House Tax Writers Approve a Trio of Tax Bills Expected to Fail in the Senate

The House Ways and Means Committee approved three tax bills on June 13th that modify taxes for individuals and businesses. The current expectation is that these bills will not pass the Senate or become law.

The tax-writing committee also approved a fourth piece of legislation, which is a trade agreement between the U.S. and Taiwan.

The tax bills that were approved are:

• H.R. 3938, the “Build It in America Act”
  • This bill, in part, proposes to:
    • Allow taxpayers to deduct research or experimental costs in the tax year incurred. The effective date for this provision is for transactions occurring after December 31, 2021, and before January 1, 2026.
    • Expand the 163(j) interest deduction (from EBIT to EBITDA) for taxable years beginning before January 1, 2026. This proposal is effective for taxable years beginning after December 31, 2021.
    • Extend 100 percent bonus depreciation for property placed in service after December 31, 2022, and before January 1, 2026. (January 1, 2027, for “longer production period property and certain aircraft,” according to the Joint Committee on Taxation (JCT).
    • Repeal several green energy tax incentives enacted in the Inflation Reduction Act, which includes:
      • The Clean electricity production credit,
      • The Clean electricity investment credit,
      • The Credit for previously owned clean vehicles,
      • The Credit for qualified commercial clean vehicles,
      • The clean vehicle credit is modified.
    • End the tax to fund the Hazardous Substance Superfund Trust Fund.
  • The Joint Committee on Taxation (JCT) explanation of all the provisions in the bill is here.  

• H.R. 3937, the “Small Business Jobs Act”
  • This bill, in part, proposes to:
    • Increase the information reporting threshold under sections 6041 and 6041A to $5,000 in a calendar year.
    • Increase reporting requirements for third party settlement organizations that exceed $20,000 and the number of transactions exceed 200 for participating payees.
    • Modify section 1202 gain exclusion.
    • Increase the maximum amount a taxpayer may expense under section 179 to $2,500,000, and increases the phase-out threshold amount to $4,000,000.
    • Create a new Opportunity Zone that will be called Rural Opportunity Zones.
      • The JCT explanation of the Rural Opportunity Zones: “Qualified rural opportunity zones are defined as any population census tract if: (i) such census tract is located in a rural county, and (ii) is in persistent poverty (as determined by the Bureau of the Census using the same methodology and data as used in the May 2023 report of such Bureau entitled ‘Persistent Poverty in Counties and Census Tracts’). Where any portion of a State is not within a county, the Secretary shall designate an area which is the equivalent of a county under a rule similar to section 143(k)(2)(D). The term ‘rural county’ means any county if more than 50 percent of the census blocks which comprise such county are rural blocks (as determined by the Bureau of the Census as of the date of enactment of this proposal).”
  • The JCT explanation of all the provisions in the bill is here.  

• H.R. 3936, the “Tax Cuts for Working Families Act”
  • This bill, in part, proposes to:
    • Create a new “bonus guaranteed deduction” for tax years 2024 and 2025.
    • The JCT explains the provision: “For taxable years beginning in 2024, the amount of the bonus guaranteed deduction is $2,000 for an unmarried individual (other than a head of household or a surviving spouse) and a married individual filing a separate return, $3,000 for a head of household, and $4,000 for married individuals filing a joint return and a surviving spouse. For taxable years beginning in 2025, these amounts are indexed for inflation.”
    • Rename the “standard deduction” to the “guaranteed deduction.” It also changes “basic standard deduction” and “additional standard deduction” to “basic guaranteed deduction” and “additional guaranteed deduction,” respectively.
  • The JCT explanation of all the provisions in the bill is here.  

Several amendments were proposed for the bills. The amendments included a SALT fix and expanding the Child Tax Credit. None were adopted.

At some point, the three bills are expected to be combined into one piece of legislation. 

Future Action:

The legislation is expected to pass the House in July.

Upon its passage, the bill is expected to travel to the Senate where it is not expected to pass.  In fact, the upper chamber may not even vote on the legislation.

While Senators in both political parties support the business tax proposals in the House bill, many of them have threatened to withhold that support unless the bill expands the Child Tax Credit.

Several of these Senators want to add an expansion of the Child Tax Credit to the House bill. The measure would be similar to what was enacted in the American Rescue Plan. That provision costs roughly $1 trillion over ten years. There is talk that these Senators could support something that costs less, but their exact ask is not publicly known.

Even if a Child Tax Credit is added to the bill, passage from the Senate is unlikely. For every Senator willing to support a Child Tax Credit being added to the bill there will likely be a greater number of Senators who oppose the legislation if it includes the Credit.  

Also, adding a Child Tax Credit to the bill would need to be approved by the House, which is highly unlikely to pass the lower chamber..

The Bill’s Fate:

If there is a Senate vote on the bill, House Ways and Means Chairman Jason Smith (R-Mo) predicts it will occur closer to year end. He reasoned that Senate changes made to the bill will be time-consuming and arduous.

Still, passage in the Senate is not expected.

The current assumption by lawmakers and tax staffers is that the legislation will become a “messaging bill.” Lawmakers use such bills to highlight their policy positions in re-election campaigns.