Major U.S. Congressional Actions in 2018 â€“ TaxH.R. 1: Tax Cuts & Jobs Act (TCJA)
- Permanently reduces the corporate tax to 21% and temporarily reduces most tax rates for individuals until 2025.
- Almost doubles the standard deduction, but removes the personal exemption and some other deductions.
- Places a $10,000 cap on state and local tax deductions.
- Creates a tax deduction for pass-through businesses.
Status: Signed into law on 12/22/17Tax Reform 2.0
- The first bill would make several provisions from the TCJA permanent, including the individual income tax rate reduction, the higher child tax credit, tax deductions on pass-throughs, etc.
- The second bill would increase retirement savings incentives.
- The third bill would allow new businesses to deduct many of their start-up costs.
Status: Passed in the House on 9/28/18 but stalled in the SenateYear-End Tax Package
- Includes retirement savings enhancements, changes to the Internal Revenue Service (IRS), temporary tax relief for California wildfire victims and communities impacted by Hurricanes Florence and Michael, technical corrections to the TCJA, and some tax extenders.
- Some provisions from the tax package may be incorporated into the end-of-year funding bill, while other measures, such as bipartisan tax extenders (including the medical device tax), could be pursued in the 116th Congress.
Status: Introduced in the House on 11/26/18Sources: Congress.gov; House.gov
Trump Administration 2018 Recap: Tax
IRS Proposed Rules to Implement Tax Reform
- The IRS has issued 14 proposed rules pertaining to provisions of the 2017 tax reform package.
- The IRS proposed regulations on the pass-through tax deduction, Qualified Opportunity Funds, the deduction for business interest expenses, and the Base-Erosion and Anti-Abuse Tax (BEAT).
Labor Rule on Multiple Employer Plans
- In October 2018, the Department of Labor proposed a rule that would expand the use of open multiple employer plans.
- It makes it easier for small businesses to band together in order to offer contribution plans.
- In late August 2018, President Trump signed an executive order encouraging the Department of Labor to expand retirement savings options through multiple employer plans.
Treasury Rule on Donor Information
- The Treasury Department issued a final rule that exempts political nonprofits from disclosing donor information to the IRS.
- Proponents of the rule argue that the IRS doesnâ€™t need donor information to effectively enforce tax laws, while opponents say the rule could allow special interest groups toÂ operate with even less transparency.
- The Senate passed a resolution disapproving the rule, but itâ€™s unlikely that the House will hold a vote on it this year.
â€œMany small businesses would like to offer retirement benefits to their employees, but are discouraged by the cost and complexity of running their own plans.”Â â€” Secretary of Labor Alexander Acosta
Sources: â€œTax Reform Guidance,â€ IRS, accessed December 17, 2018; Brian Croce, â€œDOL proposes rule for expanding open multiple employer plans,â€ Pensions & Investments, October 22, 2018; Senate.gov; U.S. Department of the Treasury, â€œTreasury Department and IRS Announce Significant Reform to Protect Personal Donor Information to Certain Tax-Exempt Organizations,â€ July 16, 2018.
Potential 2019 Tax Agenda Items for Congress
Potential Legislation Reintroduced in 2019GAIN Act: H.R. 3757/S.1849,
â€œGrow American Incomes Now Actâ€
- Sponsored by Rep. Ro Khanna (D-CA) and Sen. Sherrod Brown (D-OH).
- Expands the Earned Income Tax Credit (EITC) by increasing phaseout percentages and income credit amounts.
- Reduces the EITC qualifying age from 25 to 21.
Retirement Enhancement and Savings Act:
S. 2526/H.R. 5282
- Would expand multi-employer pension plans by allowing employees from different industries to group together, which is currently not allowed.
- Facilitates 401(k) plan annuities and annuity information.
Energy Innovation & Carbon Dividend Act:
- Imposes a fee on carbon emissions that gradually increases.
- Directs fees would be returned to households monthly.
President Trumpâ€™s Tax Returns and Potential Oversight
- Incoming House Ways and Means Committee Chairman Richard Neal (D-MA) announced that he will request President Trumpâ€™s tax returns soon after taking the gavel in January.
- Though Trump claims he will block the request, the Ways & Means Committee has the power to issue a subpoena for his tax returns, and if granted, share the information with the rest of Congress.
- A Democratic House could pursue oversight over the IRS, focusing on its enforcement capabilities.
â€œI think the President has an opportunity here to defuse this and just release the forms as every other candidate for President has done.â€Â â€” Rep. Richard Neal (D-MA)
Sources: Congress.gov; Lauren Fox, â€œHereâ€™s the lawmaker who can request Trumpâ€™s tax returns,â€ CNN, November 7, 2018; Jim Probasco, â€œHow RESA Could Reform Workplace Retirement Plans,â€ Investopedia, December 14, 2018.
Potential 2019 Tax Agenda Items for the Trump Administration
Finalize Proposed Rules
- The Treasury and the IRS will continue to propose and finalize TCJA implementation rules.
- The Office of Management and Budget will provide an additional layer of regulatory review for TCJA rules.
- After reviewing the comments, the Department of Labor will finalize its regulation that would expand access to retirement savings options.
Indexing Capital Gains for Inflation
- Larry Kudlow, head of the White House National Economic Council, has suggested that the Treasury Department could issue a regulation that would index capital gains for inflation.
- Taxpayers would pay taxes on real gains as opposed to nominal gains, potentially cutting revenue from capital gains taxes by up to $20 billion a year.
“There are a lot of people that love it and some people that donâ€™t. But Iâ€™m thinking about it very strongly.â€ â€” President Trump, on indexing the capital gains tax to inflation
Sources: Leonard E. Burman, â€œIndexing Capital Gains via Regulations is Still a Bad Idea,â€ Tax Policy Center, July 31, 2018; John Micklethwait, â€œTrump Says Heâ€™s Thinking About Indexing Capital Gains to Inflation,â€ Bloomberg, August 30, 2018.