The House is expected to vote this week on three bills that that make up Republicans’ Tax Reform 2.0 plan, which would make permanent the tax relief for families and small businesses in the Tax Cuts and Jobs Act, expand tax deductions for startups, and create new tax-preferred savings accounts.
What does Tax Reform 2.0 do?
The first two bills ― the Family Savings Act and the American Innovation Act ― are up for votes Thursday, while the third (and most significant) bill will get a vote Friday. Here’s a look at the highlights of each bill:
The Family Savings Act introduced by Rep. Mike Kelly (R-PA) would:
- Create a new tax-preferred Universal Savings Account (USA), which would have an individual annual contribution cap of $2,500. Distributions from a USA would only count as taxable income if they were made in the same tax year as that income was contributed, otherwise they wouldn’t be penalized.
- Expand Section 529 education savings plans would be expanded to allow the distribution of funds for paying apprenticeship fees as part of a registered apprenticeship program, homeschooling expenses, or expenses that are in addition to tuition at elementary or secondary schools.
- Up to $10,000 in aggregate funds from Section 529 plans could be used to pay principal or interest on student loans, which would count against the individual’s student loan interest deduction if they claimed it.
- New and expecting parents (including adoptive parents) would be able to make penalty-free withdrawals of up to $7,500 from retirement accounts within one year of the child’s birth or legal adoption. They would then be able to make contributions to replenish those retirement funds in the future if they want, up to the amount of the withdrawal.
- Establish multiple employer plans (MEPs) with pooled plan providers, meaning that small businesses from different industries would be able to partner together to establish retirement plans that are less costly and burdensome to administer than a single-employer plan (known as an open MEP). Currently, only closed MEPs are permitted, so participating employers have to share certain attributes like membership in a trade group or operations in a certain region.
The American Innovation Act introduced by Rep. Vern Buchanan (R-FL) would:
- Consolidate tax rules to allow startups to deduct up to $20,000 of startup and organizational costs from annual tax filings. Currently, the deduction limit is $5,000 each for startup and organizational costs. Expenses that can’t be deducted immediately would be amortized over 180 months.
- Additionally, new companies that experience changes in ownership would be eligible to claim certain tax breaks that were previously limited. Specifically, a startup business’ pre-change net operating loss carryforwards, net operating losses, general business credit carryforwards, and general business credits would be available for use in a post-change year.
The centerpiece bill of Tax Reform 2.0, known as the Protecting Family and Small Business Tax Cuts Act, is due for a vote Friday. Introduced by Rep. Rodney Davis (R-IL), it would:
- Make the Tax Cuts and Jobs Act’s lower tax rates, along with its doubled child tax credit and standard deduction, permanent. Currently, the rates reset to their pre-reform levels after 2025.
- Retain the $10,000 cap on the state and local tax (SALT) deduction which allows taxpayers to choose from sales, income, and property taxes to count toward the deduction.
- Keep in place the mortgage interest deduction for new mortgages up to $750,000 along with the grandfathered deduction for mortgages that existed prior to tax reform taking effect.
- Make permanent the 20 percent non-wage income deduction for pass-thru businesses, which small businesses are often structured as.
What are reps saying?
Republicans hope that the enactment of the three bills will accelerate the U.S. economy’s recent run of job growth, citing a Tax Foundation analysis which projected the package would raise long-term GDP by 2.2 percent, create 1.5 million new full-time jobs, and boost wages by 0.9%.
House Ways and Means Committee Chairman Kevin Brady (R-TX) said the following about his committee’s passage of the tax reform package:
“By advancing Tax Reform 2.0, we are making sure America’s middle-class families and our small businesses keep more of what they earn, helping families and workers save more for their future, and spurring more new business start-ups here in America. It’s a sign of the partisan times that Democrats are not just fighting to raise taxes on our local families and businesses. In today’s votes, Democrats also tried to block families from using their savings for college debt and apprenticeship programs and fought letting moms and dads access their savings when welcoming a new child into their home.”
House Democrats opposed the bill in committee and are expected to do so on the floor, citing CBO estimates projecting the three bills would reduce tax revenue by $618 billion over the 2019-2028 period and worsening the deficit (of which $597 billion is from making the family & small business tax cuts permanent).
House Democratic Whip Steny Hoyer (D-MD) blasted the GOP’s Tax Reform 2.0 plan, writing:
“Today, Ways and Means Republicans passed out of committee on a party line basis a second round of their dangerous tax scam, which would further bankrupt our children and grandchildren in order to provide even more tax breaks to the wealthiest in our country. Their latest tax legislation would add $3 trillion to the deficit over a decade, even as Republican economic policies - including their first round of tax cuts - led the Congressional Budget Office to project trillion dollar deficits far into the future. Meanwhile, their promised massive economic growth and wage gains for middle class workers have not materialized, with wages still stagnating while businesses use their tax breaks to benefit shareholders through stock buy-backs.”
Tell your reps whether you support Tax Reform 2.0 and share your thoughts below!
— Eric Revell
(Photo Credit: iStock.com / OlyaSolodenko)
The Latest
-
IT: Battles between students and police intensify, and... 💻 Should we regulate AI access to our private data?Welcome to Thursday, May 2nd, listeners... The battle between protesters and police intensifies on college campuses across the read more...
-
Should U.S. Implement Laws Protecting Private Data from AI Access?Artificial intelligence is rapidly integrating into our everyday lives, transforming the way we work, live, and interact with read more... Artificial Intelligence
-
Protests Grow Nationwide as Students Demand Divestment From IsraelUpdated May 1, 2024, 11:00 a.m. EST The battle between protesters and police has intensified on college campuses across the read more... Advocacy
-
IT: Rumors spread about ICC charging Israel with war crimes, and... Should states disqualify Trump?Welcome to Tuesday, April 30th, friends... Rumors spread that the International Criminal Court could issue arrest warrants for read more...