House Budget Committee lays out tax policy options

The House Budget Committee has circulated a menu of revenue proposals that details tax policy options for a reconciliation bill.

The 50-page document of policy options was compiled by House Republican Budget Committee Chair Jodey Arrington, R-Texas, who also sits on the tax policy Ways and Means Committee. The House and Senate Budget Committees will be responsible for writing the budget resolutions that carry reconciliation instructions for the tax-writing committees. Republicans are still in the planning stages of a reconciliation process they intend to use to address expiring provisions from the Tax Cuts and Jobs Act (TCJA), campaign tax proposals and other Republican priorities.

The policy options in the Arrington document were not vetted by chairs of other committees and the document’s release took many Republican members by surprise. The proposals are each scored over 10 years, though the provenance and accuracy of many of the estimates is unknown. The document should not be viewed as either a unified proposal or an indication of endorsement or support for any specific provision. Instead, it offers a general sense of the policy decisions and options facing Republicans as they seek to put together a massive tax bill through reconciliation.

The document provides some of the first staff estimates for several campaign tax promises made by President Donald Trump:

• Eliminating tax on tips: $106 billion
• Eliminating tax on overtime: $750 billion
• Exempting Americans abroad from tax: $100 billion
• Providing an auto loan interest deduction: $61 billion
• Cutting the corporate rate to 15%: $522 billion
• Cutting the corporate rate to 20%: $73 billion

Many of the budgetary scores come from nongovernmental sources, and the underlying assumptions about how the provisions would operate are not always clear. But the estimates at least offer some insight on the scale of difficult decisions Republicans face between competing priorities.

Trump recently released a video address doubling down on the idea of 15% corporate rate and also endorsed restoring bonus depreciation to 100%. “My message to every business in the world is very simple: Come make your product in America and we will give you among the lowest taxes of any nation on Earth. We’re bringing them down very substantially, even from the original Trump tax cuts,” he said. “We’re going to bring it down to 15% if you make your product in the U.S.A.”

The document also estimates a $222 billion price tag for repealing the corporate alternative minimum tax created by the Inflation Reduction Act (IRA) and a cost of $169 billion to restore expensing of research and experimentation (R&E) costs under Section 174.  

The document scores several separate options for addressing the cap on the state and local tax (SALT) deduction. Repealing it altogether would cost $1 trillion, while raising it to $15,000 for single filers and $30,000 for joint filers would cost $50 billion.

The document includes several revenue-raising options Republicans have discussed, including:

• Repealing all the energy credits in the IRA ($800 billion)
• Repealing only the energy credits for carbon sequestration under Section 45Q, nuclear power under Section 45U, clean fuel under Section 45Z and electric vehicle credits ($400 billion)
• Denying EV credits for lessees ($50 billion)
• Repealing the SALT deduction for businesses and corporations ($310 billion)
• Reforming Affordable Care Act subsidies in various ways (up to nearly $100 billion total)
• Barring employee retention credit claims filed after Jan. 31, 2024 ($75 billion)
• Increasing the excise tax rate on endowments from 1.4% to 14% ($275 million)

There are also many controversial revenue-raising options that could face difficulty gaining traction among Republicans, including:

• Eliminating the tax-exempt status for hospitals ($260 billion)
• Eliminating the tax-exempt status for credit unions ($30 billion)
• Resurrecting a border-adjustable tax discarded during TCJA discussions ($1.2 trillion)
• Repealing the income exclusion for interest on state and local bonds ($260 billion
• Repealing individual credits and deduction incentives for college ($125 billion)
• Repealing the deduction for charitable contributions to health organizations ($83 billion)
• Repealing the home mortgage deduction ($1 trillion)

Repealing IRS enforcement funding is estimated to cost the government $46 billion.

The document also includes several non-tax policy changes that highlight other revenue or savings potential for congressional Republicans and the Trump administration, though some, particularly healthcare-related, could come with significant political blowback in addition to budgetary benefits.

Republicans will soon have to settle on whether to use one reconciliation bill or two to advance their priorities and what revenue parameters to set in reconciliation instructions. Republicans hope to move a budget resolution in February, which will help illuminate the direction they choose to take on tax policy and other significant fiscal legislation.

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