Tax overhaul 2.0 bill unveiled by House GOP ahead of election push
(Bloomberg) – House Republican lawmakers introduced legislation Monday that would make the 2017 tax overhaul for individuals permanent in a bid to highlight their signature economic policy achievement ahead of the November elections.
The legislation -- released as Republicans are at risk of losing their majority in the House -- is seen as a last-ditch effort by GOP lawmakers to convince voters of the benefits of their new tax code. Polls consistently show less than half of Americans approve of the tax overhaul.
“It’s time to change the culture in Washington where we only do tax reform once a generation,” House Ways and Means Chairman Kevin Brady said in a statement. “This legislation is our commitment to the American worker to ensure our tax code remains the most competitive in the world.”
Still, with little chance of Senate Republicans taking up the measure, the effort is largely viewed as a way to promote political talking points. GOP leaders decided to proceed with the legislation even though it puts their members in high-tax states in the tricky spot of either supporting a new cap on state and local tax deductions, or voting against tax cuts backed by their party.
Last year’s tax overhaul set the individual changes to expire at the end of 2025 for budget reasons, since the bill was approved through a special process that allowed it to pass with a simple majority. The provisions include the so-called SALT deduction cap, which is unpopular in high-tax states such as New York and New Jersey.
The inclusion of the SALT measure in the bill released Monday has been a source of contention for some Republican lawmakers in those high-tax states, who say the limit effectively raises taxes for many of their constituents.
Republicans had hoped the legislation would put Democrats, who criticized the legislation for helping the wealthy and corporations more than average families, in a political bind -- either vote against tax cuts for individuals or support the GOP-backed law.
Instead, the legislation has caused disagreement within the Republican Party, with several lawmakers, such as Representatives Leonard Lance of New Jersey and Peter King of New York, saying they won’t vote for a bill that includes an extension of the SALT cap. However, there are unlikely to be enough lawmakers opposed to the legislation to vote it down.
The legislation would permanently lower the tax rates for individuals as well as preserve a larger child tax credit and the approximately $22 million estate tax exemption for couples, which was doubled in the 2017 law.
It expands the medical expense deduction for an additional two years. Under the tax law, taxpayers can deduct medical expenses exceeding 7.5% of adjusted gross income -- down from 10% -- for 2017 and 2018. Tax 2.0 would allow them to use the lower threshold through the end of 2020.
The bill includes several retirement-related provisions that would allow small businesses to more easily offer 401(k) plans, as well as new individual savings accounts for education and newborns. The legislation would also allow startups to write off more of their costs.
Brady’s statement on Monday didn’t say when his committee will review the legislation, although he has previously said the panel would begin work on it Thursday. Democrats will likely use the meeting as an opportunity to highlight what they see as the failings of the new law in an attempt to score political points with their base.
House Speaker Paul Ryan has said the legislation will get a vote on the House floor before the end of the month.
The amount the tax cut 2.0 legislation would add to the deficit would likely outweigh any economic growth stemming from the cuts, according to Alan Viard, a resident scholar at the right-leaning think tank American Enterprise Institute.
Much of the economic boost from the 2017 law was tied to the reduction in the corporate rate and other business-focused provisions, he said. The individual and pass-through tax cuts don’t "pack the same economic punch," Viard said.
Brady has previously said that making the individual tax cuts permanent would cost about $600 billion. The nonpartisan Joint Committee on Taxation, which estimates the revenue effect of legislation, hasn’t yet released figures for phase two tax legislation, but is required to do so before the Ways and Means Committee takes up the bill.
“It’s important that Republicans stay on offense when it comes to taxes,” said Ryan Ellis, a Republican tax lobbyist. “That’s why a mix of making old stuff permanent and also pushing new good things is smart.”