At the time of writing, the U.S. House and U.S. Senate passed separate versions of a budget resolution for fiscal year 2025. One key difference between the two resolutions is the ability to advance President Trump’s tax policies. The House’s budget resolution allows the House Ways and Means Committee to increase the deficit by up to $4.5 trillion to accommodate tax cut proposals, which would extend many of the policies in the 2017 Tax Cuts and Jobs Act (TCJA) set to expire at the end of 2025. The Senate’s version of a budget resolution reflects its two-bill approach in which tax policies will be addressed in a second bill later this year. The House’s budget resolution has received the support of President Trump who posted on social media that he wants “ONE BIG BEAUTIFUL BILL.”
The provisions in the TCJA set to expire at the end of 2025 that may be extended as part of the budget reconciliation process include: (i) the 199A deduction of up to 20% of qualified pass-through business income; (ii) the lower individual marginal tax rates; (iii) the increased standard deduction and child tax credit; (iv) the $10,000 SALT (state and local tax) deduction cap; (v) the increased alternative minimum tax exemption; and (vi) the increased estate and gift tax exclusion amount. Other notable provisions in the TCJA that are set to expire later than 2025 include the bonus depreciation deduction of certain qualified property costs and the tax benefits for investments in “opportunity zones,” which will expire at the end of 2026; and the limitation on excess business loss deductions for taxpayers other than C corporations, which will expire at the end of 2028.
On January 17, news outlets reported that a list of potential budget reconciliation legislation proposals was circulated by the House Budget Committee to the House Republican Caucus. We have summarized below many of the proposals and the applicable estimated savings or costs.1
1) Tax credits/deductions
Repealing green energy tax credits --- Certain credits related to clean vehicles, clean energy, efficient buildings, home energy, carbon sequestration, sustainable aviation fuels, environmental justice and biofuel created under the Biden administration’s Inflation Reduction Act would be repealed. Smaller reform options in this area may be appropriate based on the political landscape. Estimated savings: Up to $796 billion over ten years.
Ending the employee retention tax credit --- The Employee Retention Tax Credit is a refundable tax credit for certain eligible employers that were affected by the COVID-19 pandemic. The proposal extends the current moratorium on claims processing, eliminates the credit for claims submitted after January 31, 2024, and introduces stricter penalties for fraud. Estimated savings: $70 billion to $75 billion over 10 years.
SALT deduction --- Five options
Option 1: Eliminate the individual and business SALT deduction. Estimated savings: $1 trillion over 10 years relative to the TCJA extension (i.e., extension of the $10,000 SALT cap).
Option 2: Extend the $10,000 SALT cap but double it to $20,000 for married couples. Estimated cost: $100-200 billion relative to the TCJA extension.
Option 3: Increase the SALT cap to $15,000 for individuals and $30,000 for married couples. Estimated cost: $500 billion relative to the TCJA extension.
Option 4: Eliminate income/sales tax deduction portion of the SALT deduction making only property taxes SALT deductible. The $10,000 SALT cap would expire as scheduled under current law. Estimated cost: $300 billion relative to TCJA extension.
Option 5: Eliminate business SALT deduction and leave individual SALT deduction unchanged. Estimated savings: $310 billion over 10 years.
Home mortgage interest deduction --- Two options
Option 1: Eliminate the Home Mortgage Interest Deduction on Primary Residences. Estimated savings: $1 trillion over 10 years relative to TCJA extension.
Option 2: Lower the Home Mortgage Interest Deduction Cap. This option would lower the home mortgage interest deduction cap from the TCJA level of $750,000 to $500,000. Estimated savings: $50 billion over 10 years relative to TCJA extension.
2) Cost recovery
Canceling amortization of R&D expenses --- Returns to pre-TCJA treatment of R&D costs, allowing immediate expensing instead of amortization. Estimated cost: $169 billion over 10 years.
Implementing neutral cost recovery for structures --- Allows businesses to index the value of cost recovery deductions with respect to long-term investments in buildings and structures to inflation and a real rate of return (to address the time value of money). Estimated cost: $10 billion over 10 years.
3) Corporate taxes
Repealing the Corporate Alternative Minimum Tax --- Repeals the 15% corporate alternative minimum tax on adjusted financial statement income for corporations imposed by the 2022 Inflation Reduction Act (IRA). Estimated cost: $222 billion over 10 years.
Reducing the corporate tax rate --- Two options
Option 1: Lower the corporate tax rate from 21% to 20%. Estimated cost: $73 billion over 10 years.
Option 2: Lower the corporate tax rate from 21% to 15%. Estimated cost: $522 billion over 10 years.
4) Other high savings/cost proposals
Creating border adjustment tax --- Creates a new destination-based tax on goods where they are consumed, not produced, which is a shift from an origin-based tax to a destination-based tax. Estimated savings: $1.2 trillion+ over 10 years.
Eliminating the estate tax --- The TCJA doubled the federal estate tax exclusion and provided inflation adjustments, but this provision is set to expire at the end of 2025. The federal exemption in tax year 2025 is $13,990,000. This proposal would eliminate the estate tax. Estimated cost: $370 billion over 10 years.
Eliminating nonprofit status for hospitals --- Hospitals would be taxed as for-profit businesses. Estimated savings: $260 billion over 10 years.
Eliminating exclusion of interest on state and local bonds --- Interest earned on municipal bonds is currently excluded from federal taxable income. This proposal would end the exclusion. Estimated savings: $250 billion over 10 years.
Ending tax preferences for other bonds --- Eliminates the exclusion from federal taxable income of interest earned on private activity bonds, Build America bonds, and other non-municipal bonds. Estimated savings: $114 billion over 10 years.
Eliminating tax on tips --- Eliminates income tax on tips received by employees. Estimated cost: $106 billion over 10 years.
Eliminating tax on overtime --- This blanket exemption would prevent overtime earnings from being taxed. Estimated cost: $750 billion over 10 years.
Ending Head of Household filing status --- The Head of Household filing status provides a larger standard deduction for unmarried individuals who have children. This proposal would eliminate the Head of Household filing status. Estimated savings: $192 billion over 10 years.
Replacing HSAs with a $9,100 Roth-style Universal Savings Account indexed to inflation --- This option would replace Health Savings Accounts (HSA) with a $9,100 Universal Savings Account indexed to inflation. Estimated savings: $110 billion over 10 years.
Exempting Americans abroad from income tax --- The foreign earned income exclusion offers tax benefits to Americans residing overseas. The 2024 exclusion amount was $126,500. This proposal may raise the exclusion limit or fully eliminate federal taxation on individual foreign income. Estimated cost: $100 billion over 10 years.
- Although apparently not included in the House Budget Committee proposals, President Trump has indicated that he is in favor of (x) eliminating income taxes on Social Security benefits, (y) eliminating favorable taxation of carried interests, and (z) reinstating the 100% bonus depreciation deduction.
Client Alert 2025-081
