Republicans on the House Budget Committee are actively exploring over 200 potential budget cuts, tax breaks, tariffs, and modifications to key programs such as Medicare and Social Security. This comprehensive review is part of their preparation for an expansive reconciliation bill anticipated to be introduced this year, as outlined in a recent document shared with The Hill.
A Detailed Enumeration of Policy Options
The array of policy suggestions is meticulously categorized by committee, with projected financial impacts evaluated over a ten-year budget horizon. This document not only outlines broad policy options but also indicates potential fiscal benefits or costs associated with each proposal.
Included within this inventory are estimates tied to President-elect Donald Trump’s proposed across-the-board tariffs, individual tax cuts he championed on the campaign trail, adjustments to the capped state and local tax (SALT) deduction, alterations to the corporate tax rate, and potential reductions to the climate-centric Inflation Reduction Act initially proposed by Democrats.
While many of the tax proposals hinge on the expiration of the 2017 Trump tax cuts, significant components—such as the expiring marginal tax rates and the standard deduction—are noticeably absent from discussion. This omission could imply that the potential permanence of these tax cuts is being evaluated through a separate lens. Republicans have identified making these cuts permanent as a priority, a move projected to add approximately $4.6 trillion to the deficit according to the Congressional Budget Office.
Tariff Proposals and Revenue Generation
The Budget Committee’s document assigns a standard 10 percent tariff, estimating that it could generate around $1.9 trillion in revenue over the next decade. Additionally, Trump has recently proposed establishing an external revenue service dedicated to collecting these tariff revenues, distinguishing this body from the existing Internal Revenue Service (IRS).
As part of this strategy, the document discusses measures for codifying and escalating tariffs on China, projecting a deficit reduction of $100 billion.
Navigating SALT Deduction Controversy
The plan also examines various approaches regarding the SALT deduction cap, a particularly contentious issue among Republicans, especially those hailing from high-tax states. Originally capped at $10,000 in 2017, there are several options laid out: maintaining the current limit, increasing it to $15,000, eliminating the income and sales tax components, or scrapping the deduction entirely.
The latter would theoretically reduce the deficit by about $1 trillion amid a total U.S. debt stock of approximately $36 trillion.
Corporate Tax Adjustments and Additional Proposals
The plan includes considerations for lowering the corporate tax rate to 20 percent, which would incur a cost of about $73 billion, or to 15 percent at a $522 billion cost. It also entertains removing IRS enforcement funding allocated by Democrats in 2022, which carries a price tag of $46.6 billion.
Furthermore, initiatives proposed by Trump during his campaign are examined for their budgetary implications. For example, abolishing taxes on tips is estimated to cost $106 billion, while nullifying overtime taxes could result in a staggering $750 billion deficit. The introducible auto loan interest deduction could add another $61 billion.
There is also contemplation of eliminating the inheritance tax alongside doing away with the alternative minimum tax imposed on corporations through the Inflation Reduction Act.
Anticipated Actions and Future Directions
Many accounting professionals anticipate swifter actions on tariffs compared to broader tax reforms under the incoming administration. Rema Serafi, Vice Chair of Tax at KPMG, supports this outlook, indicating that tariffs might dominate early policy discussions rather than the expiration of prior tax cuts.
The proposal additionally contemplates introducing a new border adjustment tax potential, which could yield an estimated $1.2 trillion in revenue over the next two decades, hinting at a bold fiscal strategy moving forward.
