Republicans in Congress racing to keep 2017 tax cuts from expiring

Early in President Trump's first term, the Republican-controlled 115th Congress used the reconciliation process to pass the 2017 Tax Cuts and Jobs Act (TCJA). Some of the provisions were permanent, but most were not, and are now set to expire at the end of 2025. And so now the 119th Congress — again controlled by Republicans — is planning to again use reconciliation to extend, or possibly make permanent, these tax policies. The legislation is expected to be the key part of a larger package containing the bulk of Trump's America First agenda. GOP leadership hopes to pass the bill by July 4, but that is an aggressive timeline. Republicans will need to be almost completely united, and at this point, that is not the case.

Oklahoma Republican Congressman Kevin Hern (R-OK1) is a member of the tax-writing House Ways and Means Committee and a senior member of its Tax Policy subcommittee. Rep. Hern is, therefore, very much at the table as the work on finalizing the tax portion of the reconciliation bill continues. He is confident they will get the work done, saying Tuesday, "If we don't extend what we currently have, an average American, an average Oklahoman, will see a 22% increase in their taxes...Many Americans, most Americans are still experiencing the wrath of 20% inflation over the last four years. so the last thing you want to do as a member of Congress is to go raise the taxes an additional 20-plus percent at the end of this year by doing nothing."

With help from the Tax Policy Center, here are the TCJA provisions set to expire after 2025, if Congress doesn't get this done:

1. Lower statutory income tax rates for almost all income levels
2. Near doubling of the standard deduction, repeal of personal exemptions, and lower value of several itemized deductions, including those for: State and local taxes (SALT), mortgage interest, and medical expenses
3. Increase in the child tax credit
4. More generous alternative minimum tax
5. Deduction for pass-through business income

Business tax extenders

The TCJA permanently lowered the corporate income tax rate from 35% to 21%. However, several other policies were made temporary:

1. R&D Expensing: Since 2022, deductions for R&D costs must be spread out over multiple years instead of applying the full benefit in year one.
2. Net interest deduction: Since 2022, deductions for net interest expenses have been restricted, based on EBIT (earnings before interest, taxes) instead of EBITDA (earnings before interest, taxes, depreciation, and amortization).
3. "Bonus" depreciation: The ability of businesses to fully expense most equipment purchases (known as bonus depreciation) began phasing down in 2023 and will completely expire at the end of 2026.
4. International business tax provisions: Tax rates on corporation shifting provisions (the global intangible low-taxed income tax, the base erosion and anti-abuse tax, and the foreign-derived intangible income tax) will increase starting in 2026.

State and local tax (SALT) deduction

The deduction was capped at $10,000 as part of the TCJA to help offset the total fiscal cost. However, the Trump administration and congressional Republicans from high-tax states have signaled an interest in raising the cap.

Child tax credit

The TCJA temporarily doubled the maximum child tax credit from $1,000 to $2,000 per child under 17 and added a $500 nonrefundable credit for children ineligible for the $2,000 credit. Republican and Democratic lawmakers have proposed expanding the credit further, either to raise the credit amount or expand benefits for lower-income families.

Trump Campaign Proposals

During the campaign, President Trump proposed tax exemptions for:

1. Tips income: The fiscal costs would depend on any limitations imposed and whether the exemption applies to both income and payroll taxes.
2. Social Security benefits: TPC estimates that exempting Social Security benefits from taxation would reduce federal revenues by about $1.5 trillion over ten years.
3. Overtime pay: More details on this proposal have not yet surfaced. Trump has said he would include measures to prevent abuse of the exemption.
4. Auto loan interest deduction: TPC estimates such a deduction would cost $10 billion per year if the deduction was "above-the-line" and available to all filers, not just those who itemize when they file a return. The cost would be lower if the deduction were capped or limited to itemizers only.

REVENUE RAISERS

To offset the costs of these tax cuts, President Trump, Congress, and various groups outside government have proposed repealing certain clean energy tax breaks included in the 2022 Inflation Reduction Act, raising tariffs, and other revenue raisers.