Trump Administration Tax Bill Advances With 23% Pass-Through Deduction

The Trump administration's proposed tax package, which includes extensions of the 2017 Tax Cuts and Jobs Act (TCJA) and new provisions focused on working households and small businesses, has advanced out of the House Budget Committee. The bill, which passed in a narrow 17–16 vote, is a central part of the administration’s broader economic agenda. The bill includes a permanent extension of the 2017 tax cuts for individuals and businesses, elimination of federal income tax on tips and some overtime pay, new tax deductions for seniors, and expanded standard deductions for individuals. The current 37% top individual income tax rate will be retained, and several clean energy tax credits enacted under the previous administration will be eliminated. The bill also includes provisions addressing estate and gift taxes, and expanded access to 529 and health savings accounts. The corporate tax rate and the carried interest loophole will remain unchanged.

One of the key provisions in the bill is the permanent 23% pass-through deduction for small businesses, which includes many marine manufacturers and suppliers. The bill also supports capital investment for marine manufacturers through 100% expensing for new and modernized manufacturing facilities, although this provision is temporary and sunsets after four years. Expanded deductions for depreciation, interest, and R&D expenses are also included, but full R&D expensing is not permanent and expires after four to five years.

The bill includes ongoing discussions around adjusting the state and local tax (SALT) deduction cap. One proposal would raise the cap to $62,000 for individuals, while another proposal under review would limit state-level regulation of artificial intelligence systems for 10 years. The bill also includes spending reductions to offset some of the potential cost, including proposed changes to entitlement programs such as Medicaid, but by law is prevented from making changes to Social Security.

Treasury Secretary Scott Bessent has stated that the bill is intended to drive long-term economic growth and support job creation. However, critics continue to raise concerns about its projected impact on the federal deficit. According to the Council of Economic Advisers (CEA), the bill could increase average family take-home pay by between $7,800 and $13,300 and raise wages by $6,100 to $11,600, depending on household type and income. Other projections estimate a potential federal revenue shortfall of up to $5 trillion over the next decade, prompting concerns about national debt levels.

A full House vote is expected before the Memorial Day recess, with a vote as early as Wednesday of this week. If passed, the bill could move directly to the Senate or be met with a separate Senate proposal. If that is the case, differences between the two versions would be resolved in a conference committee, where differences can be resolved between the two chambers before final passage. The bill seeks to deliver on Trump's key campaign promises, including making permanent Trump's 2017 tax cuts, raising the SALT cap, and eliminating federal income tax on tips and some overtime pay. Republicans from high-tax states managed to secure an agreement to raise the SALT deduction to $40,000, up from the $10,000 cap imposed as part of the 2017 tax law. The current version of the bill would extend the tax reductions passed during President Donald Trump's first term and add short-term cuts to taxes on tips and overtime pay.