• Treasury Secretary Scott Bessent defends tax cuts as inflation-neutral growth driver before House committee.
  • Proposal includes permanent small-business deductions, expanded R&D credits, and full factory investment expensing.
  • Plan counters inflationary risks with deregulation and energy expansion while leveraging tariff revenues.

Tax Cuts Take Center Stage

Treasury Secretary Scott Bessent doubled down on the administration's economic strategy during Thursday's House Ways and Means Committee hearing, framing proposed tax cuts as essential for sustaining non-inflationary growth. The plan would make permanent several temporary provisions from earlier reforms, including the 20% small-business income deduction and full expensing for domestic manufacturing investments - measures Bessent argued would "unlock capital formation without overheating demand."

"What we're seeing is the convergence of pro-growth tax policy with structural supply-side reforms," Bessent told lawmakers, citing deregulation efforts and accelerated energy project approvals as natural inflation counterweights. The Treasury estimates the combined effect could add 1.2 percentage points to GDP growth in 2026 without stoking price pressures, though some committee Democrats challenged those projections.

The Tariff Trade-Off

Notably, the administration expects increased tariff revenues - including from controversial proposals like a 100% duty on foreign films - to offset roughly 30% of the tax package's projected $2.8 trillion cost over a decade. This drew scrutiny from representatives in both parties, with Rep. Drew Ferguson (R-GA) questioning whether "trade policy should fund permanent domestic cuts" during the afternoon session.

Behind the scenes, negotiations continue over the bill's most contentious element: adjustments to the $10,000 SALT deduction cap. Three Republican aides confirmed to ROIC that leadership is weighing a partial repeal for households earning under $400,000, though progress remains stalled. Meanwhile, the proposed federal film tax credit - a direct response to the import tariff plan - has gained unexpected traction, with studio executives reportedly making daily calls to key Senate offices.

Market Calculus

While equity markets showed muted reaction to the testimony, credit markets displayed subtle shifts. The 10-year Treasury yield dipped 3 basis points to 4.31% as Bessent reiterated the inflation containment strategy, while small-cap stocks in the Russell 2000 edged up 0.6%. "The market's telling us this is more about 2025 positioning than immediate stimulus," said a fixed-income strategist at a major bank who requested anonymity to discuss client positioning.

Updated 4:15 PM ET: This article has been revised to clarify the estimated GDP impact timeframe.