MWC Tax Policy Update Team

House Ways and Means Chairman Kevin Brady has just released a two-page framework for Tax Cuts 2.0. As expected, the outline contains little policy specifics but highlights three major themes for the upcoming bill:

  1. Protect middle-class and small business tax cuts by making them permanent
  2. Promote family savings by making it easier for individuals to save for retirement, education, and other expenses.
  3. Spur new business innovation by reducing start-up costs and removing barriers to growth

The committee is expected to introduce legislative text and hold a markup after the August recess. The goal is to get the bill to the House floor in September.

It looks like Tax Cuts 2.0 will incorporate a part of the Senate’s Retirement Enhancement and Savings Act  or RESA (S. 2526) — which, among other things, would make it easier for small businesses to join multiple employer plans; encourage workers to save for retirement; and provide a safe harbor for employers offering annuities. A staffer on the Ways and Means Committee recently assured that the retirement section of the package would not include “Rothification.”

Unlike Tax Cuts 2.0, RESA has strong bipartisan support in the upper chamber. Senate Finance Ranking Member Ron Wyden (D-OR) would like to see it enacted as a standalone bill this year, but it’s unclear whether lawmakers would get the floor time needed to pass the bill.

Interestingly, Sens. Heidi Heitkamp (D-ND), Tom Cotton (R-AR), Cory Booker (D-NJ), and Todd Young (R-IN) introduced their own retirement related measures last week — some of which are reflected in RESA:

  • S. 3218 – the Strengthening Financial Security Through Short-Term Savings Accounts Act would help employers to set up “rainy day” savings accounts for workers.
  • S. 3219 – the Small Business Employees Retirement Enhancement Act would make it easier for small businesses to join multiple employer plans.
  • S.3220 – the Refund to Rainy Day Savings Act would allow taxpayers to put away 20 percent of their tax refunds into a Refund Rainy Day Fund.
  • S. 3221 – the Retirement Security Flexibility Act would encourage plan sponsors to use automatic enrollment and automatic escalation.

It remains to be seen whether the bill introductions are any indication of future Senate action on retirement — there appears to be a flicker of momentum to get a retirement package done this year.

Ways and Means Chairman Kevin Brady (R-TX) will release an outline for Tax Cuts 2.0 before the House departs for August recess this week. House GOP tax writers are meeting again today before the rollout.

The outline won’t have enough policy details to satisfy those who have been tracking developments in the past few months — it will simply validate the rumors that have been swirling around Capitol Hill. The highlights are expected to include the following: (1) make permanent the 2017 tax law’s provisions for individuals and pass-through businesses, and (2) expand access to retirement savings accounts. Tax Cuts 2.0 will also contain a number of miscellaneous provisions to encourage innovation among startups. Of note, Rep. Devin Nunes’s (D-CA) proposal (H.R. 6444) to index capital gains to inflation has been catching a lot of buzz in recent weeks, and it may be included in the outline.

Chairman Brady, along with a select group of GOP tax writers, met with President Trump and his economic team last week to discuss the outline and timeline for legislative action. The goal is to hold a House vote in September, but chances of passage in the Senate are low given that the budget reconciliation procedure is not an option this year.

The “listening sessions” for Tax Cuts 2.0 have begun. Ways and Means Republicans gathered last week to discuss which tax provisions should go into the forthcoming legislative package. Ways and Means Chairman Kevin Brady is pushing hard to release a proposal by July 26 before the House leaves for the August recess — an ambitious timeline given that no major decisions were made at the July 11 meeting.

The tax-writing panel is reportedly considering a provision that would index capital gains to inflation. Additionally, Rep. Carlos Curbelo (R-FL) told reporters that Tax Cuts 2.0 would not address international items like the global intangible low-tax income (GILTI) or the base erosion anti-abuse tax (BEAT). These two international provisions might be addressed in the technical corrections bill that Chairman Brady is planning to introduce after the midterm elections. GOP tax writers are waiting to see what the Treasury will do first via guidances and whether the regulatory fixes will be sufficient.

 

The recent enactment of the Bipartisan Budget Act of 2018 extended and significantly expanded the existing tax credit for carbon sequestration under Section 45Q of the Internal Revenue Code. Although the Section 45Q credit for carbon sequestration has been available since 2008, the limitations and uncertainty associated with the credit greatly limited its effectiveness in spurring investment in eligible carbon capture equipment. As amended, the new Section 45Q represents a serious attempt by Congress to make the credit more attractive by incorporating a number of industry-favorable changes.

Check out McGuireWoods’ legal alert on this issue here.