Eight Tax Cuts in the American Families and Jobs Act That Will Help Working Families and Small Businesses

Ways and Means Committee Chairman Jason Smith (R-Mo.) recently introduced the American Families and Jobs Act — legislation that will provide necessary relief to Americans struggling in the aftermath of the pandemic. It will provide significant tax cuts and tax simplification for households and small businesses. The legislation also abolishes the Democrat-imposed IRS 1099-K paperwork burden.

The legislation is comprised of three bills: the Cuts for Working Families Act (H.R. 3936), the Small Business Jobs Act (H.R. 3937), and the Build It in America Act (H.R. 3938). 

Below are eight tax proposals contained in these bills, including an increase in the standard deduction by $4,000, a repeal of Democrats’ new 1099-K reporting threshold, the extension of vital pieces of the 2017 Tax Cuts and Jobs Act set to expire, an increase in small business immediate expensing, and elimination of a burdensome IRS rule on business owners.

1. Provides $4,000 Guaranteed Deduction Bonus

This legislation would provide a direct middle income tax cut through an increase in the standard deduction. This “guaranteed deduction bonus,” would increase the standard deduction by $2,000 for single-filers and $4,000 for joint-filers over the next two years. 

Roughly 90 percent of Americans, almost all low- and middle-income, choose to claim the standard deduction. This reform would significantly reduce Americans’ tax burden by increasing the income they do not have to pay taxes on to $15,850 for single-filers and $31,700 for joint-filers. 

This provides further tax simplification for hard working households. Since Republicans enacted the Tax Cuts and Jobs Act in 2017 about 35 million households no longer have to itemize deductions. This will also help keep Biden’s IRS auditors off their back.

2. Repeals Democrats’ New 1099-K Reporting Threshold of $600

As part of their so-called “stimulus” bill in 2021, Democrats lowered the 1099-K reporting threshold from $20,000 and at least 200 transactions to $600 with no required transactions, empowering the IRS to target gig workers and any American who uses Venmo or PayPal. This Democrat provision stands to bury American households and small businesses with IRS paperwork and complicate the tax process for countless independent contractors, small businesses, and taxpayers who simply sold tickets to a concert or an old couch. 

Rep. Smith’s legislation would repeal this harmful policy, ensuring Americans will not be buried in IRS paperwork or made to pay taxes they don’t owe.

3. Extends Full Business Expensing 

This legislation would extend full business expensing, implemented in the Tax Cuts and Jobs Act (TCJA), for new investments. This policy helps encourage new investment, which helps promote greater economic productivity, job growth, and higher wages. 

This policy also simplifies the tax code by equalizing the tax treatment of new investments with other business expenses such as wages, rent, and healthcare costs. There is no reason a business should be able to deduct the costs of its utilities, rent, insurance, office supplies, etc. but be required to deduct the cost of their property over decades.

4. Restoring Immediate Deduction of R&D Costs 

The TCJA allowed companies to immediately deduct research and development costs. Prior, companies were forced to gradually spread those expenses over time for as long as 15 years. In 2022, this became reality again, as this provision of TCJA expired. Rep. Smith’s bill would restore immediate deduction of R&D costs, re-incentivizing American companies to innovate.

5. Restore TCJA Interest Deductibility 

Under the TCJA, businesses could deduct net interest expenses (i.e. debt) up to 30 percent of earnings before interest, tax, depreciation, and amortization (EBITDA). Unfortunately, starting in 2022, the deduction was narrowed to 30 percent of earnings before just interest and tax (EBIT). This has resulted in a tax hike for many capital-intensive taxpayers, including manufacturing businesses, especially because of today’s notably higher interest rates. Rep. Smith’s bill would restore TCJA’s interest deductibility. 

6. Increases Small Business Immediate Expensing to $2.5 Million

The TCJA doubled the immediate expensing limit for small businesses from $500,000 to $1 million. This provision helped small businesses raise productivity, increase wages, and hire more staff. Rep. Smith’s bill would build on this success, by raising the limit to $2.5 million. 

7. Repeals Democrats’ Superfund Tax on Petroleum

The legislation will help Americans pay less at the pump by fully repealing Democrats’ $12 billion tax hike on crude oil passed in the Inflation Reduction Act. Democrats imposed a 16.4 cents-per-barrel tax on crude oil and imported petroleum products. This tax has been passed on to consumers in the form of higher gas prices, as if inflation hadn’t already made energy radically expensive for working families. Worse, Democrats’ pegged this oil tax to inflation, meaning that as inflation rises, so will this tax. Rep. Smith’s bill would repeal this harmful tax on energy. 

8. Eliminates a Burdensome IRS Reporting Rule 

Currently, business owners are required to send tax forms to contractors they use if the contractors provide over $600 worth of work to their business. This rule — and threshold level — was established in 1954, and thus has not been inflation-adjusted in almost 70 years. Rep. Smith’s bill would increase this reporting threshold to $5,000, significantly reducing red tape for small businesses.