 million per individual ($30 million for married couples filing jointly), without an expiration date. There is a four-year deduction from income but not payroll tax for certain overtime payments. An increased tax credit for employer-provided paid leave is in the bill, too. H.R.1 also includes a five-year (2025-2029) rule that allows 100 percent expensing for qualified business-acquired property, and enhances the business interest deduction, also for five years.
Other provisions included in the tax package include a new savings account program for children—called “Trump Accounts.” A $15/$30 million exemption from the estate tax is in the bill, as are enhanced rules for health savings accounts (HSAs), and other high-profile tax issues.
Details on these provisions in the House-passed bill are in the stories below.
The bill also contains a decrease in the exemption amount for purposes of the alternative minimum tax (AMT). The House-passed bill lowers the AMT exemption amount from $89,400 ($139,900 for married filers) to $70,300 ($109,400 for joint filers). In addition, it phases out the exemption amount from the AMT from $639,500 ($1,271,900 for married taxpayers) to $500,000 ($1 million for joint filers). This provision would also adversely impact the value of the section 199A deduction.
One of the key compromises in the House bill was the provision increasing the cap on the deduction for state and local taxes (the SALT deduction). Currently, $10,000 in SALT deductions are allowed. Under the House-passed bill, that deduction cap grows to $40,000 for taxpayers earning $500,000 or less. There are also other restrictions, particularly for those in the top 37 percent tax bracket. These restrictions will likely negatively impact some pass-through taxpayers’ use of the section 199A deduction for qualifying non-corporate business income.
The SALT deduction provision was key to winning the Republican votes required to pass the bill. But, there is opposition to what some Republican Senators are calling “an over-generous” SALT deduction, and it is expected that the Senate will change this provision. House Republicans who fought hard for the increased SALT deduction are now saying they will vote against the bill if the Senate reduces the House SALT deduction. This is a key inflection point in the overall politics of passing the bill.
Helpful changes to the Savers Credit and rollover rules applicable to ABLE accounts are also in H.R.1, as are provisions that would allow additional elementary, secondary, home school, and certain postsecondary credentialling expenses to be treated as qualified higher education expenses for purposes of section 529 education savings accounts. The bill also provides a $150 ($300 for married couples) above-the-line deduction for charitable contributions. The bill also includes a four-year deduction from income but not payroll taxes for tip income for people in professions that are “customarily and traditionally” tipped and who earn $75,000 or less, and a deduction for auto loan interest.
Prospects: The Senate is now working on the bill, where significant changes are expected. Senate leadership has targeted July 4 as the date by which work on the reconciliation bill “should” be completed. However, many if not most Washington insiders believe it will likely take the Senate (and then the process of reconciling the House and Senate versions of the bill) longer than that to complete work on the legislation.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org; or Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org.