House committee advances ‘Tax Reform 2.0’
The House Ways and Means Committee voted along party lines Thursday to pass legislation permanently extending the individual and small business provisions of the Tax Cuts and Jobs Act that are set to expire in 2025.
The three bills would extend the provisions beyond 2025, but at a projected cost of trillions of dollars, as well as establish Universal Savings Accounts, or USA Accounts, for providing retirement savings for families. One of the bills would also allow startup businesses to write off more of their expenses in early years.
The first bill, the Protecting Family and Small Business Tax Cuts Act of 2018, would lock in the individual and small business tax cuts from the Tax Cuts and Jobs Act, along with other provisions like the $10,000 limit on the state and local tax deduction, elimination of personal exemptions, doubling of the standard deduction, and the 20 percent deduction for many pass-through businesses.
“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,” said Committee chairman Kevin Brady, R-Texas, in a statement.
The second part of Tax Reform 2.0, the Promoting Family Savings Act of 2018, sponsored by Congressman Mike Kelly, R-Pa., would create a Universal Savings Account for family savings. It would also expand section 529 education savings accounts to pay for apprenticeship fees to learn a trade, cover the cost of home schooling and help pay off student debt. The bill would eliminate the age 70 1/2 restriction for contributing to individual retirement accounts. It would permit families to access their own retirement accounts penalty-free for expenses when welcoming a new child into the family by birth or adoption. The other piece of legislation, the American Innovation Act of 2018, would enable startup businesses to write off more of their initial costs.
House Speaker Paul Ryan, R-Wis., has said he plans to have the House vote on the bill by the end of the month, although a vote has now been scheduled for October 1. However, the measure is not expected to pass in the Senate, where it would need a 60-vote margin to be approved. While the Tax Cuts and Jobs Act was able to pass by a simple majority using votes from Republican lawmakers through a reconciliation procedure, the Tax Reform 2.0 bills would not be able to use the procedure.
“I think all of it could pass the House,” said Bill Smith, managing director for CBIZ MHM’s National Tax Office. “There’s a good chance because even the House [GOP] members in the high income tax states who are upset about the $10,000 cap, they don’t need those votes to pass it in the House. They could abstain so they’re not being seen as voting against the bill, but still say, ‘I couldn’t vote for it because the $10,000 cap is hurting my constituents too much and the bill could still pass.’ My personal opinion is it’s likely to pass the House so that they can tout it. Even Brady said a while back we’re not responsible for what happens in the Senate. Our job is to put together the best tax bill that we can and send it over to them.”
Democrats denounced the bills as purely a political exercise ahead of the midterm elections. “We’re nearing the end of today’s purely political exercise,” said Rep. Richard Neal, D-Mass, the ranking Democrat on the House Ways and Means Committee. “We have watched the Republicans double down on their attacks on the middle class by making permanent the limits to the state and local tax deduction, the mortgage interest deduction, and casualty loss deductions. We have considered a retirement savings bill — an issue that is of utmost importance to me — where the majority squandered the opportunity to work together to really address this issue of critical importance to so many Americans.”
Brady took a shot at Democrats on the committee for voting against the legislation. “It’s a sign of the partisan times that Democrats are not just fighting to raise taxes on our local families and businesses,” he said. “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. This is only the first step in the legislative process. We will continue to listen to members of the House and work to improve Tax Reform 2.0 at every opportunity as we advance these common-sense measures to the House floor.”
Rep. Mike Thompson, D-Calif., criticized Republicans for unanimously rejecting his amendment to provide targeted tax relief for victims of natural disasters during Thursday's markup in the Ways and Means Committee ahead of the vote. “In the last year, our district has suffered both the most destructive and the largest fire in California history,” he said. “The survivors of these fires and all natural disasters should not have to come begging to Congress to get tax relief as they work to recover and rebuild. Last year after hurricanes ravaged his Texas district, Chairman Brady offered a bill that provided targeted tax relief for the victims of disaster that struck his community. Today, he and the rest of the Republicans on the committee rejected my amendment that would provide the same disaster tax relief to all survivors of natural disasters. This is hypocrisy. We shouldn’t be turning our backs on those who need help the most — we should be providing a path for them to get back on their feet.”