Trump's Tax Legislation Passes House, Albeit Narrowly
President Donald Trump’s tax bill passed the House of Representatives on May 22 with a very narrow margin, advancing the package that would prevent a year-end tax increase, Bloomberg reports.
The bill is now on its way to the Senate, where groups of Republican lawmakers are gearing up for major amendments. Lawmakers are targeting an approval date of August. The bill carries a $4 trillion increase in the U.S. debt ceiling, which the Treasury Department projects can force a default as soon as August or September.
The measure would extend Trump’s first-term tax cuts set to end Dec. 31, and the package adds new tax relief such as raising the cap on the deduction for state and local taxes (SALT) to $40,000 while temporarily exempting tips and overtime pay from taxes.
Cuts to safety-net programs including food stamps and Medicaid health coverage for the poor and disabled can worsen economic inequality while deficits resulting from the tax cuts also make bond investors fret more about the ballooning U.S. debt. Exacerbating these concerns is Moody’s downgrading the U.S. government’s credit rating, according to Bloomberg.
House Speaker Mike Johnson was also able to arrange an agreement between lawmakers from high-tax states on SALT. The deal would raise the SALT cap to $40,000 from $10,000 for individuals and joint filers beginning this year, with a phase out for those making over $500,000 per year. The cap would increase by 1% a year for ten years.
Other sweeteners were added for states like Texas, which would benefit the most from $12 billion in reimbursements for state border security expenses in recent years. Republican lawmakers took out a provision that would have cut federal pensions by basing benefits on the highest five years of salary instead of the highest three.
The package penalizes private universities with large endowments, making them pay a 21% tax per student on net investment income, increasing from the current rate of 1.4 percent. Immigrants would face a new levy on transfers of money to foreign nations.
The bill would increase military spending by $150 billion and add $175 billion for immigration enforcement, which are both top in Trump's agenda. It also includes many other provisions impacting healthcare, energy production and manufacturing, which moves the government away from climate change initiatives and toward fossil fuels, Bloomberg says.
The move away from fossil fuels includes getting rid of most EV tax credits by the end of this year, which is going to be replaced by a tax break for auto loan interest for U.S.-built vehicles.
Late amendments to the bill include changing the name of new savings accounts for babies born in the next few years, to be seeded with $1,000 from the government. Republican senators have said they will press for considerable changes prior to approving the package, according to Bloomberg.
A number of Senate Republicans are attempting to make tax cuts that are now temporary under the package permanent, especially breaks benefiting businesses. Some Republican senators have fought against any cuts to Medicaid. while others have pushed for far more significant overall spending cuts, Bloomberg reports.