Washington Report (May 2025)

Tax

This morning, the House of Representatives voted 215-214 to advance a comprehensive budget reconciliation bill that encompasses GOP policy priorities. As we noted in our previous updates, the legislation includes robust tax provisions that revive and extend key business tax benefits, including full expensing, the research and development tax credit and the Section 199A deduction for S-Corporations and pass throughs. To pay for these provisions and others, the measure cuts spending for Medicaid and food assistance programs in addition to eliminating renewable energy tax credits authorized by the Inflation Reduction Act.

Key business tax benefit provisions included in the bill are—

• 100 percent bonus deprecation/full expensing: Language allows taxpayers to immediately expense 100 percent of capital investments in machinery and equipment made on or after January 20, 2025, and before January 1, 2030. House GOP leaders entered the reconciliation process hoping to extend this benefit permanently but opted for a 5-year extension based on cost concerns. We understand there is a strong appetite in the Senate to modify this provision to make it permanent.
• Research & Development (R&D) Credit: The provision allows taxpayers to fully write off their R&D costs in the same year in which those costs are incurred. Recall, this benefit expired in 2022. The bill makes the R&D credit retroactive to January 1, 2025, and extends it through December 31, 2030. Again, the Senate is interested in making this benefit permanent.
• Section 199A: The 20 percent deduction for S-Corporations and other pass-through structures expires at the end of this year. This benefit would not only be made permanent, but it is also increased to 23 percent.
• Section 179 : The proposal increases the maximum amount a business may write off certain expenses to $2.5 million and increases the phaseout threshold amount to $4 million.
• EBITDA: The bill restores EBITDA as the measure for calculating business interest expense. The current standard established by TCJA is EBIT, which is not as generous and serves to makecompanies less competitive, particularly in a high interest rate environment.
• FDII and GILTI:  Under the TCJA, after 2025, the foreign-derived intangible income (FDII) deduction was scheduled to be reduced from 37.5% of FDII to 21.875%, and the global intangible low-taxed income (GILTI) inclusion deduction amount was scheduled to be reduced from 50% to 37.5% under Sec. 259(a)(3). The bill would repeal those reductions.
• BEAT tax:  Under Sec. 59A, the base-erosion and anti-abuse (BEAT) tax is scheduled to increase from 10% to 12.5% after 2025, and regular tax liability will be reduced (and the BEAT minimum tax amount therefore increased) by the sum of all the taxpayer’s income tax credits for the tax year. The bill would eliminate that increase and the provision reducing regular tax liability by the sum of the taxpayer’s tax credits.

   

• Estate and Gift Tax Exemption: The basic estate and gift tax exemption amount and the generation-skipping transfer tax exemption would be permanently increased to $15 million. The Tax Cuts and Jobs Act of 2017 (TCJA) had temporarily increased it to $10 million (adjusted for inflation), but that increase is expiring next year. The $15 million exemption amount would be indexed for inflation after 2025.
• State and Local Tax (SALT) Deduction: Language in the bill raises the SALT deduction cap from $10,000 to $40,000.

The legislation now proceeds to the Senate where the upper chamber will attempt to revise the measure. Again, Senators have opined that they would like to make full expensing and the R&D credit permanent. But given the extremely narrow margin in the House—the bill passed by one vote—it will be interesting to see how the Senate proceeds knowing that significant revisions may disrupt the fragile framework in the lower chamber that enabled this bill to pass. WIA will be working with our Senate champions to encourage permanent extension of these two key business tax benefits.

Federal Forest Management

Included in the House Natural Resources Committee’s portion of the budget reconciliation package are provisions that direct both the U.S. Forest Service and the Bureau of Land Management to boost timber harvesting on lands these entities oversee by 25 percent over 2024 levels. House Natural Resources Committee Chairman Bruce Westerman (R-AR) is a strong proponent of forest heath and increasing active management of our federal forest landholdings. We will be tracking this provision as the budget reconciliation process moves forward.

Farm Bill

Prospects for reauthorizing the Farm Bill are appearing bleaker by the day. House leaders opted to include certain Farm Bill programs in the House Agriculture Committee’s portion of the budget reconciliation bill. The good news side of this approach is that the bill includes double funding for the Market Access and Foreign Market Development programs. These two funding sources support the American Hardwood Export Council which exists to open up markets overseas for U.S. produced hardwood lumber products. The bad news is that the reconciliation process may only be used for programs that currently receive mandatory funding. Most of the Farm Bill programs that WIA supports are funded with discretionary money and have been omitted from this effort. Further challenging the reauthorization effort is the fact that the budget reconciliation process has left Democrats out of the negotiation—making for strained political relationships at least in the short term.  WIA will nevertheless continue to advocate for full funding and renewal of key Farm Bill programs like the Wood Innovation and Community Wood grant programs and the Jobs in the Woods Act—relatively new legislation that was included in the House Agriculture Committee-passed Farm Bill reauthorization bill last Congress.

Career and Technical Education

Senator Richard Blumenthal (D-CT) is circulating a letter among his Senate colleagues urging increased funding for the Perkins state grant program to support CTE in the Fiscal Year 2026 Labor, Health and Human Servies and Education appropriations bills. This effort comes on the heels of a successful letter that was finalized late last month in the House led by Representatives Glenn “GT” Thompson (R-A) and Suzanne Bonamici (D-OR). That bipartisan letter was signed by 78 Members of Congress and sent to the Chair and Ranking Member of the House Appropriations Committee’s Labor, HHS, Education and Related Agencies Subcommittee.