Trump's Tax Cut Plan Passes Major Hurdle... Relief for Battery and Nuclear Industries

Details of Trump's Tax Cut Plan Passed by the House

Battery Tax Credit Ends '2031'

Concerns of Early Termination in 2028 Alleviated

Electric Vehicle Purchase Subsidy Ends Next Year

Nuclear Power, Tax Credit Only Until Construction Starts Within 3 Years

Republicans Aim for Senate Passage by July

Erasing Biden Administration Policies

Trumpnomics Gains Momentum

The U.S. House passed the 'Mega Bill', a hot topic in Washington, D.C., and President Donald Trump's tax cut plan, in the early hours of the 22nd (local time). It was a narrow victory with all 214 Democrats opposing and three defections from the Republicans, including two opposing and one abstaining. Although it still needs to pass the Senate, it has crossed a major hurdle. Trumpnomics is gaining momentum.

◇ Deficit Likely to Increase

Representative Andy Harris (Maryland), chairman of the Freedom Caucus, classified as a hardliner within the Republican House, abstained from the vote. He expressed concerns that the bill would not reduce the fiscal deficit until the end, but after President Trump pressured Freedom Caucus members, he abstained in respect for the president instead of voting against it. Thomas Massie (Kentucky), who maintained his opposition, criticized the bill, saying, "If the bill were as beautiful as its name, it wouldn't be passed at dawn," and argued that it would not be good for future generations.

The amendment process included few spending cuts, but several provisions to reduce revenue or increase spending were added. Freedom Caucus members argued for more cuts to Medicaid spending, but President Trump, who wanted swift passage, overruled their arguments with strong language. The state and local tax (SALT) deduction limit was added with much more generous conditions than initially expected. The deduction limit for households with an annual income of less than $500,000 was originally $10,000, but the House-passed version increased it sharply to $40,000. Additionally, the Republicans included a last-minute provision to create a 'Trump Account' for children born over the next four years, giving them $1,000 each.

The Penn Wharton Budget Model (PWBM) originally projected that the bill would increase the deficit by $3.3 trillion over 10 years, but on the 20th, it analyzed that the deficit would grow to $5.8 trillion when reflecting the SALT limit increase. This was based on a SALT limit of $30,000, so if adjusted to the passed version of $40,000, the expected deficit would be larger. This is why there is talk of readjusting this part in the Senate.

◇ Erasing Biden and Obama

The Inflation Reduction Act (IRA) tax benefits, a legacy of former President Joe Biden, were significantly reduced. The tax credit ($7,500) for clean energy vehicles like electric cars, originally intended to last until 2032, was effectively moved up to the end of 2026 in the House-passed bill.

Trump's tax cut plan, which has passed a major hurdle, provides relief for the battery and nuclear industries. The expiration date for the Advanced Manufacturing Production Tax Credit (AMPC, 45X), which primarily benefits domestic battery companies, was moved up from the end of 2032 to the end of 2031. Originally, it was to be phased out with 75% in 2030, 50% in 2031, and 25% in 2032, but now 2032 will be 0% instead of 25%.

However, domestic companies feel relieved that a worse scenario was avoided. The Wall Street Journal (WSJ) reported that during the Republican internal coordination process, this period could be significantly moved up to the end of 2028, but such discussions were not actually reflected. The system allowing the sale of tax credit amounts to third parties will only operate until 2027 and then end. Currently, domestic battery companies like LG Energy Solution have been reflecting immediate profits by selling with a slight discount (3-7%) in the market without going through the lengthy refund process, but the timing of profit reflection may be delayed in the future.

The tax credit system for electricity produced from clean energy such as solar and wind will be abolished. This is a disadvantage for domestic solar and wind operators. However, nuclear power plants that start construction by the end of 2028 will be exempted. The significantly strengthened regulations on Foreign Entity of Concern (FEOC) are also cited as a factor greatly affecting the business environment of domestic companies in the U.S. Kim Yong-beom, director of The Livingstone Group, said, "While direct competition with China can be avoided, domestic companies will need to adjust their supply chains as it becomes difficult to use Chinese raw materials."

◇ Republicans, Senate Passage is Key

The ball is now in the Senate's court. The Senate is already planning to revise the House bill. Senate Republican Whip John Thune said, "They (the House) have struck a very delicate balance, but the Senate will leave its mark," and "We need to do what can get 51 votes (a majority)."

Washington Correspondent Lee Sang-eun selee@hankyung.com