House Republicans on the Ways and Means Committee voted their tax legislation out of committee on Wednesday, moving one step closer to enacting a sweeping fiscal bill that would enact much of President Donald Trump’s domestic agenda.
The fate of the bill on the House floor, though, was unclear, as members were still debating deductions for state and local taxes, as well as the amount of spending cuts to be included in the larger legislative package.
The committee voted 26-19 to approve the tax part of the legislation after a marathon markup meeting that lasted more than 17 hours. During the markup, Democrats offered up several amendments that were batted down, but this allowed them to air out criticisms of the tax cuts.
The legislation, which represents the biggest change in tax policy since 2017, includes language extending and making permanent various expiring provisions from the 2017 Tax Cuts and Jobs Act, as well as other Trump priorities, such as eliminating taxes on tips, ending taxes on overtime, and increasing the cap on state and local tax deductions. Altogether, it constitutes a $3.8 trillion tax cut over the next 10 years, according to the Joint Committee on Taxation.
Republicans are aiming to pass the tax cuts through reconciliation, a legislative process that allows bills to bypass the filibuster and pass with only a simple majority in the Senate. In the reconciliation process, committees advance the larger bill piecemeal. Other committees are working on parts of the legislation that would enact spending cuts to offset the fiscal cost of the tax cut partially. Republicans also argue that some of the foregone revenues will be recouped through faster economic growth.
Ways and Means Committee Chairman Jason Smith (R-MO) opened the Tuesday hearing by asserting that the tax bill will benefit the working class and the middle class.
“My priority is the working class because I am a product of the working class,” Smith said. “This bill delivers for those American families, just like mine, who have struggled to get ahead for far too long.”
Throughout the hearing, Democrats lambasted Republicans for their legislation and accused them of working to hand tax cuts to the wealthy at the expense of the poorest Americans. Ways and Means ranking member Richard Neal (D-MA) panned the 2017 tax law and said it left ordinary Americans behind.
“Now they want to double down on the same failed playbook,” Neal said. “One that rigs the system for billionaires and big corporations while everyone else pays the price.”
The Tax Policy Center, a left-leaning organization, estimates that two-thirds of Americans got a tax cut from the bill. The lowest quintile of earners saw their tax rates effectively reduced to 0%.
But there are still some major unresolved questions about reconciliation. For one, the issue of the cap on deductions for state and local taxes, which was put in place by the 2017 overhaul, is still outstanding.
Some House Republicans from blue states, such as New York Reps. Mike Lawler and Nick LaLota, have dug in their heels in opposition to the Ways and Means Committee’s proposal to increase the $10,000 SALT cap to $30,000 for married couples but set an income limit of $400,000. While the proposal would triple the SALT cap, they maintain that $30,000 is too low.
House Speaker Mike Johnson (R-LA) expressed optimism that an agreement would be reached after meeting with SALT Republicans on Tuesday night, although after a later meeting, he said he didn’t think a deal would be released until Wednesday.
But the so-called SALT caucus has fractured a bit, further complicating things. The only self-described member of the caucus on the Ways and Means Committee is Rep. Nicole Malliotakis (R-NY), and she publicly endorsed the $30,000 cap offer during the markup.
Later, she was reportedly kicked out of the meeting between SALT members and Johnson.
“As the only SALT caucus member on Ways and Means, all I know is they can sit and negotiate with themselves all they want, but there will be no changes unless I and the committee agree,” she said after.
Lawler and others want a much higher cap, although doing so would be costly and could endanger support from deficit hawks, especially given that most rank-and-file Republicans don’t support lifting the SALT cap. SALT deductions primarily benefit high-income earners in high-tax states like New York and California.
While the Ways and Means Committee passed the legislation out of committee with the $30,000 SALT cap, that could be changed on the House floor.
Throughout the lengthy Ways and Means hearing, Democrats offered up several amendments that would undo portions of the legislation they disapprove of or make tax policy changes that they would have included in a tax bill.
