House Ways and Means Committee Unveils Tax Bill

By Alexander M. Parthemer and David E. Bowers

In a major step toward reshaping federal tax policy, the House Ways and Means Committee released a sweeping draft tax bill on Friday, May 9, 2025, amended the bill on Monday, May 12, and the committee subsequently passed the bill on Wednesday morning, May 14, by party-line vote 26-19. The proposal, developed under the reconciliation instructions from the Fiscal Year 2025 Budget Resolution (H.Con.Res. 14), aims to permanently extend and enhance key provisions of the 2017 Tax Cuts and Jobs Act (TCJA), many of which are scheduled to expire at the end of 2025.

The Joint Committee on Taxation, a nonpartisan committee of tax attorneys, accountants, and Ph.D. economists, scored the amended bill, referred to as “The One, Big, Beautiful Bill,” and found the tax portion of the bill would add $3.8 trillion to the deficit through 2033, below the $4.5 trillion House Republicans allowed themselves. This passage through the Ways and Means Committee marks a crucial stage in the budget reconciliation process—an expedited legislative path that enables certain tax and fiscal measures to pass the Senate by a simple majority vote.

The draft reflects House Republicans’ emphasis on preserving low tax rates, bolstering middle-income families and stimulating small business growth. However, it also faces resistance on certain issues—notably the state and local tax (SALT) deduction cap, which remains a flashpoint among GOP members from high-tax states. On Monday, May 12, Republican leaders met with the GOP SALT-caucus—including a vocal bloc from New York and New Jersey—whose votes could prove pivotal. Speaker Mike Johnson (R-La.) is hopeful a deal can be reached later in the week.

Extension and Enhancement of Individual Tax Cuts

At the core of the bill is the extension of key elements of the TCJA that were originally slated to expire after December 31, 2025. The proposed changes aim to provide continued tax relief for individuals and families while offering enhancements intended to offset inflation and modernize select deductions and credits.

Individual Income Tax Rates

The bill proposes a permanent extension of the reduced individual income tax rates established under the TCJA. These include:

• Maintaining the current seven-bracket system with the top marginal rate of 37%.
• Eliminating the original sunset provision that would have restored pre-2017 tax rates.
• Adjusting the thresholds for tax brackets based on post-2025 inflation indexing.

This provision is likely to benefit a broad base of taxpayers by preserving lower rates on earned income and staving off automatic tax hikes if the TCJA were to expire at the end of 2025. While President Trump recently proposed re-establishing a top marginal rate of 39.6% for individuals making over $2.5 million ($5 million for married filing jointly), it has yet to be added to the bill.

Standard Deduction Increase

Another major extension involves the enhanced standard deduction. The TCJA nearly doubled the deduction, significantly reducing the number of taxpayers who itemize. The new draft bill not only retains the higher deduction but introduces a temporary enhancement:

• Beginning in 2025, joint filers would receive an additional $1,500.
• Head of household would receive an additional $1,500.
• Single filers would receive an additional $1,000.
• This enhancement would remain in effect through the 2028 tax year.

This change underscores the bill’s aim to provide tangible relief to middle-income households and simplify tax compliance for most Americans.

The refundable portion of the credit—the portion payable even if the taxpayer has no tax liability—would also be adjusted for inflation over time, ensuring the benefit remains relevant as cost-of-living increases.

Personal Exemptions and Miscellaneous Deductions

If passed, the legislation would permanently eliminate the personal exemption deduction, a change first made under the TCJA. It would also maintain the suspension of various miscellaneous itemized deductions, including unreimbursed employee expenses and tax preparation fees. While controversial among certain taxpayer groups, these eliminations are positioned as trade-offs for broader rate reductions and enhanced credits.

Child Tax Credit Expansion

The bill also proposes a notable increase in the child tax credit:

• Raising the credit from $2,000 to $2,500 per qualifying child for tax years 2025 through 2028.
• Reinstating the $2,000 amount thereafter, with built-in inflation adjustments.
• Requiring a valid Social Security number for each qualifying child, the taxpayer, and spouse (if married) to prevent fraud.

