On May 22, the U.S. House of Representatives passed reconciliation legislation, named the One Big Beautiful Bill Act (H.R. 1), by a vote of 215-214. The bill includes several policy priorities of the White House and of the 119th Congress related to extending the 2017 Tax Cuts and Jobs Act, and addresses immigration, healthcare, and social safety net programs. The legislation now heads to the U.S. Senate where the upper chamber is expected to make some changes to the House version.
Background
On May 14, U.S. House committees completed markups of their respective bills. Each committee had to follow budgetary instructions that were included in both the House and Senate’s budget resolution. Each House committee’s approved text was packaged together as H.R. 1 in the House Budget Committee where the bill was advanced by the full committee on May 18. On May 21, the House Rules Committee met for a long 23-hour markup where final changes were made to the package before it was sent to the House floor for a final vote.
Next Steps
The bill now heads to the U.S. Senate, where changes will likely be made to the bill to ensure its passage. Any non-budget provision may be challenged by the Senate Parliamentarian, as the “Byrd Rule” states that only budget-related provisions can be included in reconciliation and pass by a simple majority vote. The U.S. House will have to consider and pass any changes made in the U.S. Senate.
Highlights in the Bill Important to Economic Developers
- Municipal Bonds are Preserved: The bill does not touch municipal bonds, preserving the tax exemption for all bonds and protecting the ability to finance critical infrastructure at lower costs. (House Ways & Means Committee)
- New Markets Tax Credit Not Extended: The bill does not extend the New Markets Tax Credit (NMTC) that encourages community development and economic growth by attracting private investment in low-income communities with high unemployment and poverty. (House Ways & Means Committee)
- SALT Deduction Increase: The State and Local Tax (SALT) deduction cap would increase to $40,000 for individuals making under $500,000 in annual modified adjusted gross income (MAGI), and $20,000 for married individuals filing returns separately making under $200,000 in annual MAGI. The income threshold would increase by 1 percent each year through 2033, but the increased SALT cap would phase out by 30 percent for income exceeding these limits until the cap returns to $10,000 or $5,000 depending on the filer. (House Ways & Means Committee)
- Opportunity Zones:
The bill would extend and revise the Opportunity Zones program that provides tax incentives for investments in designated distressed neighborhoods, or qualified opportunity zones. (House Ways & Means Committee) - Impacts to the Non-Profit Sector
- The bill would increase taxes on foundations as a “pay for” for the bill. Foundations with assets of more than $5 billion will see tax rates of 10 percent, those with assets between $250 million to $5 billion would see tax rates of 5 percent, those with assets between $50 million and $250 million would pay 2.8 percent, and those with assets under $50 million would pay the existing 1.4 percent tax.
- The bill would put new limits on itemized deductions, including the charitable deduction. If enacted, this provision would significantly reduce the value of itemized deductions for high-income taxpayers, disincentivizing charitable giving. Section 112027 creates a 1-percent floor for charitable contributions made by corporations. In doing so, this provision would discourage corporate giving, if such donations amount to less than 1 percent of their taxable income.
IEDC will continue to monitor this legislation as it progresses.