This week, House Republicans introduced legislation, referred to as Tax Reform 2.0, that would expand the Tax Cuts and Jobs Act (TCJA). It’s a follow-up to the House Ways and Means Committee Chairman Kevin Brady (R-TX) “listening session framework” which was released in July.
The latest round of proposed tax reform consists of three bills:
H.R. 6760, Protecting Family and Small Business Tax Cuts Act of 2018, is sponsored by Representative Rodney Davis (R-IL).
Notably, the bill would make the TCJA individual and small business tax cuts (the so-called pass-through tax cuts explained here) permanent.
Those cuts are currently set to expire in 2025, while the TCJA corporate tax cuts are permanent. Additionally, under the bill, the medical expense deduction would remain in place with a lower floor of 7.5% for tax years 2017 through 2020; the TCJA only allowed the limit through 2018.
The bill also proposes a clarification to the expanded child tax credit. The bill would make clear that, to claim the credit, a taxpayer identification number (TIN) would be necessary for any non-child dependent; the TIN could be a Social Security number or an individual taxpayer identification number (ITIN).
The Joint Committee on Taxation anticipates that these changes would result in a net loss of $631 billion in revenue over the next ten years (report downloads as a pdf).
H.R. 6757, Family Savings Act of 2018, is sponsored by Representative Mike Kelly (R-PA).
The proposal is touted as helping families “save more and earlier throughout their lives by expanding access to new and existing savings vehicles.”
As part of the bill, taxpayers may create a universal savings account and contribute up to $2,500 each year; distributions would generally not be includible in gross income.
The bill would also modify section 529 plans. Under the proposal, tax-free distributions could be used to pay for books, supplies, equipment, and fees for an apprenticeship program and for certain homeschool expenses. It would also expand the definition of qualifying expenses to include those for fees, academic tutoring, special needs services, books, supplies, and other equipment, incurred in connection with enrollment or attendance at an elementary or secondary school.
Finally, the bill would allow up to $10,000 in lifetime distributions to be used to pay principal or interest on qualified education loans.
The Joint Committee on Taxation anticipates that these changes would result in a net loss of $21 billion in revenue over the next ten years (report downloads as a pdf).
H.R. 6756, American Innovation Act of 2018, is sponsored by Ways and Means Tax Policy Subcommittee Chairman Vern Buchanan (R-FL). The bill would help brand-new businesses with start-up and organizational expenditures by consolidating the rules to allow taxpayers to deduct up to $20,000 of start-up and organizational costs. Under current law, taxpayers were limited to a deduction of $5,000 for each.
The bill would also allow new companies which experience a change in ownership to claim certain tax breaks that were previously limited.
Specifically, a start-up 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. Under current law, an ownership change would subject the company to significant limitations.
If you add up all of the estimates, the total loss of revenue for three bills is projected to reach approximately $657 billion. With those kinds of losses and an escalating federal deficit, the bills are not expected to clear the Senate intact.
A markup of the bills by the House Ways and Means Committee is scheduled for Thursday, September 13, at 10:00 a.m. You can read the text and more about the bills to be considered here.