After four years of towering inflation, some Republican lawmakers are seeking to index major tax breaks to inflation as they begin crafting major fiscal policy legislation.
Prices have risen 21% over the past four years or so, and nearly 28% since 2017, when Republicans passed the Tax Cuts and Jobs Act, which lawmakers are now trying to extend and expand upon through reconciliation, a legislative process that allows for bills to bypass the filibuster and pass with only a simple majority in the Senate.
That means that some tax breaks within the bill have decreased in value by about a quarter since the passage of the bill, commonly referred to as the Trump tax cuts.
Some features of the tax code are indexed to inflation, such as the standard deduction and the individual income tax brackets, but other key provisions are not. Most notably, the child tax credit, which the Trump tax cuts set at $2,000, does not increase to account for inflation. Nor does the $10,000 cap the law placed on deductions for state and local taxes paid, often referred to as SALT.
“I’ve made it very clear repeatedly that we should be indexing that cap because standard deduction is indexed and SALT should be indexed too,” Rep. Nicole Malliotakis (R-NY) recently said.
Republicans in blue states have been pushing hard for reconciliation legislation that would include lifting the SALT cap. Malliotakis, a member of the tax-writing House Ways and Means Committee, said she also mentioned indexing the cap to inflation during a Mar-a-Lago visit during which the group of Republicans met with President Donald Trump.
Malliotakis said the Ways and Means Committee chairman, Rep. Jason Smith (R-MO), was open to indexing the break to inflation. “He appreciates the concept of this is why it’s necessary, and President Trump is certainly open to that as well,” she said.
Republicans are likely to be interested at least in boosting the child tax credit to reflect its diminished value.
Rep. Max Miller (R-OH) said that while the tax conversations are still in the very early stages and the top-line number is still yet to be decided, Republicans might consider adjusting the child tax credit to inflation — at least on a one-time basis.
Sen. Josh Hawley (R-MO) also said this week that he supports tying the child tax credit to inflation.
“Just look at what inflation has done in the last four years to the earning capacity of families,” Hawley said Thursday. “I mean, even those who have gotten raises — and that’s not very many working Americans — they haven’t nearly kept pace with inflation.”
While he would not get into specifics, Smith said Wednesday that he thinks ensuring that the tax code is indexed to inflation in many provisions is “extremely important.” He noted that the $2,000 child tax credit would be around $2,500 today if it had been indexed to inflation in 2017.
Asked about openness to indexing the credit to inflation in this tax legislation, Smith responded: “The entire tax code has openness in this package.”
Inflation aside, there has been a growing push within the Republican Party to boost the child tax credit, with some seeing such incentives as a key tool in encouraging family creation.
Vice President JD Vance, a populist who previously served Ohio in the Senate, has endorsed the notion of a bigger child tax credit.
“We should expand the child tax credit,” Vance said on CBS last year. “We think it should be bigger. I think President Trump and I agree on an expanded child tax credit, but we also, importantly, want to get this thing done.”
And with the reconciliation process underway, one House Republican has already introduced legislation that would greatly boost the credit.
Last week, Rep. Blake Moore (R-UT) introduced the Family First Act, which would increase the child tax credit from the current $2,000 level to $4,200 for families with children up to age 5. The credit would be $3,000 for families with children between 6 and 17.
The bill also creates a $2,800 tax credit for pregnant mothers. Moore said the pregnancy credit is an important component because of all the changes that happen during pregnancy and child-raising.
“I can’t predict how this plays out within the reconciliation package,” Moore said during an interview with the Washington Examiner. “We’re obviously going to push for it. I think that the Republican base … there’s interest there.”
Freshman Rep. Riley Moore (R-WV) said last week that he would like to see the credit expanded even more, perhaps up to $5,000.
It is still early days for the reconciliation legislation. For instance, Republicans disagree on whether the tax components should even be included with other reconciliation priorities, such as immigration policy. For now, lawmakers are pursuing the Trump-endorsed “one big, beautiful bill” strategy, but much can change in the coming months.
Still, inflation, which became one of the most serious economic problems in a generation, will likely weigh heavily on Republicans’ thinking as they try to extend and build off the 2017 Trump tax cuts.
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The Washington Examiner asked Rep. Nick LaLota (R-NY), a prominent proponent of lifting the SALT cap, whether there is anything else in the reconciliation legislation he would want to see indexed to inflation.
“Why not it all?” LaLota responded. “We should make it easier on the American people when we write our tax codes and have them be more accommodative for the realities of things like inflation. So I wouldn’t limit the concept to just SALT.”