House Democrats begin to outline tax priorities

Tax Hot Topics newsletterDemocrats are using their newfound majority in the House of Representatives to offer a potential glimpse of their future tax plans.

Two recently introduced bills seek to undo controversial changes enacted by the Tax Cuts and Jobs Act (TCJA). Any effort to unravel the sweeping law is likely a non-starter in the Republican-controlled Senate and would largely be symbolic. However, there’s still some political value in passing such legislation, especially with the countdown to the 2020 elections already underway. Democrats were left out of the Republican tax reform effort. They have roundly criticized the bill and campaigned on promises to undo parts of it. The new proposals highlight their top targets.

Perhaps the most notable provision is the $10,000 cap on the deduction for state and local taxes, which hits individuals in high-tax states like New York and California particularly hard. A proposal led by Rep. Bill Pascrell (D-N.J.) would repeal the cap and attempt to make up for the lost revenue by raising the top individual tax rate from 37% back to 39.6%. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) has summarily rejected the idea, but it does carry some appeal among Republicans that represent high-tax jurisdictions.

The second bill, sponsored by House Majority Whip Jim Clyburn (D-S.C.), addresses a lesser-known provision. Following the TCJA’s enactment, not-for-profit organizations are no longer able to deduct the cost of certain fringe benefits provided to employees, such as parking, from unrelated business income, which is subject to a 21% tax. Citing the adverse impact on charities and religious institutions, Clyburn is seeking to reinstate the deductibility of such expenses and proposes to pay for its $1.7 billion price tag (over 10 years) by increasing the top corporate tax rate from 21% to 22%. Some Republicans have expressed interest in overturning the provision, but oppose raising the corporate rate to pay for it.

Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

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