The House Ways & Means Committee marks up the House tax bill. The panel plans to get started today, though the bill remains a moving target. On Friday, panel chair Kevin Brady made one big change: Tax rates and other key provisions would be subject to less generous indexing for inflation starting right away rather than in 2023 as the Thursday version proposed. Brady warned other changes would come before the mark-up begins. Brady still hopes the committee will approve the Tax Cuts and Jobs Act by Thursday and Speaker Paul Ryan insists the House is “on track” to pass it by Thanksgiving.
Senators already are concerned. Finance Committee Chair Orrin Hatch plans to release his bill this week. And several Senate Republicans have objected to key House provisions including limitations on the mortgage interest deduction and on the ability of pass-through businesses to take advantage of the low 25 percent income tax rate. The Senate may have to scale back some of the House’s tax cuts to make sure its bill doesn’t reduce revenue by more than $1.5 trillion—the figure set in its budget resolution. The upper chamber’s GOP can only afford two “no” votes if it is to pass a tax bill under the budget reconciliation process.
The Joint Committee on Taxation ran some numbers on the House GOP tax plan. The JCT found that the bill would add nearly $1.5 trillion to the debt over the next ten years. While households in all income groups would see a tax cut, on average, in 2019, households earning between $20,000 and $40,000 a year would pay more after some tax cuts—including the new family tax credits—expire. The JCT analysis excludes the effects of the estate tax repeal, which would benefit only the wealthiest estates. President Trump has promised that he will not support a tax bill that does not give middle income households tax relief.
Nine takeaways from the House GOP tax plan. TPC’s Bill Gale considers the changes to the individual side of the Internal Revenue Code. It would be a big tax cut, but ill-timed. Gale notes that tax cuts would have to be financed, and because of that, “the vast majority of households, especially low- and middle-income households, would be worse off.” Gale also flags six “sleepers” in the bill that have small revenue implications but may ignite controversy anyway: Think unborn children and churches’ political statements, for starters.
Tune in tomorrow for Senator Ron Wyden’s take. The Senate Finance Committee’s top Democrat will discuss tax reform with TPC Mark Mazur and guests beginning at 9:00 am. The TPC Distinguished Speaker Series will be live webcast here.
How would federal tax changes affect the states? TPC’s Kim Rueben, Frank Sammartino, and Richard Auxier consider the questions states would have to answer if Congress passes a major tax bill. How would they respond to repeal of the state and local income tax deduction? Will they conform to or decouple from new expensing rules for business investment? Would they keep their own estate tax if Congress repeals the federal version? Would they also cut their own taxes? Or, will they raise taxes in the wake of federal spending cuts?
Do 401(k) savers also increase their IRA balances? TPC’s Bill Gale and Brookings Institution’s Aaron Krupkin and Shanthi Ramnath look at how savers’ contributions are linked across different types of tax-preferred accounts. Previous research has concluded that workers who become eligible for a 401(k) plan also see stronger growth in IRA balances. But Gale, Krupkin and Ramnath find virtually no link between new 401(k) contributions and new IRA contributions. Households who start contributing to 401(k)s are no more likely to open IRAs, raise IRA contributions, own IRAs, or have higher IRA balances.
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