September 14, 2018 Tax Reform 2.0 bills approved by Ways & Means On September 13, 2018, the House Ways and Means Committee approved the three-bill Tax Reform 2.0 package to: (1) make permanent individual and small business tax cuts under the Tax Cuts and Jobs Act that expire at the end of 2025; (2) promote savings for families and retirement; and (3) promote innovation. TCJA permanency The "Protecting Family and Small Business Tax Cuts of 2018" (H.R. 6760) was approved by a 21-15 vote after Democratic amendments were defeated. The bill would make permanent TCJA provisions that include: — the 10%, 12%, 22%, 24%, 32%, 35% and 37% income tax rate brackets — the 20% deduction for the qualified business income of pass-through entities — the $10,000 annual limit on the amount of state and local taxes (SALT) an individual can deduct — the increased standard deduction ($12,000/individuals, $24,000/married filing jointly) — the increase in, and other modifications to, the Child Tax Credit — the doubled exemption from the estate tax — the increased Alternative Minimum Tax (AMT) exemption amount Other provisions include a two-year extension of the itemized deduction for unreimbursed medical expenses exceeding 7.5% of income for 2019–2020 (10% thereafter); and, for ABLE accounts for individuals with disabilities, allowing increased contributions, the ability to make rollovers from Section 529 plans, and the ability to use the saver's credit. "This will give American families, workers, and Main Street small businesses certainty and will continue to fuel the strong economic growth we've witnessed over the past year," Chairman Kevin Brady (R-TX) said. Ranking Member Richard Neal (D-MA) said with regard to the pass-through deduction that would be made permanent under the bill that Republicans had "disguised a massive giveaway to millionaires by calling it a new benefit for small businesses" and said "Republicans have doubled down on their attack on the middle class by making permanent the limits to the State and Local Tax deduction." Speaker Paul Ryan (R-WI) has said the House will vote on the package the last week in September. There are no indications that the measures will be taken up prior to the midterm elections in the Senate, where passage will require 60 votes because Republicans will not have use of the budget reconciliation process afforded to the TCJA last year. During the markup, Rep. Ron Kind (D-WI) noted that the Senate has made clear they have no intention of voting on the package and said it was under consideration in the House only as a "political exercise." Rep. Linda Sanchez (D-CA) called it a "bogus markup." Rep. Bill Pascrell's (D-NJ) amendment to restore the SALT deduction, paid for with an increase in the corporate tax rate, was defeated on a 14-21 vote. Defeated on 15-21 votes were: — Rep. Neal's amendment to restore the top individual tax rate to the pre-TCJA level in order to pay for extending the Earned Income Tax Credit to those without children, making the adoption credit refundable, and enhancing the child and dependent care credit — Rep. Mike Thompson's (D-CA) amendment to expand the deduction for personal casualty losses in a disaster area, reinstate the deduction for personal casualty losses outside of the disaster area, provide for penalty-free retirement account withdrawals, suspend the limitation on disaster-related charitable contributions, and ensure disaster-impacted families qualify for the EITC and Child Tax Credit — an amendment by Rep. Sanchez to make permanent the 7.5% AGI floor for the medical expense deduction, paid for with an increase in the corporate tax rate — Rep. John Larson's (D-CT) amendment to prevent the bill's provisions from taking effect until they are found to do no harm to the Medicare or Social Security trust funds Rep. Lloyd Doggett's (D-TX) amendment to suspend TCJA repatriation provisions until workers are found to receive a $4,000 annual benefit from the law was tabled. The staff of the Joint Committee on Taxation's revenue estimate of the bill (JCX-71-18) released on September 12 is reflected in the following table, with dollar figures rounded and descriptions paraphrased.
Family savings The "Family Savings Act of 2018" (H.R. 6757) was approved 21-14. The bill includes provisions that would: — ease portability of lifetime income investments in plans — repeal the maximum age for contributing to a traditional IRA — block loans from qualified employer-provided plans through credit cards — provide relief to frozen defined benefit plans — exempt from the required minimum distribution rules individuals whose aggregated account balances total less than $50,000 — establish Universal Savings Accounts that would allow annual cash contributions up to the lesser of $2,500, indexed for inflation, or the gross income of the individual and distributions could be taken at any time for any purpose — expand Section 529 plans to cover apprenticeships, homeschooling expenses, and student loan repayments — allow penalty-free, but not tax-free, withdrawals from qualified retirement plans for expenses related to the birth or adoption of a child in the first year after the birth or adoption, capped at $7,500 Rep. Neal said he is disappointed the bill omits Retirement Enhancement and Savings Act (RESA) provisions addressing automatic enrollment, lifetime income disclosure, and a safe harbor regarding fiduciary liability for employers in the selection of an annuity provider. Chairman Brady said the markup is the first legislative step in the process and he is committed to work on a bipartisan and bicameral basis to reach agreement going forward. Rep. Kind's amendment addressing Pension Benefit Guaranty Cooperation premiums paid by cooperatives and small charity plan sponsors was defeated on a 14-21 vote. Innovation The "American Innovation Act of 2018" (H.R. 6756) was approved by voice vote. Main provisions of the bill would: — increase the deduction for certain start-up and organizational costs from $5,000 to $20,000, and increase the phase-out from costs in excess of $50,000 to $120,000 (excess costs would continue to be amortized ratably over 180 months) — provide an exception to current rules that limit the use of net operating losses and certain tax credits when there is a start-up business ownership change ———————————————
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