Tax Reform 2.0

September 13, 2018

On Sept. 10, House Ways and Means Committee Chairman Kevin Brady (R-Texas) spotlighted the introduction of three bills that collectively build on the growing economic successes of the Tax Cuts and Jobs Act. On Sept. 13, the House Ways and Means Committee plans to consider these three new bills dubbed “Tax Reform 2.0,” which include:

These bills constitute Republicans’ Tax Reform 2.0 package and according to the Chairman will make permanent the individual and small business tax cuts made law in the Tax Cuts and Jobs Act, make it easier for families and businesses to save for retirement, and boost American innovation by growing startup businesses.

The specifics of the bills that are part of the Tax Reform 2.0 package, include:

H.R. 6760, the Protecting Family and Small Business Tax Cuts Act of 2018, sponsored by Rep. Rodney Davis (R-Ill.), and cosponsored by Rep. Mark Meadows (R-N.C.), Rep. Mark Walker (R-N.C.), Chairman Brady (R-Texas). The key provisions includes:

Permanent 20 percent deduction for pass-through business income.
Permanently lower individual income tax rates and thresholds.
Permanently increase standard deductions of $12,000 for single filers and $24,000 for married couples filing jointly.
Permanently double child tax credit to $2,000 per child and higher phase-out threshold. Permanent repeal of personal and dependent exemptions and permanent $500 non-child dependent credit.
Permanent $10,000 cap on the state and local deduction (SALT) and $750,000 cap on the mortgage interest deduction for new mortgages. Permanent repeal of the phase-out of itemized deductions and other smaller miscellaneous individual itemized deductions.
Permanently increase estate and gift tax and alternative minimum tax exemptions and phase-outs.
Two-year extension of expanded deduction for medical expenses exceeding 7.5 percent of adjusted gross income, down from the pre-tax reform level of 10 percent, through 2020.

H.R. 6757, the Family Savings Act of 2018, sponsored by Rep. Mike Kelly (R-Pa.), and cosponsored by Rep. Paul Mitchell (R-Mich.), and Chairman Brady (R-Texas), and all other Ways and Means Committee Republicans. This bill includes four reforms aimed to simplify retirement savings, create a new universal savings account, expand the use of 529 education savings accounts, and allow families to access their own savings to support parental leave.

Retirement savings: Tax reform 2.0 will allow small employers to pool together to offer retirement benefits, repeal the maximum age for new contributions, add new exemptions from minimum distribution rules, as well as other modifications.

Universal savings accounts: Tax Reform 2.0 includes new small universal savings accounts that would allow taxpayers to contribute up to $2,500 a year. Withdrawals would be tax-free and not reserved strictly for retirement.

Education savings: Last year’s reforms modified college savings or “529” plans to allow parents to use money in these accounts for K-12 expenses. Tax Reform 2.0 would build on these reforms by allowing the money saved in 529 accounts to go toward homeschooling, apprenticeship, and student loan expenses.

New child and adoption savings: Tax Reform 2.0 would give families access to their own retirement accounts to support parental leave for the birth or adoption of a new child.

H.R. 6756, the American Innovation Act of 2018, sponsored by Tax Policy Subcommittee Chairman Vern Buchanan (R-Fl.), and cosponsored by Chairman Brady (R-Texas) and all other Ways and Means Committee Republicans.

The third bill, would allow new businesses to deduct more of their initial start-up costs. Currently, new businesses are only able to deduct up to $5,000 of their initial start-up expenses, forcing them to write off the remainder over the next 15 years. This makes it more expensive to start new businesses. Under Tax Reform 2.0, firms could deduct the lesser of their start-up expenses or $20,000. The $20,000 amount would be reduced for firms with more than $120,000 in expenses. Expenses that could not be deducted immediately would be amortized over 180 months.

For their part, House Speaker Paul Ryan (R-Wis.) and Majority Leader Kevin McCarthy (R-Calif.), noted that they intend to bring the Tax Cuts 2.0 plan to the House floor for a vote this month. A floor vote could potentially occur during the week of Sept. 24—as the House is currently scheduled to be out of session during the week of Sept. 17.

However, even if the lower chamber can clear the Tax Reform 2.0 plan, its prospects remain dubious in the Senate, where 60 votes (and thus the acquiescence of at least nine Democrats) would be required to overcome procedural hurdles and secure its passage.

Nonetheless, some have theorized that the new components of the Tax Cuts 2.0 effort – that is, those related to retirement savings and business innovation – could potentially be in play, along with other tax items such as tax extenders and some technical corrections to the 2017 tax bill, during the post-election “lame duck” session of Congress.