Earlier this week, Chairman of the House Ways and Means Committee Jason Smith (R-MO) endorsed a temporary expansion of the standard tax deduction for individuals. This endorsement is good news in that it signals the rollout of a larger tax package in the House is imminent and likely means that this proposal will be part of that package. We are hearing that the proposal would increase the standard deduction by $2,000 for single filers or those that are married and filing separately, and $4,000 for those married filing jointly. This would be a positive development for those living in states where the state and local tax (SALT) deduction limit is problematic.
In our conversations with Hill staff and Members of Congress, we are consistently hearing that this package will include a permanent extension of the 100 percent bonus depreciation tax benefit that began to phase out at the beginning of this year. It will also include an extension of the research and development (R&D) tax benefit. Beginning in 2022, companies are required to amortize their R&D costs over five years rather than the year in which they are incurred. Legislation to extend this benefit is already pending in the Senate.
Also rumored to be in the package is the permanent extension of Sec. 199A, the 20 percent tax deduction for S-Corporations and other pass-through entities that was authorized by the Tax Cuts and Jobs Act (TCJA). That deduction is slated to expire after 2025. And finally, provisions improving interest deductibility will be included. Specifically, the bill will restore the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBIDTA) standard that was in place before the TCJA was enacted. That law initially limited net interest expense to 30 percent of EBITDA. Beginning in 2022, the standard was narrowed to 30 percent EBIT, effectively increasing the cost of new investment. ABMA will continue to build support for this package, both by direct lobbying Congress and in collaboration with other trade associations.