Don't Mess With Taxes

The one big tax and domestic policy bill continues its legislative ping pong, with the latest volley being from the Senate. That chamber's version has gone back to the House for approval. Or not. (Image by djimenezhdez from Pixabay)

The Senate approved the Trump administration's massive tax and domestic agenda bill today. Now the House must vote on it again, this time to sign off on the Senate changes to the original One Big Beautiful Bill (OBBB) Act.

There's a chance the House could reject the bill.

After all, the agreed-to bill wasn't that popular in the Senate. It just squeaked by 51-50 after the vice president was called in to cast the decisive yes vote.

And some House members are not happy with the Senate changes to the original legislation. That could pose problems for Republican leaders, who know all too well how hard it is to corral 220 Representatives. The bill's initial House passage back in late May was by just one vote.

Since then, things haven’t changed a lot, with the GOP still fighting among itself over the bill’s provisions and costs.

But if I were betting, I'd put my money on the measure clearing the House, and in time to meet the marketing perfect July 4 deadline that the White House wants.

SALT appeal to House GOP: One reason the Senate bill might get some House help is that the upper chamber decided to go along with the House on the federal tax deduction cap on state and local taxes, usually referred to by its acronym SALT.

The Tax Cuts and Jobs Act (TCJA) of 2017, the signature tax reform law enacted during Donald J. Trump's first term, limited the amount of SALT that itemizing federal taxpayers could claim to $10,000.

Before the law change, the Form 1040 Schedule A deduction was unlimited. In capping it, proponents argued that the SALT write-off benefited primarily wealthy taxpayers. There also was the added political appeal — yes, Capitol Hill is that petty — that most of those taxpayers lived in primarily Democratic states.

But taxes don't follow strict state or Congressional district boundaries. Lawmakers in Republican jurisdictions discovered that many of their constituents also were unhappy with the $10,000 SALT cap. So, they got the deduction limit bumped up to $40,000 in the House version of the OBBB.

Senators, however, said no, citing the cost of expanding the tax deduction. In their first version, they kept the TCJA’s 10-grand cap. But during debate, they made a U-turn, and agreed to go with the House's $40,000 cap, with some caveats.

The bill now raises the SALT deduction cap to $40,000 for taxpayers with incomes up to $500,000 through 2029. That cap will be adjusted annually for inflation, until 2030, when it would return to the $10,000 limit.

Senators also agreed to keep the option (okay, loophole) many states granted pass-through entities to pay SALT and deduct the full amounts, thereby avoiding the original cap.

The Senate's SALT surrender should mollify a group of GOP Representatives who said they would vote no on the bill if the House cap was cut and move them into the yes column.

Cost still contentious: Of course, the SALT change will increase the cost of the OBBB. Depending on whose calculations you use, that's a whole lot of money, despite offsets in the bill from cuts to many social service programs.

The Congressional Budget Office projects that the bill would increase federal deficits over the next 10 years by nearly $3.3 trillion from 2025 to 2034.

Senate Republicans, however, used a different math. They did not count the existing tax breaks as a new cost because those breaks are already law. Using what bill opponents derisively call "magic math," the OBBB would reduce deficits by almost half a trillion dollars over the coming decade.

The accounting gimmick is a problem for some House deficit hawks.

One of that group's leaders, Rep. Chip Roy, on Tuesday called the Senate tax and spending bill a “travesty.” The Texas Republican said he expects the House to make significant changes to the bill before it lands on the president’s desk.

The determination of Roy and his fiscally conservative colleagues could at least delay the bill, meaning it would miss the preferred Independence Day arrival in the Oval Office.

But I'm sticking with my prediction that Trump will, once again, strongarm his party's holdouts and get the one big beautiful bill he wants.

You also might find these items of interest:

• Sale of public lands dropped from one big tax bill
• Electric vehicle tax credit could end in just three months
• ETAAC has legislative advice for Congress, which it is ignoring as it works on the one big tax bill

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