We're still waiting for clarification of many of the new tax laws in the Tax Cuts and Jobs Act (TCJA). In fact, some say we need clarification of clarifications; have you tried to decipher the new 199A business deduction even with the Internal Revenue Service guidance?
But such lingering TCJA questions are not stopping Republican leaders from trying to make the temporary individual tax changes in that law, scheduled to expire at the end of 2025, permanent.
The plan, according to remarks yesterday to reporters by House Speaker Paul Ryan (R-Wisconsin), is to vote on tax cuts again before the end of the month.
Part of a long to-do list: That's a tall order.
Not only must Congress come up with a way to keep the federal government operating by the Oct. 1 beginning of fiscal 2019, there's also campaigning to do.
Many Senators and all House seats are up for reelection. The affected lawmakers who want to stay in Washington, D.C., will be thinking about getting back home to convince voters to keep them in office.
Ryan and other House leaders, however, say additional tax breaks, dubbed Tax Reform 2.0, is doable. And they've released a bit more info on just what they want to do to our taxes.
Here are some highlights.
Americans have two ways to stash retirement cash. They can put money into tax-favored savings plans, such as traditional and Roth IRAs, and/or participate in workplace plans, either as employees or when they are the bosses of a small business.
The GOP says Tax Reform 2.0 legislation will help local businesses provide retirement plans to workers by:
- Allowing small businesses to join together to more affordably create a 401(k) plan,
- Giving employers more time to put new retirement plans in place, and
- Simplifying the rules for participation in employer plans.
As for the workers who participate in retirement plans, the GOP says it wants to:
years are more secure, such as:
- Exempt small retirement accounts from mandatory payouts,
- Eliminate the age limit on IRA contributions, and
- Allow military reservists to maximize their retirement contributions.
Other new savings
In addition to retirement planning, the GOP says its TCJA follow-up will help families save more for other goals.
These efforts include what Republicans are calling family-friendly plans, such as:
- USA accounts: This would be a new plan, given the catchy acronym USA for Universal Savings Account, that could be used for any purpose at any time.
- More 529 account uses: The plan is to build on the expanded used of these education accounts approved as part of the TCJA. Under that law, 529 money now can be used to pay for pre-college school tuition. Under 2.0, the GOP says 529 account holders could use these education savings to pay for apprenticeship fees to learn a trade, cover the cost of home schooling and help pay off student debt.
- New Baby savings: Republicans want to give families a penalty-free retirement account withdrawal option when they have a baby or adopt a child. add a child to their families. The amount tapped could be added back later to the retirement accounts.
Business benefits, too
In addition to the pro-business changes in the TCJA, the GOP says it wants Tax Reform 2.0 to encourage innovation. Its projected proposal promises to help small businesses with start-up costs and capital by allowing:
- New businesses to write off more of their initial start-up costs, and
- Start-ups to expand by bringing in new investors without triggering limits on access to tax benefits, such as the research and development (R&D) tax credit.
Possibilities of passage: Will Tax Reform 2.0 make it through Congress? In the House maybe. In the Senate, maybe not.
If I were a betting person and wanted to wager on more than just sporting events (yes, that's a not so subtle shameless plug for earlier posts on legal gambling and taxes), I'd say the chances of Tax Reform 2.0 happening are 40-60.
The House might be able to get something through by Sept. 30 since the GOP has a large enough majority in that chamber to pass a bill. But it won't be automatic.
SALT-y bad taste remains: Some GOP Representatives still are concerned about the $10,000 cap on itemized deductions for state and local taxes, or SALT as it's referred to in tax conversations. The latest Ways and Means outline of additional tax reform didn't mention that contentious issue.
House Republicans reportedly are still considering whether to make that provision permanent in phase two reform or let it run on a temporary basis for a while longer.
While the SALT issue primarily affects states that have mostly Democratic members of Congress and tend to be blue politically, real estate taxes that are part of the restricted tax deduction are set at the hyperlocal county level.
That means some GOP Representatives have conservative constituents who are hurt by the cap. Because of that, many usually-reliable Republicans voted against TCJA last December.
Passage process: The House might be able to get around selective opposition by, as the GOP reportedly plans, separating the proposals into three bills.
That also could help at least some of the proposals clear the Senate, where the GOP has a razor thin majority and would need help from Democrats to get the 60 votes that would be needed this time.
Republicans used technical maneuvers, specifically the budget reconciliation process that allowed for passage by a simple majority vote.
But that tactic also required the fiscal effects to be confined to a shorter time frame, hence the temporary (through 2025) time limit on individual tax provisions.
Covering the increased cost: There also is the cost of making more tax cuts permanent.
Regardless of how any added tax breaks are parsed out for voting, their overall combined cost is going to be big. Even many in the GOP, which says some of the forgone tax revenue will be made up thanks to the increased economic growth, will be in the $600 billion range.
That will necessitate tough decisions on just what will be considered to offset that lost tax income. And that could make for intense and potentially damaging campaign rhetoric if a tax bill is passed before Nov. 6.
Democrats, for example, already are telling voters that the GOP is looking to finance its tax breaks for big business and wealthy Americans by cutting Social Security and Medicare.
Republicans, on the other hand, might find the promise of more individual tax breaks more appealing than their actual enactment. That way, they could tell voters that they tried, but were stymied by obstructionist Democrats.
Yep, taxes and politics are intertwined and both are, as the saying goes, local. And that's even more true as an Election Day nears.
You also might find these items of interest:
- Union dues no longer deductible under new tax law
- 8 ways the new tax law does — and doesn't — affect paying school costs
- Small businesses' many new tax considerations, plus some new tax law tips