The highly anticipated text of the One Big Beautiful Bill Act (the “OBBB”) was released early last week. At more than 1,110 pages long, it certainly lives up to part of its name. But by Friday, multiple factions of House Republicans were already questioning its beauty when the bill failed to advance out of the House Budget Committee.
The Budget Committee reconvened last night and advanced the bill with the Freedom Caucus members voting “present” after voting “no” on Friday.
Summary of Key Provisions
State & Local Tax Deduction: Not SALTy Enough
Under current law, taxpayers may deduct up to $10,000 of state and local taxes. The OBBB would make the SALT cap $30,000, with a gradual phaseout for taxpayers with more than $400,000 of modified adjusted gross income. The bill also limits the Pass-Through Entity Tax (“PTET”) workaround that blue states devised after the SALT cap was reduced in 2017.
The “SALT Caucus,” whose members include Republicans in New York and California, is unhappy with the $30,000 proposed cap. Rep. Mike Lawler (NY) previously introduced a bill to raise the SALT cap to $100,000 for individuals and $200,000 for married couples. It seems unlikely those limits would make it into the OBBB, but with a razor-thin margin in the House, Republicans cannot afford to risk losing any votes.
At the same time, raising the SALT cap is one of the most expensive tax cuts, causing dissension among Republicans from red states, especially the House Freedom Caucus. The Joint Committee on Taxation estimates a loss of government revenue of almost $200 billion a year starting in Fiscal Year 2027 if the unlimited SALT deduction were to return. Republicans will need to thread the needle and satisfy the dueling factions within the party in order to make the Big Beautiful Bill a law.
International Tax: New Retaliatory Rates
The United States has a record of success using the threat of a “stick” to get foreign entities to do its bidding. Most notably was the Foreign Account Tax Compliance Act (FATCA), which threatened the imposition of a 30% withholding tax on the U.S. source income of foreign entities that did not disclose their U.S. owners or account holders (who may have been avoiding U.S. tax). The OBBB would provide the Treasury Department with a new tool to fight against an “unfair foreign tax.”
An “unfair foreign tax” includes an undertaxed profits rule, digital services tax, diverted profits tax and “any other tax enacted with a public or stated purpose indicating the tax will be economically borne, directly or indirectly, disproportionately by” U.S. persons.
In retaliation against a “discriminatory foreign country,” the United States would increase the U.S. tax rate for individuals and entities resident in that foreign country. The retaliatory tax rates would start with an increase of 5% over the relevant current rate and could ratchet up (in 5% increments) to an extra 20% over four years. So, these new measures could mean that the U.S. withholding tax on U.S. source dividends, interest, rents, royalties, etc., could ultimately increase from the current 30% rate to 50%. Presumably the goal of this new regime is to give the United States leverage to cause a foreign country imposing an “unfair foreign tax” to reconsider.
The OBBB otherwise preserves the current treatment of foreign-derived intangible income (FDII), global intangible low-taxed income (GILTI) and the base erosion and anti-abuse tax (BEAT).
Bonus Depreciation: Revitalized
The OBBB restores 100% bonus depreciation for certain qualified property placed in service on President Trump’s inauguration day (January 20, 2025) and before January 1, 2030. Under the current law implemented by the Tax Cuts and Jobs Act, taxpayers are only permitted to immediately deduct 40% of qualified property placed in service in 2025.
The OBBB also significantly improves the depreciation of certain new factories. Under current law, nonresidential real property is depreciated over a 39-year period. The OBBB would allow a full and immediate deduction of the cost of “qualified production property.” The property must be involved in the manufacturing, production or refining of tangible personal property. This provision appears to be the dangling carrot that would work in conjunction with U.S. tariffs to incentivize locating factories within the United States.
Green Tax Credits: Targeted
The OBBB stops short of gutting the Inflation Reduction Act but accelerates the expiration of many of its “green” tax credits. For example, the electric vehicle tax credit, energy efficient home improvement credit, residential clean energy credit and alternative fuel vehicle refueling property tax credit would all terminate early at the end of 2025.
The bill also phases in (beginning in 2027) an elimination of the transferability of the clean electricity production credit (45Y(a)), the clean electricity investment credit (48E), the clean fuel production credit (45Z(a)), the credit for carbon oxide sequestration (45Q(a)), the zero-emission nuclear power production credit (45U(a)) and the advanced manufacturing production credit (45X(a)).
There are indications from the Freedom Caucus that it wants the OBBB to be closer to a complete elimination of all the IRA tax credits. The OBBB may be revised to target additional tax credits for early termination or restrictions on transferability.
Opportunity Zones: Another Round
The OBBB would renew the opportunity zone program by allowing new opportunity zone investments to be made after 2026. Any gain deferred in the new round would be recognized at the end of 2033. New investments made in 2027 or 2028 could also qualify for a 10% discount on the gain, to be recognized in 2033. The second round offers enhanced benefits for investments in rural qualified opportunity funds. There are no apparent changes to any current investors in a qualified opportunity fund (i.e. any deferred gain will still be recognized at the end of 2026).
