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President’s proposed budget sparse on tax policy

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Tax Hot Topics newsletterThe White House’s $4.7 trillion budget proposal for the 2020 fiscal year includes sweeping changes to government spending, but offers few new tax ideas.

Following passage of the Tax Cuts and Jobs Act (TCJA) in December 2017, the administration appears largely focused on tweaking and building upon the new law rather than enacting additional reforms.

Perhaps the most notable tax item in the budget request is the proposal to make permanent the TCJA’s individual tax provisions, which are set to expire on Dec. 31, 2025. These include cuts to individual tax rates, doubling of the standard deduction to $12,000 (or $24,000 for married couples filing jointly), and the pass-through deduction under Section 199A. House Republicans advanced such legislation as a part of their “Tax Reform 2.0” package last fall, but with a combined price tag upwards of $1 trillion, according to estimates from the Joint Committee on Taxation, the proposal was not even considered by the Senate.

The administration is also seeking $11.5 billion in base IRS funding, a modest, $200 million increase from 2019. This includes $290 million for the agency’s ongoing IT modernization effort. The budget also includes $320 million to kick-start a 10-year, $15 billion investment to raise discretionary spending caps for program integrity initiatives, which generally aim to improve tax enforcement effectiveness and efficiency. This effort is estimated to generate $47 billion in additional revenue over that 10-year period for a net savings of more than $32 billion.

New policies in the proposed budget include allowing Medicare beneficiaries with high deductible health plans to contribute to Health Savings Accounts and improving clarity in worker classification and information reporting requirements. The latter establishes a safe harbor that allows a recipient of services to classify a service provider as an independent contractor, after which individual income taxes on the first $20,000 paid to the contractor must be withheld at a rate of 5%. It also sets the reporting thresholds for payments made to both independent contractors and third-party settlement organizations to $1,000 without regard to the number of transactions.

The budget also includes several IRS administrative provisions that the administration has supported in recent years, including:

  • Allowing the IRS to regulate return preparers
  • Expanding IRS “math error” authority to make assessment without a full examination
  • Expand mandatory electronic filing of Form W-2
  • Requiring Social Security numbers for claiming the earned income tax credit and child tax credit

The president’s proposed budget can serve as useful indicator of the administration’s policy priorities, but it generally doesn’t amount to much more. Congress usually holds hearings on the budget request, though it’s not required. Both chambers declined to do so during President Barack Obama’s last year in office.

Contacts:
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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