Tax Credits, Deductions and Exemptions

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    A Road Map for Undoing the Damage of the Big, Awful Bill

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    In the 30 years I have been a part of fiscal policymaking I don’t think I have ever seen a legislative push as impressive as the passage of President Trump’s big, dubious tax and policy bill.Don’t get me wrong: The consequences for health insurance, poverty, climate change and macroeconomic stability, in roughly that order of importance, will be horrendous. The Medicaid and other health care changes would undo about three-quarters of the coverage expansion from President Barack Obama’s Affordable Care Act and Medicaid expansion. The law repeals much of what Joe Biden did for climate change in the Inflation Reduction Act. The tax provisions sustain most of the cuts from Mr. Trump’s first term and add in several others for good measure.But before Democrats — and hopefully some Republicans — even try to fix the damage, they should learn the lessons of how the Republicans got all this done, working against tremendous odds on a much faster timetable than the major legislative accomplishments from Mr. Trump’s three predecessors.The first lesson is that ideas really do matter. This legislation did not happen because the public or lobbyists were clamoring for it. Instead Donald Trump and congressional Republicans wanted it and were willing to overcome public disfavor and opposition from vested interests.Sure, special interests were at play in ways big (preserving workarounds to limits on state and local tax deductions) and small (getting new tax breaks for Alaskan whaling captains). But no major lobbying groups were asking for the broad contours of this legislation. The health care industry, which is expected to lose about half a trillion dollars, and the energy industry, which is losing huge tax breaks and subsidies, put up a fight. Their opposition, like that of other industries, went nowhere. And neither did Elon Musk’s — further evidence that oligarchy is the wrong lens through which to view this political moment.The second lesson is that while ideas matter, expert ideas do not necessarily matter. Past fiscal debates have divided economists and policy wonks. In President Trump’s first term, some economists would write opinion articles or go on TV news programs defending his tax cuts as adding to growth while other economists (including me) would write rebuttals.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Senate Proposal Ends Tax Cuts for Clean Energy, Disappointing Climate Advocates

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      A Senate tax package softens some blows imposed on renewables by a House version of the bill. But it still terminates many credits for clean power.Climate advocates, Democrats, and even some House Republicans who last month had supported a tax package that gutted federal support for clean energy were hoping the Senate would make fixes to protect energy manufacturing and jobs.But on Monday, Senate Republicans disappointed them, proposing to quickly end most tax breaks for wind and solar power, electric vehicles and other clean energy.Draft legislation released by the Senate Finance Committee would terminate or scale back most of the major tax incentives for clean energy contained in the Inflation Reduction Act of 2022, the Biden administration’s signature climate law.The plan would eliminate within six months a $7,500 consumer tax credit for purchases of electric vehicles as well as home energy rebates for things like electric heat pumps and induction stoves. A tax credit for homeowners who install solar panels on rooftops would end within 180 days. A subsidy for making hydrogen fuels would expire this year.Federal tax credits for wind and solar power, which have been in place for decades but were made more lucrative under the Inflation Reduction Act, would be rapidly phased out. Wind and solar companies could qualify for the full tax break only if they began construction in the next six months. They would receive 60 percent of the tax break if they began construction in 2026, and 20 percent of the tax credit if they began construction in 2027. Projects built after that would get nothing.That’s a slightly longer runway for renewable energy than is in the House version of the bill, which would have ended those tax breaks almost immediately.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Trump’s Trade and Tax Policies Start to Stall U.S. Battery Boom

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      Battery companies are slowing construction or reconsidering big investments in the United States because of tariffs on China and the proposed rollback of tax credits.Battery manufacturing began to take off in the United States in recent years after Congress and the Biden administration offered the industry generous incentives.But that boom now appears to be stalling as the Trump administration and Republican lawmakers try to restrict China’s access to the American market.From South Carolina to Washington State, companies are slowing construction or reconsidering big investments in factories for producing rechargeable batteries and the ingredients needed to make them.A big reason for that is higher trade barriers between the United States and China are fracturing relationships between suppliers and customers in the two countries. At the same time, Republicans are seeking to block battery makers with ties to China, as well as those that rely on any Chinese technology or materials, from taking advantage of federal tax credits. The industry is also dealing with a softening market for electric vehicles, which Republicans and Mr. Trump have targeted. The China-related restrictions — included in the version of Mr. Trump’s domestic policy bill passed by the House — would be very difficult for many companies to operate under. China is the world’s top battery manufacturer and makes nearly all of certain components.The Trump policy bill highlights a difficult dilemma. The United States wants to create a homegrown battery industry and greatly reduce its dependence on China — and many Republican lawmakers want to end it altogether. But China is already so dominant in this industry that it will be incredibly hard for the United States to become a meaningful player without working with Chinese companies.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Trump’s Pledge to Not Tax Overtime Could Become Federal Law

