Tax Reform 2.0 – An Update

The White House and Congressional Republicans continue to talk about introducing a tax bill this year to make permanent some of the 2017 tax cuts for individuals and pass-through businesses that were included in the TCJA and scheduled to expire by December 31, 2025. Republican leaders have also talked about addressing tax-favored retirement and education savings in this “phase two” legislation.

However, a June 12 letter to Congress signed by more than 100 organizations argues against the plan. “In addition to the $1.9 trillion cost” of the 2017 tax act, the Congressional Budget Office “estimates extending the expiring individual tax provisions (including those affecting pass-through businesses) would cost an additional $650 billion over the next decade, with the costs exploding over time.” “If one of the few expiring business-tax provisions—full expensing—is also made permanent (as has been suggested by conservatives), the added ten-year cost would grow by another $122 billion,” the groups said.

Yet, on June 29, President Trump told Fox Business that his administration continues to work on a second phase of tax cuts, which could include a further reduction in the U.S. corporate tax rate from 21% to 20% and more stimulus for the middle class. His timeline for introducing this new tax package is in the fall (October or possibly sooner and definitely before the November midterm elections), although a draft is expected to be released by the Ways and Means Committee to House Republicans as early as July. The bill is expected to face an uphill battle in the Senate.