Tax Cut Proposals: A Closer Look at the House and Senate Plans
As lawmakers delve into tax cuts as part of a significant spending bill, Republican members of the House and Senate are taking slightly different paths. The current debate centers around the size of deductions for state and local taxes, and other nuanced financial provisions.
The House version of the bill was pushed through shortly before Memorial Day, and now the Senate is working on its own take. While both drafts share key tax provisions, their differences will be crucial in determining how soon a final bill can be presented. President Trump aims for the legislation to be signed by July 4th.
Child Tax Credit Changes
Currently, the child tax credit stands at $2,000 per child. The House intends to temporarily increase this to $2,500 for the tax years 2025 to 2028, while also adjusting the amount for inflation starting in 2027. In contrast, the Senate bill proposes a smaller increase to $2,200, but this boost would be permanent, with inflation adjustments beginning the following year.
Keeping Promises from the Campaign Trail
During his campaign, Trump vowed to eliminate income taxes on tips, overtime pay, and Social Security benefits. The new bills implement these commitments with temporary deductions from 2025 to 2028. The House proposes a deduction on tips for customary tip jobs and allows for overtime deductions equal to the amount earned. The Senate’s approach has more restrictions, capping tip deductions at $25,000 and overtime at $12,500. Both versions of the bill offer a deduction for vehicle loan interest of up to $10,000, particularly for U.S.-made cars, and establish aging-related deductions, with the House setting it at $4,000 and the Senate at $6,000.
State and Local Tax Deductions
The cap on state and local tax deductions, known as the SALT cap, is currently set at $10,000. The House bill proposes increasing this cap to $40,000 for households earning less than $500,000, while the Senate keeps the cap at $10,000. Finding a common ground will be crucial in the negotiations ahead.
Medicaid Provider Taxes
The House bill seeks to prohibit states from imposing new taxes on Medicaid providers, preventing potential cuts in Medicaid programs. Conversely, the Senate approach proposes gradually reducing the tax threshold for states that have expanded their Medicaid populations under the Affordable Care Act.
Supporting Businesses
The House would allow companies to fully deduct equipment purchases and domestic research and development costs for five years. The Senate bill makes these tax breaks permanent, a priority for many trade groups.
Concerns with Clean Energy Credits
Republicans are also looking to reduce the clean energy tax credits introduced under the Biden administration. While the Senate bill proposes less rapid phase-outs compared to the House, concerns persist that these changes could negatively impact jobs and increase energy costs for households.
Additional Provisions
Other notable distinctions include the House allowing health savings accounts to cover gym memberships, while the Senate does not. The House reinstates a charitable deduction for non-itemizers at $150, whereas the Senate suggests a higher limit of $1,000 for donations. The House also proposes a new annual fee for electric vehicle owners, which the Senate bill does not include.
These negotiations in Congress reflect a broader Republican commitment to tax relief for Americans while adjusting certain financial provisions to fit their visions. The path ahead will reveal how these differing approaches can be reconciled into a unified bill that addresses the needs of all constituents.
