The Trump tax cut debate is heating up. Here are the key issues and who stands to benefit Here's who could benefit from the final bill, according to policy experts
Republican debate is heating up for Trump's tax cuts
As negotiations ramp up for President Donald Trump's tax agenda, there are key issues to watch, according to policy experts.
The House Ways and Means Committee, which oversees taxes, released a preliminary partial text of its portion of the bill on Friday evening. However, the bill could change significantly before the final vote. The full committee will debate and advance this legislation on Tuesday.
With control of the White House and both chambers of Congress, Republican lawmakers can pass Trump's package without Democratic support via a process known as "reconciliation," which bypasses the Senate filibuster with a simple majority vote.
But reconciliation involves multiple steps, and the proposals must fit within a limited budget framework. That could be tricky given competing priorities, experts say.
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"The narrow [Republican] majority in the House is going to make that process very difficult" because a handful of votes can block the bill, said Alex Muresianu, senior policy analyst at the Tax Foundation.
Plus, some lawmakers want a "more fiscally responsible package," which could impact individual provisions, according to Shai Akabas, vice president of economic policy for the Bipartisan Policy Center.
As negotiations continue, here are some key tax proposals that could impact millions of Americans.
Extend Trump's 2017 tax cuts
One of Trump's goals is to fully extend the trillions in tax breaks he enacted via the Tax Cuts and Jobs Act, or TCJA, in 2017.
This legislation brought sweeping changes for individuals and businesses, including lower tax brackets, bigger standard deductions, a more generous child tax credit, a higher estate and gift tax exemption and a 20% deduction for pass-through businesses, among other provisions.
Without TCJA extensions, more than 60% of taxpayers could see higher taxes in 2026, according to the Tax Foundation.
The preliminary House Ways and Means text includes some temporary and permanent enhancements beyond the TCJA. These include boosts to the standard deduction, child tax credit, tax bracket inflation adjustments, the estate tax exemption and pass-through business deduction, among others.
Child tax credit expansion
Some lawmakers are also pushing for bigger tax breaks than what's currently offered via the TCJA provisions.
"The child tax credit is one that we're watching very closely," Akabas said. "There's a lot of bipartisan agreement on preserving and hopefully expanding that."
TCJA temporarily increased the maximum child tax credit to $2,000 from $1,000 per child under age 17, and boosted eligibility. These changes are scheduled to sunset after 2025.
The House in February 2024 passed a bipartisan bill to expand the child tax credit, which would have boosted access and refundability. The bill didn't clear the Senate, but Republicans expressed interest in revisiting the issue.
The early House Ways and Means text proposes expanding the maximum child tax credit to $2,500 per child for four years starting in 2025.
'SALT' deduction relief
Another TCJA provision — the $10,000 limit on the deduction for state and local taxes, known as "SALT" — was added to the 2017 legislation to help fund other tax breaks. That provision will also expire after 2025.
Before the change, filers who itemized tax breaks could claim an unlimited deduction for SALT. But the so-called alternative minimum tax reduced the benefit for some higher earners.
Repealing the SALT cap has been a priority for certain lawmakers from high-tax states like California, New Jersey and New York. In a policy reversal, Trump has also voiced support for a more generous SALT deduction.
"If you raise the cap, the people who benefit the most are going to be upper-middle-income," since lower earners typically don't itemize tax deductions, Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, previously told CNBC.
The SALT deduction was absent from the preliminary House Ways and Means text. But Congressional negotiations are ongoing.
Trump's campaign ideas
On top of TCJA extensions, Trump has also recently renewed calls for additional tax breaks he pitched on the campaign trail, including no tax on tips, tax-free overtime pay and tax-exempt Social Security benefits. These ideas were not yet included in the early House Ways and Means text.
However, there are lingering questions about the specifics of these provisions, including possible guardrails to prevent abuse, experts say.
For example, you could see a questionable "reclassification of income" to qualify for no tax on tips or overtime pay, said Muresianu. "But there are ways you could mitigate the damage."
This story originally appeared on: CNBC - Author:Kate Dore, CFP®, EA
