House Ways and Means Chairman Kevin Brady (R-TX) plans to release an outline of “tax reform 2.0” soon to his committee members, which would include making the rate cuts for individuals permanent. (Remember that individual rate cuts are currently set to expire in 2025.) That extension is not a popular opinion of Senate Democrats, 9 of which need to support the bill in order for it to pass.
Why the need for the 9 Democratic votes this time (the 2017 tax law passed without any Democratic votes)? Senate Republicans won’t be able to use the reconciliation procedure that allowed them to pass the Tax Cuts and Jobs Act without any support from Democrats. The budget this year simply does not allow for it. So, a second tax cut package would need 60 votes in the Senate to pass. Republicans currently hold 51 seats.
Tweaks to retirement plans, however, enjoy bipartisan support, especially those related to small businesses, and it’s likely we’ll see some movement on that this year. Brady has announced that he’s including a retirement-related bill in his draft that has the backing of Senators Orrin Hatch and Ron Wyden, the top Republican and Democrat on the Senate Finance Committee. Most likely, he’ll have to carve out the retirement changes from broader legislation to pass it. In this way, tax reform 2.0 will likely become a set of several small bills, not one large comprehensive one like we saw with TCJA.
So, what’s on the agenda for retirement changes? A draft bill called the Retirement Enhancement and Savings Act is a bundle of small tax changes that seeks to increase options for workers to voluntarily save. The bill would make it easier for small businesses to join multiple employer plans. That alone would hugely benefit gig workers. The bill also would give employers that sponsor traditional pension plans some relief from tax requirements that have led to the shuttering of those plans.
The 2017 Tax Cuts and Jobs Act largely left retirement savings untouched despite initial talk about pushing savers to pay taxes up front and put their money in after-tax Roth retirement vehicles.
Republicans had hoped to make all the tax cuts in their 2017 law permanent, but budget constraints meant the reductions for individuals and pass-through businesses, companies where the owners pay the taxes directly, will expire in 2025. Feasibly, Republicans have several more opportunities to extend the bill ahead of the sunset date.
Is this all just an effort to score some political points before midterm elections? We’ll let you decide that for yourself. Just be sure to stay informed about all legislative moves that have the potential to impact your personal and business taxes as well as your long-term financial plans for the future.
