No Tax on Tips, Child Tax Credit and Business Tax Cuts Survive in Big House GOP Bill
By Ashley Murray, States Newsroom
House Republicans advanced the tax portion of the “one big, beautiful” reconciliation package early Wednesday, a step forward in permanently extending, and in some cases expanding, the 2017 tax law and temporarily handing President Donald Trump a win on campaign promises like no tax on tips.
The House Committee on Ways and Means voted along party lines to pass the measure, 26-19, after nearly 18 hours of debate that went through the night. Republicans rejected numerous amendments offered by Democrats, including protecting tax credits meant to combat climate change enacted under Democrats’ own 2022 budget reconciliation law, the Inflation Reduction Act.
The marathon debate occurred as the House Committee on Energy and Commerce debated overnight and into Wednesday afternoon over deep budget cuts, including some to Medicaid assistance for low-income individuals, to pay for the cost of tax provisions.
As of now, the massive tax package is estimated to add $3.8 trillion to the budget deficit over 10 years, according to the nonpartisan Committee for a Responsible Federal Budget (CRFB).
If any temporary expansions in the bill are eventually made permanent, it would add roughly $5.3 trillion to the deficit over the next decade, according to the CRFB. The official congressional budget score has not yet been released.
Overall the bill is “a very, very big tax cut,” said Howard Gleckman, senior fellow at the Tax Policy Center, part of the left-leaning Brookings Institution and Urban Institute. “Much of the benefit will go to higher income people.”
Tax Brackets, Business Breaks Would Continue
The bill permanently extends the underlying tax provisions passed in 2017 under the GOP-backed bill titled the Tax Cuts and Jobs Act, which is set to expire in 2025.
This means:
Individual taxpayers would remain in the same tax brackets that were lowered in 2017, and they would continue to see the doubled standard deduction — two of the most costly measures. Additionally, taxpayers will receive a boost up to $2,000 on the standard deduction through 2028.
Individual brackets would remain at 10%, 12%, 22%, 24%, 32%, 35% and 37%, though the proposal would change how inflation adjustments are calculated, meaning income would be taxed less over time, except for those in the 37% bracket.
The $2,000 child tax credit, per child, would remain permanent but temporarily increase to $2,500 through 2028. The refundable portion of the credit — meaning how much money taxpayers can get back — would be increased to $1,400, but the amount remains subject to income thresholds, meaning lower income households would receive less of a refund.
The child tax credit would now only be accessible if the parent submits a Social Security number, as well as a spouse’s if legally married, in addition to the already required Social Security number of each qualifying child.
On the business side, the corporate tax rate would stay at 21%.
Business owners who run sole proprietorships, partnerships and S-corporations would see an increase, to 23% up from 20%, in the amount of business income they can deduct from their federal returns, otherwise referred to as the pass-through income deduction.
Expensing for research and development would be restored through 2029, as well as deductions available to businesses for certain investments, including equipment purchases.
No Tax on Tips, But Only For a Few Years
Trump promised on the campaign trail to eliminate taxes on tips, Social Security and car loan interest. House Republicans handed him a win in their bill, but only a limited one.
The bill allows individual taxpayers to deduct qualifying tips earned throughout the year, a tax break that would end in 2028. And like the new child tax credit requirement, taxpayers could only take advantage of the deduction by including a Social Security number on their federal tax return as well as their spouse’s SSN, if married.
No taxes on car loan interest would also go into effect through 2028, though taxpayers could only claim it for automobiles that received final assembly in the United States.
Senior citizens with incomes of $75,000 or less, or $150,000 for a married couple, would receive an extra $4,000 discount on taxable income, with the amount decreasing as incomes increase. The tax break would also expire in 2028. The bill does not specify an age for “seniors.”
Highly Taxed States Still Unhappy
House Republicans raised the cap on the amount of state and local taxes, or SALT, that can be deducted, but not enough to please both GOP and Democratic lawmakers who represent highly taxed states like New York and California.
Under the bill the committee advanced Wednesday morning, taxpayers could deduct up to $30,000 — three times the $10,000 ceiling in the 2017 law — from their federal taxable income. The full cap would apply to those making $400,000 or less in annual income but phases down for higher earners.
Raising the cap is costly and unpopular with lawmakers representing lower tax states.
Republican Representatives Mike Lawler and Nick LaLota of New York, and Representative Young Kim of California, are threatening to vote no on the House floor if the cap isn’t raised. The House GOP cannot lose more than a handful of votes if all Republicans are present.
House Speaker Mike Johnson of Louisiana told reporters Wednesday he didn’t want to “handicap” negotiations by sharing details publicly and that he was talking to the SALT caucus until 1:30 a.m.
“But I will tell you I’m absolutely confident we’re going to be able to work out a compromise that everybody can live with,” he said.
A ‘Tragic Indifference’ For Poor Families
The committee’s party-line approval of the bill drew praise and criticism across organizations representing varying interests of Americans.
Kris Cox, director of federal tax policy for the left-leaning Center on Budget and Policy Priorities, wrote on social media that the temporary child tax credit bump does “zilch” for the roughly 17 million children whose parents do not earn enough money to receive a refund check from the credit.
“But it delivers an additional $500-per-kid to higher-income families,” Cox wrote.
The organization also slammed the bill for going “out of its way to take eligibility from 4.5 million US citizen kids who have at least one parent without an SSN.”
Kristen Crowell, executive director of the advocacy group Fair Share America, said in a statement Wednesday that the bill “shows a tragic indifference to the very real struggles of normal, working people.
“In order to save face in front of their constituents, Republicans are hiding behind misleading claims that everyone will see reductions in their taxes,” Crowell said.
The Natural Resources Defense Council, an environmental protection advocacy organization, estimates that phasing out and altogether eliminating clean energy tax credits would result in higher electricity bills in several states, including Ohio and Pennsylvania, according to an emailed statement.
‘Unshackle the Economy’ For Businesses
Groups representing businesses across the U.S. praised the House bill as a way to bolster investment and growth opportunities.
Former Republican Ways and Means Chair Kevin Brady of Texas released a statement Wednesday on behalf of the Alliance for Competitive Taxation praising the bill as a path to “unshackle the economy from burdensome taxes and unlock new growth.”
“The bill reported out by the House Ways and Means Committee is an encouraging step in that direction and, if implemented with its major pro-growth proposals intact, will help American businesses and workers compete at home and abroad,” Brady said.
The alliance hailed the extension of the 21% corporate tax rate and urged lawmakers to make permanent the research and development expensing, and capital investment deductions.
Kristen Silverberg, president and chief operating officer of the Business Roundtable, said her organization “applauds Chairman Smith and members of the House Ways and Means Committee for advancing a comprehensive, pro-growth tax bill,” referring to GOP Representative Jason Smith of Missouri.
“Today’s vote is a critical step forward in securing a more competitive tax system for American businesses and workers,” said Silverberg, whose organization represents 200 CEOs of U.S.-based companies.
So much for Republicans being fiscally responsible. They gave up that title years. Now they want to blow up the deficit so that the wealthy can get tax cuts, while benefits for the rest of us are cut.