For instance, Rep. Brendan Boyle (D-PA) offered an amendment that would require that the tax bill reduces deficits over a 10-year window on a “current law” baseline rather than a “current policy” baseline. The current policy baseline assumes that the temporary 2017 tax cuts would be extended, meaning that legislation to make the tax cuts permanent would be scored as having no effect on the deficit, rather than a $4 trillion increase. The current policy baseline is seen as a gimmick by many budget hawks.
“Right now, Republicans are attempting to use the ‘current policy baseline’ gimmick,” Boyle said. “Current policy baseline is D.C. jargon for the most fiscally irresponsible bill in history.”
Many Senate Republicans, including Finance Committee Chairman Mike Crapo (R-ID), argue that the current policy should be used.
That amendment failed in a party line 19-26 vote.
Early on Wednesday morning, Rep. Don Beyer (D-VA) proposed an amendment that would close what he called the carried interest “loophole.”
Carried interest is a kind of income that some investment firms earn while managing investors’ money. It is taxed at the rates on investment income, but critics say it should be taxed at the higher rates that apply to labor income. Trump is one of those critics, but the provision was left out of the Ways and Means legislation.
“Every Republican just voted against my amendment to close the carried interest loophole,” Beyer said on social media after the vote. “They’re fighting for hedge fund managers and showing once again that Trump’s promises to fight for regular people were empty.”
Another amendment by Rep. Tom Suozzi (R-NY) would have changed the $30,000 SALT cap increase in the legislation to $80,000, and would pay for it by bumping up the highest income rate from 37% back to 39.6%.
It was a notable proposal not only because of the current SALT negotiations, but also because Trump had reportedly been considering letting the top individual rate revert from 37% to 39.6% for taxpayers earning over $2.5 million. But that plan was left out of the legislation that passed the Ways and Means Committee on Wednesday.
The Ways and Means legislation also expands the child tax credit, an increasingly popular policy proposal for Republicans.
The bill temporarily boosts the child tax credit to $2,500 through 2028. The increase to $2,500 is essentially an inflation adjustment, given that’s about how much the credit would need to be to have the same purchasing power as when it was doubled to $2,000 as part of the 2017 Tax Cuts and Jobs Act.
But Democrats favor an even higher child tax credit that doesn’t have income (work) limitations. Rep. Suzan DelBene (D-WA) offered an amendment that would have expanded the child tax credit to $4,800 for parents with children under six, and boosted it to $3,600 for children aged six through 17. The credit would be fully refundable.
During the hearing, she emphasized refundability for the tax credit. Refundability is the ability for households with no tax liability to receive a check from the government.
“I would say a big issue that I think is missed … is that one in three children, their families do not make enough money to access the full credit,” DelBene told the committee. “Refundability is key.”
Democrats have long favored a bigger child tax credit and got that opportunity in 2021 as part of the partisan American Rescue Plan Act. The pandemic-era legislation championed by President Joe Biden made the credit even more valuable for just a year as part of the deal.
At the time, Congress raised the child tax credit to $3,600 for children under the age of six and $3,000 for older children. But perhaps the biggest change was the removal of an income threshold for those who receive the funds. A family with no income or head of household working would also receive the full $3,600 or $3,000 payments. The boosted tax credit sunsets at the end of 2021.
Rep. Blake Moore (R-UT) is a Republican who has championed a bigger child tax credit. He defended his party’s record on the matter during this week’s markup. He emphasized how Republicans doubled the prized tax credit as part of the Tax Cuts and Jobs Act.
“The fact is, we doubled it in 2017 and we’re enhancing it again today,” Moore said. “In fact, not only are we enhancing, we are making what we did in 2017 permanent, and tying that portion to inflation.”
TWO TRUMP-ENDORSED TAX HIKES ON WEALTHY LEFT OUT OF GOP TAX BILL
The Ways and Means legislation passed Wednesday also would raise the debt limit by $4 trillion, giving breathing room to the Treasury Department.
The legislation, which can still be revised on issues like the SALT cap, will eventually come to the full House for a vote. Republican leadership can only afford to lose a few votes, so they are threading a needle.