QBI Deduction

For small business owners, sole proprietors, and partnerships, the draft includes a major enhancement of the Section 199A qualified business income (QBI) deduction:

• The deduction rate would increase from 20% to 23%, effectively increasing the value of the deduction across income brackets.
• The provision would be made permanent, eliminating the TCJA’s sunset clause.
• Additional changes expand the types of income that may qualify, including interest income from certain business development companies (BDCs).

Phase-in rules for higher-income taxpayers are also modified to ease the cliff effect that currently disqualifies certain “specified service trades or businesses” from taking the deduction once income surpasses defined thresholds.

Estate and Gift Tax Exemption

A pivotal change in the draft is the permanent expansion of the estate and gift tax exemption:

• The exemption would increase from approximately $13.99 million in 2025 (adjusted for inflation) to $15 million per individual in 2026, before inflation indexing. 
• This change would lock in higher thresholds for transfer tax planning, allowing affluent families and business owners to pass more wealth tax-free across generations.

Other Notable Extensions

• Alternative Minimum Tax (AMT) Relief: The bill makes permanent the higher AMT exemption levels established under the TCJA, reducing the likelihood that middle-income earners will fall into AMT status.
• Mortgage Interest Deduction: The lower cap on mortgage debt ($750,000) eligible for interest deduction remains in place, preserving the narrower scope of this deduction.
• Casualty and Wagering Losses: Limitations on deducting personal casualty losses and gambling losses are extended, continuing a trend toward tightening itemized deductions

Qualified Opportunity Zones Extended and Enhanced

Qualified Opportunity Zones (QOZs) continue to serve as a powerful incentive for long-term private investment in low-income communities. Investors who reinvest capital gains into Qualified Opportunity Funds (QOFs) can defer those gains until the end of 2026 and—if they hold the QOF investment for at least 10 years—permanently exclude any appreciation from tax.

The current bill extends the QOZ program through 2033, preserving the 10-year gain exclusion. Although the original step-up in basis benefits tied to five- and seven-year holding periods expired in 2021, lawmakers are now working to reinstate and improve those incentives. The proposed legislation would restore earlier benefits, extend the deferral window, and introduce new reporting standards to improve accountability and measure impact.

The Tax Section of The Florida Bar submitted several legislative proposals to the tax-writing committees back in April of this year, including extension of QOZs. During the Tax Section’s 2025 annual meeting in Washington D.C., the delegation met with staff attorneys, accountants, and economists from the House Ways and Means Committee, Senate Finance Committee, and Joint Committee on Taxation to pitch the proposals directly, and the staff members of the committees mentioned there was strong interest in expanding the reach of QOZs—particularly into rural and underserved areas that have seen limited participation to date—which is seen in the bill.

‘Wish List’ Items

Several of Trump’s high-profile “wish list” provisions have been added to the draft, each of which are an “above-the-line” deduction, meaning a taxpayer does not need to itemize to benefit from the deduction, and would apply from 2025 through 2028:

• No tax on qualified tips received by nonhighly compensated employees in traditional tipped occupations.
• No tax on qualified overtime pay that is required under Section 7 of the Fair Labor Standards Act, for nonhighly compensated employees.
• Auto loan interest deduction of up to $10,000 if the vehicle’s final assembly occurred in the United States.
• Nonitemized charitable deduction of $150 for individuals and $300 for joint filers, available even for those taking the standard deduction.

These targeted benefits aim to increase take-home pay, promote charitable giving, and support American-made goods.

The SALT Challenge: Growing Tensions Within the GOP

The original draft did not meaningfully address the $10,000 SALT cap, drawing sharp criticism from Republicans in high-tax states. The SALT cap limits the deduction a taxpayer may take for the payment of state and local tax (e.g., state or city income tax, property tax, sales tax). The updated bill introduces partial relief:

• Raises the cap to $30,000 for joint filers and $15,000 for single filers, phased out at $400,000 of income.
• However, it prohibits substitute payments such as workaround deductions or credits via state-level schemes, including payments made by pass-through entities on behalf of its owners (limiting the pass-through entity tax workaround passed by many states).

Still, some GOP lawmakers, particularly from New York and New Jersey, argue that the fix doesn’t go far enough. Instead, they are seeking a SALT cap of $124,000 for joint filers and $62,000 for single filers, which is a higher cap than Democrats failed proposal of $80,000, put forth during the House Ways and Means Committee debate. Their continued dissatisfaction threatens intra-party unity and underscores how tax policy remains deeply regional.

