Don't Mess With Taxes

Senate side of the U.S. Capitol (Scrumshus - Own work, Public Domain)

Are you ready for more tax fighting on Capitol Hill? Apparently the Republican-led Senate Finance Committee is.

The panel this afternoon released its changes to the House-passed One Big Beautiful Bill (OBBB). As expected, tax writers in the upper chamber made lots of changes.

Here’s a look at some key differences.

Child Tax Credit: If Congress doesn’t act, the Tax Cuts and Jobs Act (TCJA) provision that bumped the popular Child Tax Credit (CTC) from $1,000 to $2,000 per qualifying child will expire on Dec. 31, cutting the family tax break in half.

The House OBBB proposes an increase of the CTC to $2,500 per eligible youngster. The Senate wants to go to $2,200 starting with the current 2026 tax year. The CTC amount then would increase annually if inflation warranted an adjustment.

SALT battle: Lawmakers in high-tax states have been trying to change the TCJA $10,000 limit on the federal itemized tax deduction on state and local taxes, or SALT, since the 2017 GOP tax reform bill became law.

While the tax deduction fight initially was characterized as a partisan battle, pitting usually higher-tax Democratic leaning states against Republican jurisdictions with lower or no taxes, the SALT issue has become bipartisan.

A group of Republicans Representatives whose districts are in blue states prevailed in the House OBBB. They got the Schedule A SALT cap increased to $40,000. There’s no such sentiment in the Senate, which wants to keep the SALT limit at the current $10,000 level.

Charitable deductions: Nonprofits have not been happy with the TCJA, since the tax law doubled the standard deduction amounts and made itemizing even less appealing. The loss of itemized charitable donations has hurt 501(c)(3) fundraising.

For tax years 2020 and 2021, philanthropic filers who used the standard deduction method were able to claim some of their charitable gifts without having to itemize.

Both the House and Senate big consolidated tax bills would resurrect this option, but the Senate version is much more charitable.

The House tax bill calls for a donation deduction for taxpayers who do not itemize for tax years 2025 through 2028. During these four years, single donors could claim up to $150 in charitable gifts, with the deduction amount doubled for single taxpayers and $300 for married couples.

The Senate bill is more generous. Single standard deduction filers could claim up to $1,000; the maximum would be $2,000 for married couples. And while this tax benefit for nonitemizing donors wouldn’t take effect until the 2026 tax year, it would be permanent.

The Senate also would set a new floor of for itemized charitable deductions. These taxpayers could only claim contributions that were in excess of 0.5 percent of their adjusted gross income. This would mean, for example, that itemizing filers with adjusted gross income of $200,000 wouldn’t be able to claim on Schedule A their first $1,000 of charitable donations.

Where lawmakers agree: There is some less contentious tax legislative news.

The Senate proposal, like its House counterpart, contains versions of tax changes Donald Trump promised during the presidential campaign. Both would address easing taxes on workplace tips, overtime pay, Social Security benefits, and some car-loan interest.

Senate tax writers also dashed the clean energy community’s (and lobbyists’) hopes. Like the House bill, the Senate version proposes a quick end to most tax breaks for wind and solar power, electric vehicles, and other environmentally friendly energy provisions in Biden’s Inflation Reduction Act.

Tight timing: GOP Senate leaders would like to pass the bill as soon as next week, with a target of getting a final bill to the Oval Office by July 4.

The calendar symbolism aside, that timing is a challenge.

Once the Senate version is approved by that chamber, it must go back to the House for consideration. And second okay of a bill with both slight and major changes to the original could be problematic.

The House’s OBBB, officially titled H.R. 1, narrowly passed the first time, largely due to concessions on the SALT cap. Several Representatives say they will not vote for the Senate version that keeps the $10,000 level.

Of course, talk is if not cheap when it comes to federal tax legislation, at least a starting point.

"We understand that it's a negotiation," Senate Majority Leader John Thune, a South Dakota Republican, told reporters Monday, June 16, evening. Thune was speaking specifically about the SALT cap, saying "there had to be some marker in the bill to start with,” but his assessment could apply to all the divergent provisions in the bills.

You can read more about all of them in the Senate Finance Committee’s section-by-section discussion of its reconciliation proposal.

You also might find these items of interest:

• Problems with Trump Savings for children
• The extended costs of SNAP cuts in GOP tax bill
• Tax reform slashed charitable giving by $20 billion a year
• A look at some tax changes in GOP’s House-passed One Big Beautiful Bill

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