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Tax Reform 2.0: New incentives, individual tax cut extension

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Capitol buildingHouse Ways and Means Chair Kevin Brady R-Texas, unveiled an outline for a “Tax Reform 2.0” bill that goes beyond simply extending the individual tax cuts and proposes new incentives meant to hold more bipartisan appeal.

The legislation is designed as a follow-up to the Tax Cuts and Jobs Act enacted in December, and as expected, the core of the bill would make all the individual tax cuts permanent. That particular effort stands almost no chance of enactment this year and is more about political messaging in advance of the elections. But several other provisions proposed in the outline offer a preview of what Republicans may push in bipartisan tax talks and future reconciliation bills.

The outline lacks details and should be considered a work in progress. Brady presented it the House Republican Caucus and plans on holding “listening sessions” for members’ feedback before introducing a full version. The current version envisions separate packages of incentives aimed at family savings and business innovations. While very little information was offered, the family incentives include:

  • Unspecified retirement plan improvements
  • New universal savings accounts, which have previously been proposed as tax preferred-savings accounts mimicking individual retirement accounts, but without any restrictions on distributions
  • Changes to allow 529 plan distributions to pay for student debt, trade schools and home-schooling
  • Allowing withdrawals from retirement accounts to pay for costs of adding new children to the family

There is even less information on the innovation package. The outline promises to increase start-up cost expensing to an unspecified amount and then simply states that it intends to “remove barriers to growth.” Brady has said he is open to member suggestions on this goal. Several Republicans are pushing a proposal to index capital gains to inflation. President Donald Trump has asked for the corporate rate to be lowered to 20%, though several Republicans have resisted these calls in consideration of the fall elections.

Outlook Brady plans to unveil the full legislation after the August recess, and House leaders have promised votes on the House floor in September. The packages of provisions could be divided into separate bills so that the Senate has the option of moving less controversial proposals separately. Efforts to make TCJA’s individual changes permanent stand little chance of passage in the Senate this year because Republicans are nine votes short of the 60 needed to avoid procedural hurdles. Under current law, the TCJA changes for individuals are generally scheduled to expire in 2026.

Several of the provisions could gain bipartisan traction after the election. Republicans and Democrats will likely work on a package to retroactively reinstate many of the popular “extender” tax provisions that expired at the end of 2017, and this bill could be a vehicle for several other tax priorities. Senate Finance Committee Chair Orrin Hatch, R-Utah, and ranking minority member Ron Wyden, D-Ore., have released their own bipartisan bill of retirement plan changes. Brady’s bill may eventually mirror many aspects of this legislation. Bipartisan IRS administration bills have also advanced in both chambers. In addition, Republicans are likely to push for technical corrections to TCJA, though Democrats are likely to require significant concessions for any cooperation on a bill they oppose.

Republicans are also discussing a possible second reconciliation bill in 2019 for tax changes if they hold both the House and Senate in the November elections. TCJA originally passed Congress using the reconciliation process, which bypasses 60-vote hurdles in the Senate. But reconciliation bills cannot lose revenue outside the 10-year budget window, so it is unlikely Republicans could make the individual tax cuts permanent using that process.

Contact Dustin Stamper
Head of Tax Legislative Affairs
Washington National Tax Office
T +1 202 861 4144

Shamik Trivedi
Senior Manager
Washington National Tax Office
T +1 202 521 1511 

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