Big GOP Tax Package Would Boost Standard Deduction

Other Changes in the Package

Smith’s package temporarily extends various business tax provisions and repeals “certain energy tax credits from the Inflation Reduction Act” — including breaks for buyers of electric vehicles — and enacts other reforms, the Committee for a Responsible Federal Budget explained Monday in a brief.

The package includes “100% bonus depreciation, R&D expensing, basing the net interest deduction limitation on EBITDA” or earnings before interest, taxes, depreciation and amortization, York said. This would have the effect of increasing the allowable deduction.

Overall, York said, the Tax Foundation finds “the three bills would be revenue neutral from 2023 through 2033, including the retroactive portions of the business tax changes.”

The bulk of tax cuts would occur from 2023 through 2025, “as tax revenue would fall by more than $100 billion in each of the three years,” York explained. “Afterwards, tax revenue would rise relative to the baseline. That increase is a function of both repealing the green energy tax credits and shifting the timing of business deductions for investment.”

“Because the policies are temporary, they would not result in long-run growth for the economy, wages or jobs,” York said. “Addressing the phaseout of bonus depreciation and amortization of R&D expenses is especially important in a time of high inflation, but if the goal is lasting improvements for investment and jobs, the policy improvements need to be permanent.

“Rather than using revenue to retroactively extend policies or expand other programs like Opportunity Zones, lawmakers should focus on permanence for 100% bonus depreciation and R&D expenses going forward.”

The Committee for a Responsible Federal Budget estimates the bill would cost $80 billion over a decade with interest ($19 billion before interest), including $320 billion through the end of fiscal 2025.

“The smaller ten-year cost is driven by several factors but mainly by the fact that most of the bill’s tax cuts expire at the end of 2025,” the Committee said. “We estimate that the plan would cost over $1.1 trillion ($950 billion without interest) through 2033 if these temporary tax cuts and extensions were made permanent.”

Chart via Committee for a Responsible Federal Budget

Chance of Passage

Smith’s plan “includes the restoration of immediate expensing, expanding the standard deduction, rescinding tougher rules on capital and interest expense deductions, expanding opportunity zones, pulling back on EV tax credits approved last year, and rescinding gig worker tax reporting changes,” Bush of The Washington Update explained.

“To the extent Democrats entertain the idea, they will likely ask for an expansion of the Child Tax Credit established during the pandemic,” Bush said.

That said, Bush doesn’t see the package moving through Congress.

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