House committee proposes standard deduction increase

From Accounting Today — By Michael Cohn — 

Republicans on the House Ways and Means Committee advanced a series of bills Tuesday, June 13, aimed at reducing taxes but also rolling back parts of the Inflation Reduction Act passed by the Democrats last year.

One of the bills, the Tax Cuts for Working Families Act, would provide a $4,000 “bonus guaranteed deduction” for the next two years, on top of the doubled standard deduction that was included in the Tax Cuts and Jobs Act of  2017.

For tax years starting in 2024, the amount of the bonus guaranteed deduction would be $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, according to a report on the bill by Congress’s Joint Committee on Taxation. For tax years starting in 2025, the amounts would be indexed for inflation. But the House committee’s bonus guaranteed deduction would not apply to tax years after 2025.

However, Republicans on the House committee rejected a series of amendments offered by Democrats, including a repeal of limits on the state and local tax deduction that were also part of the TCJA.

House Ways and Means Committee chairman Jason Smith, R-Missouri, highlighted the bill’s potential impact on helping taxpayers deal with inflation.

“With this bill, we make a historic investment in the working Americans and families that are the backbone of our great nation, in direct response to the concerns they have shared with this committee about the spike in cost of living in our hearings across the country,” he said.

House also moves to repeal parts of Tax Cuts and Jobs Act, American Rescue Plan

House Republicans on the committee also voted to approve the Build It in America Act, which would repeal the provision in the Tax Cuts and Jobs Act that limited the ability to immediately deduct research and development expenses and forced companies to begin amortizing them last year.

The bill also repeals limits on business interest deductions from the TCJA and extends full expensing of investments in equipment, machinery and vehicles. However, it also repeals the electric vehicle tax credits in the Inflation Reduction Act along with other tax credits for renewable energy.

Another Republican-backed bill, the Small Business Jobs Act, contains a provision that resets the new 1099-K reporting threshold for online transactions from $600 back to $20,000 and 200 transactions annually, as it was before the American Rescue Plan Act.

“The last thing Americans want is a government crackdown on selling a used couch, concert tickets, or paying your neighbor’s kid to mow the lawn,” said Smith. “And yet Democrats reduced the 1099-K reporting threshold for third-party payment platforms — like Venmo and PayPal — from $20,000 to just $600. Even the Biden Administration realized that this provision was problematic and delayed implementation by a year. A year? We say get rid of this rule entirely.”

The bill would also help companies invest in new equipment and expand their businesses by increasing immediate expensing for small businesses to $2.5 million. It also contains a Rural Opportunity Zone program and makes changes in the existing opportunity zone program.

Democrats on the committee blasted Republicans for favoring large companies with the tax legislation and doing too little to help families. “A majority of their Tax Scam 2.0 focuses on restoring corporate giveaways to the wealthy and well-connected before restoring the tax credits that cut child poverty in half, and in this provision, we see that even when Republicans try to cut taxes for families, they miss those who need it most,” said Rep. Richard Neal, D-Massachusetts.

“The poorest fifth of Americans would receive just 2% of the benefits of this provision, and on average, that means a tax break of just $30 next year.  As the only change to the individual side of the tax code, I must admit it feels like an afterthought. Why ignore one of the most important policies for working families if cutting taxes for working families is the goal?”

Rep. Bill Pascrell, D-New Jersey, also criticized the GOP-led bills. “Big Oil bailouts. Big Business cash giveaways. Attacks on efforts to combat climate change. Sabotage of America’s factory-building explosion. Blocking middle class tax relief,” he said. “Today the world saw Republicans’ priorities and they are completely misguided.”

The three bills are not likely to advance in the Senate, which is still controlled by Democrats, and may not even pass in the House, where Republican factions have been at odds with each other.

Michael Cohn is Editor in Chief of Accounting Today.

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