What to make of the Republicans’ big tax bill

The House GOP is rallying behind a major new tax bill. And while it may come off as a messaging exercise at first glance, it’s a critical step towards one of the biggest policy fights looming over Washington.

The legislation, which passed the Ways & Means Committee on Tuesday, would repeal a large chunk of President Biden’s climate spending in order to help fund an array of breaks for corporations and smaller businesses, along with some cuts for families.

It offers a look at the party’s next priorities on its signature economic issue, and plants a flag ahead of 2025, when sunsetting pieces of the Trump tax cuts will set the stage for a potentially historic showdown over how to rejigger the IRS code. And some lawmakers suggest that the bill may be the first volley in negotiations for a bipartisan tax deal as soon as this year.

For businesses, the GOP bill would renew or expand a host of valuable deductions that are often touted as good for investment. For instance, it extends rules that let companies deduct the cost of capital expenses immediately, instead of spreading them over years, and would restore the ability for businesses to instantly write off their research and development spending.

For individuals, families earning below $400,000 would get a larger standard deduction — $2,000 extra for single filers and $4,000 for couples. Republicans have pitched the measure as inflation relief.

And for paperwork haters, the bill would let businesses report fewer of their independent contractor payments to the IRS. It would also scrap a requirement for taxpayers to report Venmo and other payment app transactions above $600 — a move lawmakers say is aimed at lightening the bureaucratic load on gig workers.

Because the bill’s main features are set to expire after two years, its price tag is roughly $20 billion. But the permanent cost would be northwards of $1 trillion over a decade, according to the Committee for a Responsible Federal Budget — essentially erasing the projected savings from the recently-enacted debt limit law.

The bill offsets some of its costs by repealing subsidies for green energy and electric vehicles that President Biden passed in the Inflation Reduction Act, meaning it would have profound implications for climate policy.

“We’re rescinding bad policy for better policy,” Ways & Means Committee Chair Jason Smith told Semafor when asked about the package adding to the debt. He also insisted the bill “more than pays for itself” through economic growth, citing scores from the conservative Tax Foundation.

Democrats and center-left wonks are assailing the legislation as a budget buster tilted to the wealthy and corporations. “Even if the Tax Foundation’s dynamic score were forty times bigger, these tax cuts wouldn’t pay for themselves,” tweeted Center for American Progress budget expert Bobby Kogan. Also: Some worry that looser paperwork rules could lead to more tax evasion.

Partisan sparring aside, there is widespread interest in restoring the ability of companies to immediately deduct R&D spending, which disappeared last year. Republicans sunsetted the popular provision in their 2017 tax law as a bit of a budget gimmick, assuming it would quickly be restored. But Democrats declined to save it last year unless Republicans agreed to at least partially revive Joe Biden’s expansion of the Child Tax Credit in return (they didn’t).

Senate lawmakers are once again talking about a trade, possibly later this year. “There’s a growing sense on both sides of the aisle that we’ve got to get it done,” Sen. Thom Tillis, R-N.C. told Axios this week. Senate Finance Chair Ron Wyden told Semafor that he wanted to revive the old R&D deduction, but suggested Democrats would drive a hard bargain.

“We’re going to insist on an approach that is proportional, that working families and kids get a fair shake aligned with what’s being done on the business side,” the Oregon Democrat said.

This article incorrectly described the old iteration of the tax deduction for R&D expenses as a tax “credit.”