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      When President Trump first floated the idea of “no tax on overtime” at a campaign rally last year, he did not elaborate on how it would work. Could anyone who works more than 40 hours a week claim a tax break? Would overtime pay really be completely tax-free?The answer to both questions, as it turns out, is no.Under the sprawling domestic policy bill that Republicans pushed through the House and are preparing to steer through the Senate, the tax break would be limited. It would be available only to Americans who, under federal law, must be paid at a time-and-a-half rate for working any time exceeding 40 hours in a week. That’s a broad group that includes almost all Americans who are paid an hourly wage, but many salaried workers would not be eligible.And the tax relief would not be total. Americans would still owe payroll taxes, and potentially state income taxes, on their overtime pay. Federal income taxes would be eliminated on those wages, but only on the earnings attributable to the 50-percent bump in pay — only a third of the money made while working overtime.Even with those limitations, both critics and supporters of the idea believe the tax break could reshape the American labor market. The White House Council of Economic Advisers expects that the policy will motivate Americans to work more and help strengthen the economy.Skeptics think the change would primarily drive people to reclassify their earnings or even change jobs in order to file for overtime. They worry that if enough people sought jobs that offer overtime, wages in those positions could eventually fall.“Ultimately, it’s going to create unintended consequences that incentivize certain behaviors in the labor market and thus create winners and losers from that,” said Emmet Bowling, a labor policy analyst at the American Action Forum, a conservative think tank. “Hourly jobs might become more desirable because of this tax deduction.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Supreme Court Backs Catholic Charity Denied Exemption in Tax Case

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      The Wisconsin Supreme Court had ruled that the group’s activities in serving the state’s poor were not religious enough to qualify for the exemption.The Supreme Court unanimously ruled on Thursday that a Catholic charity in Wisconsin was entitled to a tax exemption that had been denied by a state court on the ground that its activities were not primarily religious.The Wisconsin Supreme Court had ruled that the group’s activities were “primarily charitable and secular” and that it did not “attempt to imbue program participants with the Catholic faith.” Indeed, the state court said, the group employed and served people of all religions.That meant, the state court found, that the group should be denied the tax exemption even as it accepted the charity’s contention that its services were “based on Gospel values and the principles of the Catholic social teachings.”The case was one of three concerning religion heard by the justices this term, and it extended a remarkable winning streak at the court for religious people and groups.Another case, about whether parents in Maryland have a religious right to withdraw their children from classes when books with gay and transgender themes are discussed, will be decided in the coming weeks.In the third case, the justices deadlocked in May by a 4-to-4 vote over whether a Catholic charter school in Oklahoma passed constitutional muster, letting stand a state court ruling against the school but setting no national precedent.The Wisconsin case, Catholic Charities Bureau v. Wisconsin Labor & Industry Review Commission, No. 24-154, concerned a state law that exempts religious groups from state unemployment taxes so long as they are “operated primarily for religious purposes.”Catholic Charities Bureau, the social ministry of the Catholic Diocese in Superior, Wis., has said its mission is to provide “services to the poor and disadvantaged as an expression of the social ministry of the Catholic Church.” But state officials determined that the charity did not qualify for the exemption because it “provides essentially secular services and engages in activities that are not religious per se.”When the case was argued in March, a lawyer for the state acknowledged that the charity would qualify for the exemption if it were part of the church rather than a separate corporation. But he said there must be principles that separate religious institutions from others. More

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      Trump Squeezes His Party on Domestic Policy Bill

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      The president visited the weekly meeting of House Republicans to make the case for the legislation and pressure members of his party to fall into line.President Trump on Tuesday huddled with House Republicans on Capitol Hill to urge them to unify around a wide-ranging bill to deliver his domestic agenda, ratcheting up the pressure for the party to overcome divisions that could sink the package.Joining Republicans at their weekly closed-door meeting, Mr. Trump praised Speaker Mike Johnson, who has been toiling to cobble together the votes to pass what the party has dubbed the One Big Beautiful Bill Act, which they hope to bring to a vote by the end of the week.“I’m his biggest fan — I love this guy,” Mr. Trump said of Mr. Johnson before the meeting. The speaker can afford to lose no more than three votes on the bill if all Democrats oppose it, as expected, and every lawmaker is present and voting.The president made it clear that he saw passage of the measure as a test of loyalty to him, saying he had been a “cheerleader” for the party, and warning that any holdouts “wouldn’t be a Republican much longer.”But he minimized the very real rifts within his party that could derail the measure, saying there were “one or two grandstanders” holding it up.That is not the case. Several Republican factions have expressed concern about the details of the sprawling bill, which would extend the 2017 tax cuts and eliminate taxes on tips and overtime pay; raise spending on the military and immigration enforcement; and cut Medicaid, food stamps, education and subsidies for clean energy to pay for some of it.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Republican Tax Bill May Hurt the Lowest Earners and Help the Richest

