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The bill permanently extends expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA), temporarily expanding some while permanently expanding others – most notably expanded are the Section 199A pass-through business deduction and the cap on the state and local tax (SALT) deduction. In addition, it adds in a flurry of new temporary tax breaks on items from President Trump’s campaign priorities like no tax on overtime and tips and a deduction for car loan interest; a higher standard deduction for seniors; expansions to Health Savings Accounts and the creation of new “MAGA accounts” for children; and other individual and business tax cuts. It offsets some of these extensions and new tax cuts by repealing and phasing out many of the Inflation Reduction Act (IRA) energy credits, imposing new taxes on foreign corporations and foreign national remittances, expanding the tax on higher education endowments, and implementing measures to restrict Affordable Care Act (ACA) subsidies for noncitizens and clawing back overpayments.
TCJA Extensions and Expansions
The most costly parts of the bill come from extending and expanding the TCJA. Taken together, TCJA extensions and revivals would add $4.2 trillion to the deficit through 2029 as written and $4.9 trillion if made permanent.
Specifically, the bill would maintain the TCJA tax rates that were set to expire, use a more generous inflation calculation for tax brackets for 2026, permanently extend the repeal of the Pease deduction limit and Alternative Minimum Tax (AMT) for most taxpayers, permanently reauthorize and expand the 199A pass-through business deduction, permanently reduce the estate tax, keep international corporate taxes low, and permanently extend the increase in the Child Tax Credit and standard deduction while further increasing both on a temporary basis through 2028.
To offset a portion of these effects, the bill would extend the repeal of the personal and dependent exemption as well as repeals or limits to various deductions and other provisions. The current $10,000 SALT cap would be extended for very high earners but expanded to $30,000 for taxpayers making less than $400,000. The bill would also address some of the SALT “workarounds” that have been used to get around the cap, and puts in place a modest new deduction limit to replace Pease.
The bill would also temporarily revive several business tax provisions from the TCJA, including 100 percent bonus depreciation for equipment, expensing of domestic research and experimentation (R&E) costs, a looser limit on the deductibility of business interest, expanded Opportunity Zones, and extensions of lower international tax rates – all of which would be set to expire at the end of 2029. Because most of these policies have a timing component, the early expiration dramatically reduces the reported deficit impact. For example, bonus depreciation and R&E expensing through 2029 are scored at $60 billion, while a permanent repeal would score closer to $500 billion.
New Tax Breaks
The Ways & Means bill contains numerous new tax cuts and breaks, most of which would expire after 2028. These tax breaks as written would increase deficits by $660 billion; however, if they are extended permanently, we estimate they would increase deficits by $1.4 trillion over the decade.
On the individual side, the bill would temporarily fulfill President Trump’s calls to exempt tips and overtime pay from income tax. Employees making less than $160,000 (indexed annually for inflation) in 2025 would be exempted from paying taxes on all of their tip income as long as they are in an industry where tipping is currently common. Workers below the same income threshold would be exempt from paying tax on overtime pay for each hour in which they are paid time-and-a-half. These provisions would be in effect between 2025 and 2028 and would reduce revenue by more than $160 billion over four years – we estimate they would reduce revenue by nearly $500 billion if made permanent.
Although the legislation would not eliminate taxes on Social Security benefits, it would boost the standard deduction for most Social Security beneficiaries. Seniors above age 65 have traditionally received a higher standard deduction than other taxpayers, and this bill would temporarily increase the standard deduction by $4,000 for seniors making less than $75,000 ($150,000 married), which would reduce revenue by $72 billion as written over four years; we estimate the revenue loss would rise to $180 billion through 2029 if the policy were made permanent.
The bill would allow taxpayers to deduct up to $10,000 in interest payments for loans on automobiles, ATVs, campers, or similar vehicles manufactured in the United States. Taxpayers who do not itemize would have the ability to write off up to $300 in charitable donations ($600 for married taxpayers) “above-the-line.” And there would be various new expansions to Health Savings Accounts, Section 529 college savings accounts, and the creation of new “MAGA accounts” with the federal government providing $1,000 in seed funding for the next four years. Taken together, these provisions would reduce revenue by about $167 billion. While some are already permanent, making them all permanent would increase the price tag to roughly $340 billion through 2034.
On the business side, businesses would be able to immediately write off manufacturing factories and similar property through 2028 – which scores at $150 billion but could easily score at twice as much if permanent. The bill would also increase limits for Section 179 expensing for small businesses, extend the Clean Fuel Tax Credit that the IRA had set to expire, and make a variety of smaller changes at a combined revenue loss of $261 billion ($430 billion if permanent).
Revenue Raising Provisions
To offset a portion of the new proposed tax cuts and breaks, the Ways & Means Committee proposes nearly $1 trillion of revenue and savings from new taxes, limits to tax breaks, and changes to health insurance subsidy eligibility.
Most of the energy credits extended and expanded by the IRA would be phased out or repealed immediately, saving $560 billion. Tax credits for electric vehicles, home efficiency, residential clean energy, and clean hydrogen production would all be ended after 2025. The clean electricity production and investment credits, nuclear power production credit, and advanced manufacturing credit would be phased out by the end of 2031. In addition, transferability of all IRA credits would be ended after 2027, and Foreign Entity of Concern restrictions would be added to each of them. Importantly, some of these savings would overlap with proposals from the Energy & Commerce (E&C) Committee, lowering the net total savings.
The bill would also create a new “foreign corporate retaliation tax” in response to the international anti-corporate tax avoidance rules developed by the Organization for Economic Cooperation and Development, which many in Congress have criticized. This would raise $116 billion.
Limits to the ACA exchange subsidies – including restrictions on benefits for noncitizens and efforts to prevent and recover overpayments to those who qualify for fewer or no benefits – would save a combined $181 billion. Some of these savings may overlap with E&C policies.
The bill would also impose various limits and requirements – including Social Security Number requirements – for most other tax credits. Other changes to raise revenue include expanding the tax on higher education endowments, expanding the deduction limit for executive compensation, reducing the value of the corporate charitable deduction, imposing a new tax on remittances, and preventing excessive payments related to the Employer Compensation Tax, among other changes. These policies would raise or save a combined $132 billion.
Debt and Revenue Implications
The Ways & Means draft, as written, would increase primary deficits by 1.1 percent of GDP through 2034, including 1.7 percent of GDP in 2027 alone. If made permanent, primary deficits would rise by 1.5 percent of GDP over the decade.
Assuming all the deficit increases accrued to the revenue side, revenue would fall from 17.1 percent of GDP in 2024 to 16.4 percent in 2027 – instead of rising to 18.2 percent under current law. By 2034, revenue would total 17.3 percent of GDP under the plan as written and 16.6 percent if extended, –0.9 to 1.6 percentage points lower than under current law.
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