Think that we’re done with tax reform? The Tax Cuts and Jobs Act (TCJA) was passed in December of 2017, with many of the provisions taking effect in 2018. Now, Congress is pushing for more - what they’re calling “Tax Reform 2.0.”
(You can read more about 2017 tax reform, including what’s changed, here.)
Details regarding what’s being touted as a “second round” of tax reform are scarce, but House Ways and Means Committee Chairman Kevin Brady (R-TX) has released a “listening session framework” for the plan. That’s a term the House clearly likes: The draft documents of the original tax reform were likewise called a framework (the Senate similarly called its budget proposal a blueprint).
According to Brady, the framework is the starting point for the “listening sessions” that lawmakers will have with their constituents back home. So far, the framework includes:
Permanent tax cuts. The language in the framework kicks off by suggested that there will be a push to make tax rate cuts for individuals (including that pass-through deduction meant to add small businesses) permanent. Specifically, the framework says that a second round of tax reform “is about locking in these tax cuts for middle-class families and small businesses.”
Currently, tax cuts for corporations are permanent, while those for individuals will expire - a plan which was introduced in the Senate version of the bill. You can find the updated tax rates, which are effective now, here.
New Retirement Savings Plans. The framework will reportedly include a “range of proposals” tied to retirement savings. However, there are no details - nope, not even a hint.
New Family Savings Plan. If there is anything that Congress loves more than shiny things, it’s an acronym. Here, they have both: Under the proposal, there would be a new Universal Savings Account (USA, get it?) “to offer a fully flexible savings tool for families.” It’s not entirely new - the idea (or at least the acronym) - was first introduced in 2015. A similar bill was introduced by Representative Dave Brat (R-VA) in 2017. Neither version went very far. At its heart, it's a Roth-type account, meaning you’d pay in at funding, growth would be tax-deferred, and you would not be taxed on withdrawals. Where it differs from a Roth (or, at least as it stands in the 2017 version) is that distributions would not be limited to retirement and could be made at any time. No additional details about the plan, nor confirmation that the Brat USA proposal is intended to apply "as is," were outlined in the framework.
Expanded 529 Education Savings Accounts. It’s not a surprise to see this push again. Under the original House tax reform proposal, parents could have set up 529 plans for unborn children and used up to $10,000 per year of plan funds for private elementary and secondary school expenses. In the final version of the TCJA, up to $10,000 of 529 savings plans are allowed per student for public, private and religious elementary and secondary schools, but a Senate provisionwhich applied to homeschool students was not included. The new framework would reinstate homeschooling as a permitted use while also adding apprenticeship fees to the list. Most surprising? The proposal would allow you to use accounts to “help pay off student debt.”
Retirement Plans For New Babies. Okay, the House isn't really suggesting retirement plans for new babies (add your own joke here). What the framework proposes is to allow families to access retirement accounts penalty-free for new baby expenses. It's unclear whether those expenses would be restricted to medical expenses, or whether they would include cribs, clothing and the like. The proposal would also allow families to replenish those accounts in the future - presumably, some sort of catch-up provision would apply.
Growing Brand-New Entrepreneurs. The framework suggests initial and expanded expensing for brand-new businesses, as well as vague language to “remove barriers to growth.” Of all of the proposals, allowing expensing and expanded startup costs for new businesses is likely to garner the most support from the House and Senate.
Upon releasing the framework, Chairman Brady said:
“Every day, businesses wake up and ask themselves ‘how do we become more competitive, innovative, and better?’ That practice has always been foreign to Washington—that ends now. With this framework, we are taking the first step to change the culture in Washington D.C. where tax reform only happens once a generation. We plan to work off this framework to build on the growing successes of the Tax Cuts and Jobs Act and ensure this energized economy continues moving forward.”
At this stage, none of these proposals are in place. It’s a framework, remember? You can review the listening session framework here (downloads as a pdf).