The One, Big, Beautiful Bill: A New Chapter in the U.S. Tax Policy
The U.S. House Ways and Means Committee has taken a decisive step in advancing the monumental tax overhaul known as The One, Big, Beautiful Bill, marking a significant turning point in the country’s tax policy. After 17 hours of deliberation, the Committee has sent the 389-page bill forward with minimal changes from the original draft released on May 12. However, this is just the beginning of a complex legislative process that will ultimately shape the future of tax regulation in the United States.
A Snapshot of Tax Revolution
The Ways and Means section is part of a larger budget reconciliation package that Congressional Republicans aim to finalize and send to President Biden’s desk by July 4. While the bill is still in its infancy, the road ahead is filled with uncertainty. As it moves to the House Budget Committee for further review and eventually reaches the Senate, modifications to spending cuts or tax provisions could have a ripple effect on the bill’s final form.
With both chambers of Congress working with razor-thin majorities, even small groups of lawmakers can hold up the process, especially if there are disagreements over provisions unrelated to the tax reforms. The tax package, therefore, remains a moving target. As such, industry stakeholders, especially those who have not yet weighed in, may soon find themselves under the spotlight.
Key Provisions of The One, Big, Beautiful Bill
The bill contains a host of key tax provisions that will have wide-reaching effects across multiple industries, from business enterprises to renewable energy, sports franchises, and beyond. Below are some of the most noteworthy provisions.
1. Qualified Business Income (QBI) Deduction (Section 199A)
One of the central proposals in the bill is the permanent extension of the QBI deduction, which allows individuals to deduct 20% of qualified business income earned through certain entities like disregarded entities, S corporations, and partnerships. The bill proposes increasing this deduction to 23%, with adjustments to the limitations that phase in as the deduction is applied. This measure seeks to provide long-term stability for small businesses and entrepreneurs.
2. SALT Cap Changes
State and local tax (SALT) deductions have been a thorny issue for many lawmakers. The bill proposes raising the $10,000 SALT cap to $30,000 for married couples filing jointly, with phased reductions for higher-income earners. Given its political sensitivity, the SALT cap could become a pivotal issue as negotiations continue, particularly among Republican members who have made the cap a top priority.
3. Bonus Depreciation and Expensing Limitations
Taxpayers will be able to continue benefiting from bonus depreciation, with the bill allowing 100% of the cost of qualifying property (like machinery and equipment) to be deducted, effective for acquisitions made after January 20, 2025. Additionally, the bill proposes increasing the expensing cap for qualifying property from $1.25 million to $2.5 million, with an adjusted phase-down threshold. These changes are geared toward helping businesses offset the upfront costs of investment and growth.
4. Research and Experimental Expensing (Section 174)
The bill offers a more favorable approach to research and experimental (R&E) activities by allowing businesses to fully deduct R&E expenditures incurred within the United States. This change, effective after December 31, 2024, is designed to encourage innovation and scientific development, especially as companies explore new technologies and manufacturing techniques.
5. Clean Energy Provisions
The proposed bill takes a firm stance on clean energy by restricting certain energy tax credits while also phasing out others. Key proposals include the elimination of the clean hydrogen production credit after 2025 and reductions in clean electricity production credits in subsequent years. However, the bill also includes new measures to support rural investments in opportunity zones, offering incentives for energy development in these regions.
6. Limitations on Amortization of Sports-Related Intangibles
In a move that could affect professional sports franchises, the bill proposes limiting the amortization of goodwill and other intangible assets to 50% of the cost basis for sports-related business acquisitions. This proposal may create challenges for sports investors, particularly in an industry where intangible assets play a significant role in valuation.
7. Qualified Opportunity Zones (QOZ)
The bill seeks to reestablish and extend tax benefits for investments in Qualified Opportunity Zones (QOZs), providing taxpayers with extended tax deferrals and exclusions for capital gains reinvested in these economically distressed areas. This proposal includes several modifications aimed at encouraging investments in rural QOZs by offering additional tax incentives.
8. Energy Tax Credit Reforms
The bill also proposes significant changes to energy tax credits, especially in regard to the Inflation Reduction Act’s energy credit transferability provisions. The bill would repeal the “transferability” feature for various clean energy credits, impacting entities seeking to monetize such credits. Additionally, the bill introduces restrictions on energy credits for taxpayers connected with foreign entities, especially those linked to concerns related to national security.
The Road Ahead: Navigating a Complex Political Landscape
As the bill progresses through the legislative process, it faces a myriad of political and economic challenges. The tax provisions in this package are a key part of a broader budget reconciliation effort that will likely require significant compromises to gain the necessary support for passage.
The battle over the SALT cap, the phasing out of energy tax credits, and the expansion of business-related deductions will dominate much of the debate in the coming weeks. Ultimately, the bill will reflect a balance of political realities and tax policy goals, with significant consequences for the U.S. economy and businesses of all sizes.
Whether The One, Big, Beautiful Bill emerges as a triumph of tax reform or a compromise-laden package that placates various factions remains to be seen. What is clear is that this bill represents one of the most ambitious tax overhauls in recent memory, with the potential to reshape the U.S. tax landscape for years to come.
As the legislative process unfolds, stakeholders across industries will need to stay vigilant and engaged, ensuring their interests are represented in the final version of the bill.