Termination or Phase-Out of Major Clean Energy Credits

Many commercial and residential clean energy credits are terminated or phased out, including:

• Qualified Commercial Clean Vehicles Credit
• Alternative Fuel Vehicle Refueling Property Credit
• Energy Efficient Home Improvement Credit
• Residential Clean Energy Credit
• New Energy Efficient Home Credit
• Clean Electricity Production Credit
• Clean Electricity Investment Credit

These provisions effectively roll back most Inflation Reduction Act–era residential and commercial energy credits after 2025.

MAGA Accounts for Children

The bill introduces a new tax-advantaged savings vehicle called Make America Grow Again (MAGA) Accounts, aimed at promoting early financial security for the next generation. The MAGA Accounts are the House version of the Invest America Act introduced in the Senate by Sen. Ted Cruz (R-Tx). These accounts would function similarly to existing educational or custodial savings accounts but with broader flexibility and federal support.

Under the proposal, every child born between 2025 and 2028 would receive a $1,000 federally funded deposit into a MAGA Account. Families could then make additional contributions to these accounts to grow savings over time. While specific contribution limits and rules around withdrawals are yet to be finalized, the MAGA Accounts are envisioned as a tool to encourage long-term financial literacy, asset building, and potentially even future education or homeownership planning.

The initiative echoes earlier efforts such as "baby bonds," but is structured within the framework of personal savings rather than entitlements. It also reflects the broader theme of the bill to reward families and encourage self-sufficiency through tax incentives.

Understanding the Reconciliation Process

The tax bill is being advanced under budget reconciliation, a procedural mechanism created under the Congressional Budget Act of 1974. Reconciliation allows certain tax, spending, and debt legislation to pass the Senate with a simple majority—bypassing the 60-vote threshold needed to overcome a filibuster.

This process has specific rules:

• All provisions must have a direct budgetary effect—either raising revenue or changing spending.
• Provisions not meeting that test may be struck under the Byrd Rule, enforced by the Senate Parliamentarian.
• Only one reconciliation bill each year may address revenue, spending, and the debt limit.

Steps in the Process

1. House Ways and Means Committee (passed on May 14, 2025): The Ways and Means Committee went through formal debate on the bill, in a session lasting overnight, where Members proposed amendments, debated provisions, and ended with a vote to approve the bill.
2. House Budget Committee and House Rules Committee: The House Budget Committee and House Rules Committee will combine the various agenda items proposed by President Trump, add any additional amendments, and prepare the bill for general debate and voting on the House floor.
3. House Floor Vote: After committee approval, the bill will head to the full House for debate and a vote.
4. Senate Consideration: If passed by the House, the bill moves to the Senate, where reconciliation rules apply. The Senate Parliamentarian will assess whether each provision, including the new permanent provisions, complies with the Byrd Rule, which restricts non-budgetary items in reconciliation bills.
5. Conference Committee (if needed): If the Senate amends the bill, a conference committee may be required to resolve differences before final passage.

Presidential Signature: Once both chambers pass identical versions, the bill will be sent to the President for signature into law.

Conclusion

The updated House tax bill goes beyond merely preserving the TCJA—it builds on it. From new tax exemptions for overtime and tips to incentives for family savings and American manufacturing, “The One, Big, Beautiful Bill” represents a comprehensive effort to blend tax relief with working-class populism.

But the path to passage remains uncertain. The SALT deduction remains a wedge issue among Republicans, and broader fiscal concerns over the rising debt—now proposed to be raised by an additional $4 trillion—could spark bipartisan pushback.

As it advances to the House Budget Committee, the tax and policy world will be watching closely to see whether Republicans can deliver a signature legislative win—or whether internal fractures will unravel this ambitious effort.

Alexander M. Parthemer, a private wealth and tax attorney at Jones Foster, holds an LL.M. in Taxation and is a member of The Florida Bar Tax Section’s Transfer Tax Subcommittee. Shareholder David E. Bowers is a Florida Bar Board Certified Specialist in Tax, holds an LL.M. in Taxation, and is a past chair of The Florida Bar Tax Section.

Reprinted with permission from the May 16, 2025, edition of the Daily Business Review © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.