Aindriu Colgan, NSWA VP of Governmental Affairs
Last year’s Tax Cut and Jobs Act significantly changed how individual taxpayers and small businesses are taxed. These changes included lower tax rates and a new 20% deduction for passthrough business income. These provisions, however, are only temporary. They expire in 2025.
Building off of the momentum of the Tax Reform and Jobs Act, Ways and Means Chairman Kevin Brady (R-TX) has advocated a second round of tax reform to make those provisions permanent and address an area he felt tax reform addressed unsatisfactorily: retirement savings.
The Framework released this week proposes the following policy changes:
- Make permanent the individual and small business tax cuts, including the 20%passthrough deduction.
- Expand employer-sponsored retirement plans.
- Create universal savings accounts.
- Expand 529 education accounts to help pay off the cost of apprenticeship fees, home schooling, or student debt.
- Allow families to access retirement accounts penalty-free to cover expenses from the birth or adoption of a new child.
- Help brand-new businesses write off more of their initial start-up costs and remove barriers to growth.
Like 2016’s Tax Reform Blueprint, the Tax Reform 2.0 Framework does not include policy specific, but rather proposes broad policy changes, which members of the Ways and Means Committee will flesh out and put into legislative text. They intend to do that in August and September and then mark up the resulting bill and pass it out of the House before the November election.
On the question of revenue offsets, Chairman Brady has remained coy, quipping that no provisions were included solely to raise revenue and any that happen to do so are just good policy.
Tax Reform 2.0 is unlikely to make it further than House passage. Senate Majority Leader McConnell (R-KY) has shown little interest in bringing it to the Senate floor. First, it will need 60 votes to pass, which it is not likely to get. Second, McConnell does not want to provide vulnerable Democrats an opportunity to vote for tax cuts right before the midterm election. While Chairman Brady has indicated that he would like to use Tax Reform 2.0 to enact some clarifications and/or corrections to the Tax Cuts and Jobs Act’s international provisions, those would require, and be unlikely to get, Democrat support.
That said, there could be an opportunity for tax legislation during the lame duck session—depending of course on the results. The aforementioned opportunity will most likely be limited to tax extenders (e.g. the investment tax credit for geothermal power), which expired at the end of 2017, and maybe some bipartisan retirement savings proposals like Senate Finance Chairman Hatch’s (R-UT) Retirement Enhancement and Savings Act.