Tax Reform 2.0: House Approves Retirement Savings, Business Innovation Bills (article)
Update: Shortly after publishing this article, the House passed the Protecting Small Business and Tax Cuts Act of 2018 on September 28. The measure would make many temporary provisions of last year’s tax reform law permanent. The following article should be read in conjunction with this breaking development.
The House has approved two tax bills that are part of Republicans’ three-pronged "Tax Reform 2.0" package. The two measures, approved by the House on September 27, focus on retirement savings and business innovation.
The most controversial bill of the package, which would make permanent tax reform’s individual and small business tax cuts enacted last December, is expected to be approved by the House on September 28. At this time, the Senate is neither expected to vote on the Tax Reform package before midterm elections in November nor approve the Tax Reform 2.0 package in its entirety.
Tax Reform 2.0
The Tax Reform 2.0 package was approved by the House Way and Means Committee on September 13. The following three bills are included in the package:
- - Protecting Family and Small Business Tax Cuts Bill of 2018 (HR 6760);
- - Family Savings Bill of 2018 (HR 6757); and
- - American Innovation Bill of 2018 (HR 6756).
The House approved HR 6757 on September 27 by a 240-to-177 vote. HR 6756 was approved minutes later by a 260–to-156 vote.
HR 6757 proposes an expansion of certain savings incentives. Among other things, the bill would eliminate the age limit on individual retirement account (IRA) contributions. Additionally, it would create a Universal Savings Account (USA), to which individuals could contribute up to $2,500 annually. Withdrawals from the USA accounts would be tax-free. Tax-advantaged funds in the USA could be used for purposes other than retirement. Also, the bill would expand Code Section 529 Plans to permit use for expenses related to trade schools, home schooling, and up to $10,000 in total distributions for repayment of student loans.
HR 6756 would improve the tax treatment of certain start-up business expenses. The bill would allow new businesses to write off up to $20,000 of start-up and organization expenditures. Additionally, HR 6756 would allow for a change in start-up ownership without triggering limits on certain tax benefits.
Individual, Small Business Tax Cuts
HR 6760 would make permanent the individual and small business tax cuts enacted temporarily through 2025 under the Tax Cuts and Jobs Act (TCJA). These TCJA provisions were made temporary to comply with certain Senate budget rules applicable to the reconciliation process Republicans used to pass tax reform with only a simply GOP majority. Notably, TCJA provisions that would be made permanent under HR 6760 include the lowered individual income tax rates and the 20 percent deduction of income for certain passthrough entities. Additionally, the bill would extend the currently temporary $10,000 annual cap on the state and local tax (SALT) deduction.
HR 6760 would reduce federal revenue by $631 billion over the next decade, according to a cost estimate by the nonpartisan Joint Committee on Taxation (JCT), (JCX-79-18). However, House Ways and Means Chairman Kevin Brady, R-Tex., highlighted the JCT’s findings particular to the bill’s macroeconomic effects. "Tax Reform 2.0 will permanently provide over $140 billion in annual tax relief for middle-class families, boost American GDP and investment, and create 1.1 million new jobs." Brady said in a statement, citing to the JCT report.
Democrats remain united in their opposition of Republicans’ Tax Reform 2.0 efforts. The lack of Democratic support makes the package’s success in the Senate, at least in current form, highly unlikely.
At least 60 Democratic votes would be needed for approval. Senate Majority Leader Mitch McConnell, R-Ky., has said that the Senate will not take up any bills in the package until the requisite votes are accounted for.
Specifically, Democrats criticize HR 6760 for extending TCJA provisions, a law that Democrats claim primarily benefits wealthy individuals and corporations. However, some Democratic support is expected in the Senate on the business innovation bill, HR 6756. There is talk on Capitol Hill that the bill could be approved by Congress in the lame duck session toward the end of the year.
The Trump administration announced its support of the Tax Reform 2.0 package in a September 26 Statement of Administration Policy. The White House praised HR 6760 for "preventing a tax increase on millions of middle-income families and small businesses after 2025." Additionally, the Trump administration praised HR 6757, saying it would "assist start-up companies and entrepreneurs by allowing them to write off more costs associated with starting their new business and by allowing them to raise capital and expand without losing their previously accrued tax benefits."
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