In more detail

On 9 June 2023, Chairman Smith of the Ways & Means Committee introduced the following bills: the Build It in America Act, the Tax Cuts for Working Families Act, and the Small Business Jobs Act. On 13 June, the Ways & Means committee held a hearing to mark-up all three bills.  Other than increasing the amount of the "guaranteed deduction" in the Tax Cuts for Working Families Act, no substantive changes were made to the bills during the mark-up. The three bills were passed out of the committee on a party-line vote, 24-18, at the conclusion of the hearing.  

The Joint Committee on Taxation prepared separate revenue estimates for each bill but, as a combined package, the three bills are expected to cost approximately USD 21 billion over ten years, if enacted as currently proposed.  The bills contain some provisions that were broadly expected, as well as some additional provisions (like the provision allow taxpayers to elect out of the final Foreign Tax Credit (FTC) regulations for certain taxes paid in the Western Hemisphere). Below are some of our preliminary observations on the contents of each bill.

Build It in America Act    

• Effectively reinstates immediate expensing under Code section 174 and reinstates the EBITDA-based limitation under section 163(j) until tax years beginning before 1 January 2026. The bill extends 100% bonus depreciation in section 168(k) for qualified property placed in service before 1 January 2026.
  • As readers likely recall, there were efforts to reinstate these provisions in a tax extenders bill that was negotiated at the end of 2022 but those efforts were ultimately unsuccessful.
  • The 2026 extension date is very intentional. Note that the individual provisions in the Tax Cuts and Jobs Act of 2017 (TCJA) are scheduled to expire at the end of 2025, and the House Republicans' general strategy appears to be making all TCJA provisions permanent as of 2026 (this will, of course, require further action by Congress).
• Allows taxpayers to make an election to disregard the FTC regulations when determining if any Western Hemisphere tax is a creditable income, war profits, or excess profits tax.
  • A Western Hemisphere tax is any tax paid to a US possession or foreign country located in North, South, or Central America, other than taxes paid to Cuba and Venezuela.
  • Applies to taxable years beginning after 31 December 2021 and before 1 January 2027.
• Repeals the Clean Electricity Production Credit (section 45Y), the Clean Electricity Investment Credit (section 48E), and several other renewable energy credits, all of which were added to the Code by the Inflation Reduction Act.  
• Modifies the EV credit (generally reinstates the EV credit as it existed before the IRA, but retains requirements that 80% of critical materials be mined in the US/countries where we have a free trade agreement and that 100% of the battery's components be manufactured/assembled in the US).
• There are additional provisions in the bill that are not as broadly applicable as the provisions summarized above.

Tax Cuts for Working Families Act

• Renames the standard deduction the "guaranteed deduction" and provides a bonus in the deduction amount for 2024 and 2025.
• Provides a bonus in 2024 and 2025 that increases the amount of the deduction by USD 2,000 for single filers and by USD 4,000 for married filers. (These amounts were doubled during the course of the mark-up, to USD 4,000 for single filers and USD 8,000 for married filers.)

Small Business Jobs Act

• Increases the threshold for information reporting on Form 1099 from USD 600 to USD 5,000 and indexes the threshold amount for inflation.
• Increases the threshold for information reporting on Form 1099-K for goods and services sold online to USD 20,000 in annual sales and 200 annual transactions (which matches the regulatory threshold that was in place before the American Rescue Plan of 2021 reduced the threshold to USD 600 and eliminated the number of transactions requirement).
• Contains additional provisions regarding qualifying small business stock and expenses related to depreciable property.
• Makes changes to the Opportunity Zones program, including expanding it for rural areas and reinstating reporting requirements.

Conclusion

In addition to the three bills released on 9 June, Ways & Means Republicans also previously introduced the Defending American Jobs and Investment Act, which would add a new section 899 to the Code that imposes a reciprocal tax on the citizens and corporations of countries that impose extraterritorial or discriminatory taxes on U.S. taxpayers. Although most of the discussion related to proposed section 899 focuses on the proposed imposition of the UTPR in countries that are implementing Pillar Two, the definition of "extraterritorial" and "discriminatory" taxes in section 899 is substantially broader than just the UTPR. Chairman Smith intends to travel to Europe this summer to meet with OECD officials and representatives of some foreign governments to discuss Pillar Two  and its proposed implementation.

Taken together, these bills should generally be considered to represent House Republicans' tax legislative goals for 2023 and 2024. While some of these provisions are partisan priorities that are unlikely to be enacted in a divided Congress, others─ such as reinstating immediate expensing under section 174─ are bipartisan priorities that could move independently of the rest of the bills. However, any provisions that have bipartisan support are unlikely to be enacted into law before the end of the calendar year.