Tax Reform 2.0 Framework ReleasedAugust 1, 2018
On July 24, the House Ways and Means Committee released its long-awaited Tax Reform 2.0 “listening session framework,” which would make permanent the Tax Cuts and Jobs Act’s (TCJA) individual income tax changes and institute other reforms.
The two-page outline of the ‘Tax Reform 2.0’ proposal includes making permanent certain individual income tax provisions and the new Section 199A deduction for certain pass-through business income. These provisions of the 2017 tax reform act are set to expire after 2025. The outline indicates that Tax Reform 2.0 legislation also will include a range of ‘family-friendly’ proposals to promote savings for retirement, education, and other purposes, as well as new proposals to enable small businesses to deduct more of their ‘start-up’ costs and reduce barriers to new business formation.
While specific details about the plan are scarce, House Ways and Means Committee Chairman Kevin Brady (R-Texas) has said the framework is the starting point for the “listening sessions” that lawmakers will have with their constituents back home. Further, Chairman Brady has said that these proposals are part of a framework for further discussion and additional proposals could be considered in the Fall.
So far, the framework will:
- Make permanent individual tax provisions and the 20-percent Section 199A deduction for certain pass-through business income. The 2017 tax reform act sunsetted nearly all the individual tax provisions after 2025 in order to comply with a Senate budget reconciliation rule that allows a 60-vote procedural point of order against any legislation increasing federal deficits beyond the (10 year) budget window. Chairman Brady’s outline does not discuss the federal budget deficit effect of making individual tax cuts permanent.
- Promote family savings by creating a new ‘Universal Savings Account’ that would provide a ‘fully flexible savings tool’ for families; expand the eligible uses of Section 529 education savings accounts to include paying for apprenticeship job training, covering the cost of home schooling, and helping pay off student debt; and allow penalty-free access to tax-preferred retirement savings accounts to defray the costs of ‘welcoming a new child into the family.’
- Spur ‘new business innovation’ by helping ‘brand-new businesses write off more of their initial start-up costs, and remove barriers to growth.’ Of all of the proposals, allowing expensing and expanded startup costs for new businesses is likely to garner the most support from the House and Senate.
While President Trump recently expressed support for lowering the U.S. corporate income tax rate to 20 percent, Chairman Brady previously indicated that the House Republican Tax Reform 2.0 effort would focus primarily on making permanent individual income tax provisions and the Section 199A deduction for certain pass-through business income, along with incentives for savings and certain other proposals. House Republicans are not expected to address changes in certain corporate tax provisions in the 2017 tax reform act that are set to take effect in future years.
The Ways and Means Committee is expected to hold a mark-up on Tax Reform 2.0 proposals, and the House could vote on the legislation in September, when House members reconvene. Conversely, the Senate is not expected to consider significant tax legislation in advance of the 2018 midterm elections.
Please click here to view the listening session framework.