Inside Tax Reform 2.0
Tax Reform 2.0, a collection of three bills intended to build on the foundation of the Tax Cuts and Jobs Act, was approved by the House Ways and Means Committee on September 13 and will likely be voted on by the whole House by the end of the month.
The bills are intended to make permanent the individual and small-business tax cuts made by the TCJA, make it easier for families and businesses to save for retirement, and boost American innovation by growing startup businesses, according to Ways and Means Chair Kevin Brady, R-Texas.
“The Tax Cuts and Jobs Act changed the trajectory of our economy for the better,” he said. “Now it’s time to change the culture in Washington where we only do tax reform once a generation. This legislation is our commitment to the American worker to ensure our Tax Code remains the most competitive in the world.”
The first measure approved by the committee was H.R. 6760, The Protecting Family and Small Business Tax Cuts Act of 2018. This legislation locks in the individual and business tax cuts from the Tax Cuts and Jobs Act beyond the current cut-off date.
The second bill, H.R. 6757, the Family Savings Act of 2018, helps local businesses provide retirement loans to their workers and helps workers participate in retirement plans. It also allows small businesses to join together to create a 401(k) plan more affordably and simplifies the rules for participation in employer plans. It exempts small retirement accounts from mandatory payouts and eliminates the age limit on IRA contributions, and helps military reservists by allowing them to maximize their retirement contributions.
The third bill, H.R. 6756, the American Innovation Act of 2018, helps entrepreneurs “move from the kitchen table to Main Street and beyond,” according to Brady. “It allows new businesses to write off more of their initial startup costs, and to expand by bringing in new investors without triggering limits on their access benefits like the R&D credit.”
The reaction to the three-bill package has been mixed, with most predicting that it will pass the House but get stalled in the Senate.
“In light of the fact that there is still a lot that needs to be fixed in Tax Reform 1.0, I was a little surprised that they didn’t take this opportunity to try and address those issues in Tax Reform 2.0,” said Mike Greenwald, a partner and corporate and business tax practice leader at Top 100 firm Friedman. “The biggest one is an error in qualified improvement properties – it would have fit easily into the Protecting Family and Small Business Tax Cuts Act. They also missed an opportunity to address some of the inequities in the SALT provision [the $10,000 cap].”
A drafting error excluded the category of improvement property investment from 100 percent bonus depreciation.
“I think everyone’s expectation is that it will pass the House fairly quickly and get bogged down in the Senate,” Greenwald said. “They are stand-alone bills, and are not part of the reconciliation process. They will need to follow Senate procedures, so they will have a more difficult time in the Senate.”
“When you look at H.R. 6760, most of the changes are so far off in the future it’s hard to get excited about them,” said Howard Wagner, national tax services partner at Top 10 firm Crowe. “Making the cuts permanent won’t have any impact until 2026, and who knows what the tax base will be. Too many things can change between now and then.”