Businesses, Families Get Boost in Tax Bill: Winners and Losers

Business, some workers, and parents would see tax breaks restored and credits boosted in the House Ways and Means Committee’s tax legislation that rolled out Monday.

Largely extending the 2017 tax law, which skewed benefits toward wealthy individuals and corporations, the legislation has many provisions that companies pushed hard for. It also includes some of the provisions President Donald Trump wanted, such as reducing income tax on overtime and tips. But it also has some new taxes—on university endowments and sports owners—and it cuts billions in energy credits.

While the House version of the tax bill is a long way from becoming law—the Senate hasn’t weighed in yet—it gives a first glimpse on what parts of tax policy are on surer footing and what’s in a more precarious spot.

Here’s who won and who lost in this first version of the tax bill:

Winners

Businesses: Tuesday’s tax bill calls for keeping corporate and international tax rates steady, restoring the expiring or expired trifecta of popular business breaks and a boost in the deduction for pass-through entities. The legislation represents a hard-fought victory for companies that pushed to return them to the 2017 tax law’s original levels.

Some workers and seniors: House Republicans took the first step to deliver on Trump’s campaign promises to ease the tax burden on some workers by eliminating tax on tipped and overtime wages. The legislation also includes a break for older Americans receiving Social Security benefits.

Parents and families: Tax writers proposed a $500 boost to the current $2,000 child tax credit and made more of the credit available to low-income families. They also called for raising the estate tax exemption to $15 million, making that a permanent floor, and floating it annually after 2025 with inflation..

Multinational Corporations: House Republicans’ bill preserved the tax rates on income US companies earn abroad. It’s a win for large companies with international presences that feared lawmakers would allow the rates to increase amid a search for revenue offsets. The legislation maintained a 10.5% effective tax rate on global intangible low-taxed income, a 13.1% rate on foreign-derived intangible income, and a 10% rate on the so-called base erosion and anti-abuse tax, or BEAT. Each of these rates would have increased in 2026 without congressional intervention.

Losers

Universities: House Republicans aim to increase the tax on large private university endowments, which presents a new threat to some of the wealthiest US schools. Republicans have aggressively pursued oversight on higher education for the past several years, and their proposal creates a tiered system that imposes larger taxes based on the size of their endowments. The top tax rate would grow to 21% in for institutions with student-adjusted endowments above $2 million.

Tax-and-climate law: Former President Joe Biden’s signature legislation known as the Inflation Reduction Act takes a serious hit in the House draft, as Republicans utilize some of its provisions for savings as they enact their tax law. The proposed legislation calls for clawing back hundreds of billions of dollars in energy credits by terminating a consumer credit for electric vehicles and credits for making homes more efficient. It also calls for phasing out and restricting energy production and investment credits, while modifying and extending biofuel production credits for four years.

Sports Team Owners: People who own sports franchises will only be able to write off half of the declining value of their franchises, a direct shot at Trump’s pledge to target “special tax breaks” for a corner of the billionaire class. The tax writers called for limiting Internal Revenue Code Section 197‘s amortization rules on intangible assets of franchises like football, basketball, baseball, hockey, and soccer to “50% of the adjusted basis.”

Direct File: If the proposed tax legislation were to become law, the free electronic filing program that allowed taxpayers to directly submit their federal return with the IRS would be dead within a month. Tuesday’s proposal calls on the Treasury Department to terminate the program within 30 days of enactment, and prescribes a task force to design a public-private partnership to replace the IRS’s existing free-filing options.

Headed to Overtime

State and Local Tax Deduction: One of the stickiest topics is the question of whether to lift the $10,000 federal cap on the state and local tax deduction, which has largely affected people living in high-tax states. The legislation proposes raising the SALT deduction ceiling to $30,000, but it would limit the write-off to taxpayers earning less than $400,000. While it’s triple the current cap, it’s not clear whether the blue-state Republicans pushing for a higher cap will accept it after some voiced their rejection of that figure after last week.