House Republicans finally unveiled the details of their tax reform plan, “Tax Cuts and Jobs Act.” The plan will now go to the Ways and Means Committee for “mark-up” on November 6. This means the Committee will allow members to offer amendments to the plan. The mark-up process is expected to last at least a week.
On the other side of House, Senate Republicans are expected to announce their version of the tax reform plan in mid-November and put their proposal before the Senate Finance Committee before Thanksgiving. I expect the Senate version to vary from the House plan. Republican leaders will then go to conference in December to iron out the differences in their respective plans and produce a final bill for passage. Reconciling major differences between the House and Senate bills is a grueling process of negotiation. The outcome must be a single tax reform plan that can pass by simple majorities in the House and Senate. In the end, Senate Republicans will have an outsized influence in the outcome because they have less leeway to negotiate with a mere two seat majority.
Republicans will use the budget reconciliation process to move the bill through and House and Senate. This means Senate Republicans will not need the usual 60 votes to pass tax reform — a simple majority of 51 will do. On October 26, the House and Senate reached agreement on a budget bill clearing the path to use the reconciliation process. The total tax cut package is estimated to be $5.5 trillion. This consists of about $4 trillion of tax cuts that will be offset by tax increases in the plan plus $1.5 trillion in tax cuts that will not be offset by revenue. In other words, Congress can increase the deficit by $1.5 trillion. If Congress passes the plan it will be the largest tax cut in U.S. history.
House and Senate tax committees will operate via regular order and permit members to offer amendments. This means the proposals are likely to change as they work their way through the respective House and Senate tax writing committees. Thus, it is important to follow committee action on proposals that are important to you and your business.
Now let’s review the core elements of the Ways and Means proposal ahead of committee action. I note areas where the Senate is likely to take a different position than the House. Most of the provisions are effective for the 2018 tax year.
Individual Tax Provisions:
Corporate Tax Provisions:
Small Business Tax Provision:
Provisions Affecting Retirement Plans (note, the plan does not require Roth contributions or cut contributions to plans):
The House Republican plan starts the race for tax reform which Congress hopes to finish by year-end. There will be many fits and starts to the plan as it winds through the House and Senate and many provisions will change. The process is designed to work that way.
Now is the time to focus on the process and substance of the proposals and how they may impact you and your business. Our next article will outline the results of the Ways and Means mark-up and provide hints on what the Senate may include in its reform plan.
Source: Doug Fisher, American Retirement Association
Wall Street Journal, November 2, 2018
Business Insider, November 3, 2018
Boston Private is pleased to announce a partnership with Doug Fisher, a Washington Policy expert, who will offer a series of insights into a number of reform proposals making their way through Congress in 2017. Doug is Director of Retirement Policy at the American Retirement Association. In this role, Doug works with the ARA membership to protect, advise and grow their businesses through ideation and advocacy in the benefits area. Before joining ARA, Doug led Fidelity's legislative policy and thought leadership development teams involving retirement, health and welfare benefit plans. Doug has advised many Fortune 1,000 companies on the impact of legislation and regulation on the design and delivery of benefits. Before joining Fidelity, Doug served as tax counsel to the U.S. Senate Finance Committee and was involved in writing the pension, health and insurance provisions of the Small Business Job Protection Act of 1996; the Balanced Budget Act of 1997, including the Roth IRA, Simple retirement plan, medical savings account (predecessor to the health savings account); and the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
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