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      Even though most Americans may see lower taxes, Republicans’ spending cuts could outweigh those benefits and leave some worse off.As Representative Jason Smith commenced a marathon session this week to consider a sprawling and expensive Republican tax package, he took special care to emphasize his party’s commitment to “hard-working Americans.”“Pro-growth tax policy will shift our economy toward one that serves them, not the wealthy and well-connected,” Mr. Smith, the Missouri lawmaker who leads the House’s top tax panel, proclaimed.But the proposal he is trying to get to President Trump’s desk ultimately tells a more complicated story. The Republican tax plan may offer only modest gains to everyday workers, according to a wide range of tax experts, and some taxpayers may actually be left in worse financial shape if the bill becomes law.The latest assessment arrived Friday from the Penn Wharton Budget Model, a nonpartisan scorekeeper closely watched on Capitol Hill. Economists found that many Americans who make less than $51,000 a year would see their after-tax income fall as a result of the Republican proposal beginning in 2026.The Penn Wharton estimate sought to analyze the full scope of the Republican tax package, computing the effects of the tax cuts as well as the plan to pay for them by slashing federal spending on other programs, including Medicaid and food stamps. Combined, those policies could fall disproportionately on the poorest, including those near or below the poverty line, the economists found.People making between about $51,000 and $17,000 could lose about $700 on average in after-tax income beginning in 2026, according to the analysis, when factoring in both wages and federal aid. That reduction would worsen over the next eight years. People reporting less than $17,000 in income would see a reduction closer to $1,000, on average, also increasing over time, a shortfall that underscores their reliance on federal benefits.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Republican Agenda Hits Familiar Obstacle: State and Local Taxes

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      A small group of Republicans are threatening to torpedo President Trump’s agenda over the state and local tax deduction, long a headache for both parties.It was perhaps inevitable that the Republican effort to pass a vast fiscal package this year would, at some point, get caught up in the thicket of the state and local tax deduction.After all, the deduction, often called SALT, has long had the potential to cause a political standoff. Many G.O.P. lawmakers abhor it and, in 2017, imposed a $10,000 limit on the amount of state and local taxes Americans can write off on their federal returns. But to pass a tax bill this year, the party will need the support of a motivated clutch of Republicans who have made lifting that cap the animating promise of their political careers.Those lawmakers, who represent high-tax states like New York and New Jersey where the deduction is cherished, say they are willing to tank the package over the issue. Representative Nick LaLota, Republican of New York, can already visualize voting against the bill.“There’s a green ‘yes’ button and there’s a red ‘no’ button to press. Come time, if there’s not enough SALT in this bill, I’m pressing the red ‘no’ button,” he said. “It is a hill I am willing to stake my entire congressional career on.”Attempts by House Republican leaders to reach a deal with members like Mr. LaLota yielded little progress this week, leaving the issue unresolved as G.O.P. lawmakers prepare to release the first draft of their tax bill next week. Along with Medicaid, the health care program for the poor that Republicans have targeted for cuts, the state and local tax deduction could determine the fate of the entire G.O.P. legislative agenda.That’s because any change to the current $10,000 limit would be incredibly expensive, threatening to swamp the overall Republican budget for tax cuts. Even a relatively modest change, like doubling the cap for married couples, would cost $230 billion over a decade, according to the Committee for a Responsible Federal Budget. More generous alterations along the lines of what New York Republicans have demanded could surpass $1 trillion.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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      Trump Softens on Raising Taxes on the Rich, Saying G.O.P. Probably Shouldn’t

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      Days after he privately encouraged Speaker Mike Johnson to increase tax for the wealthy in a bill to fulfill his agenda, he publicly said it could be a bad idea, one that was ‘OK’ with him.President Trump on Friday publicly softened his private push on House Republicans to raise taxes on wealthy people and scrap a tax break that benefits private equity executives as part of a megabill to carry out his agenda.“The problem with even a ‘TINY’ tax increase for the RICH, which I and all others would graciously accept in order to help the lower and middle income workers, is that the Radical Left Democrat Lunatics would go around screaming, ‘Read my lips,’ the fabled Quote by George Bush the Elder that is said to have cost him the Election,” Mr. Trump wrote on his social media website, Truth Social. “Republicans should probably not do it, but I’m OK if they do!!!”Mr. Trump on Wednesday had privately urged Speaker Mike Johnson to create a higher tax bracket for those making more than $2.5 million a year. He also said he supported closing what is known as the carried interest loophole, which allows hedge fund, private equity and venture capital executives to pay taxes of only about 20 percent on their profits, which is about half the top income tax rate.The request further complicated Republicans’ job as they toil to put together a domestic policy bill they hope to push through Congress this year. Divisions within the party over potential cuts to Medicaid and other popular social programs to pay for it, and which tax reductions to include, have delayed the drafting of the package and threaten to sap support for it. And Mr. Trump’s abrupt and sometimes fleeting demands for the bill have hung over the talks, with G.O.P. lawmakers reluctant to cross him but uncertain of where he will ultimately stand.Mr. Trump is not constitutionally eligible to run for another election, unlike President George H.W. Bush, who was famously accused of breaking his campaign pledge not to impose new taxes.But Republicans are already facing blowback over Mr. Trump’s first four months in office, well ahead of the midterm congressional elections. And many do not want to take a vote that would be used by Democrats as a weapon against them.Mr. Trump did not entirely walk away from his tax demand in the social media post. But he left himself an out should Republicans balk. More