Tax Reform 2.0 Framework a Good Start
July 24, 2018
The House Ways and Means Committee released its long-awaited tax reform 2.0 framework, which would make permanent the Tax Cuts and Jobs Act’s individual income tax changes and institute other reforms.
The framework would:
Make permanent the income tax rate and deduction changes scheduled to expire in 2025: The Tax Foundation’s Taxes and Growth model estimates that this would boost long-run GDP (2.2 percent) and wages (0.9 percent) and create 1.5 million additional jobs, while reducing annual federal revenues by $112 billion dynamically.
Streamline retirement savings accounts: Currently, the tax treatment of retirement savings is riddled with restrictions, limitations, and rules that differ across more than a dozen types of retirement accounts. Though the framework does not specify how lawmakers would reform the current structure of retirement savings, the creation of a universal savings account would be a significant improvement over today’s long-term savings options, especially for Americans who may not have access to retirement savings through their employer.
Improve the tax treatment of start-up businesses: While it’s unclear what provisions the House may consider, lawmakers could make the Section 179 deduction more generous or create a standard deduction for start-up business costs, among other options. Tax Foundation economist Kyle Pomerleau has testified before Congress on ways to remove the tax code’s barriers to entrepreneurship.
The TCJA was a pro-growth tax reform that can help create jobs in the United States, raise wages, and expand the economy. However, much of the TCJA is scheduled to expire over the next decade. The new framework from (Ways and Means) Chairman Brady helps provide individuals certainty in their tax code by proposing to make the individual income tax provisions permanent. We project that making the individual income tax provisions permanent would increase the size of the U.S. economy by 2.2 percent in the long run while reducing federal revenue by $165 billion annually (on a static basis).
The inclusion of universal savings accounts is also a worthwhile addition. Our current tax code biases individual saving with a complex weave of a dozen types of accounts, with different limits and rules. Simplifying that structure is a much-needed reform.
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