House poised to pass tax-cut bills despite unlikely Senate action


A three-bill legislative package known as Tax Reform 2.0 is expected to clear the GOP-dominated House during votes on Thursday and Friday.

While the legislation is expected to be dead on arrival if it makes it to the Senate, some proposed changes to retirement savings could remain in play.

Among other changes, the bills would make recently enacted tax cuts for individuals permanent, expand retirement and education accounts, and create tax-advantaged Universal Savings Accounts.

While supporters say a second round of tax cuts would lead to continued economic growth, critics point to its $627 billion price tag over the next 10 years, based on an analysis by the Joint Committee on Taxation. That’s on top of the $1.5 trillion the already-passed cuts are projected to cost during the same time period.

“At this point, all three bills are expected to pass the House, with little or no Democratic support,” said Nicole Kaeding, director of federal projects for the Tax Foundation, a nonpartisan tax-policy research group.

She said, however, that several of the legislation’s retirement-related provisions are similar to an existing bipartisan bill in the Senate that could be considered later this year.

That bill, the Retirement Enhancement Security Act (S. 2526) would remove the 70½ age limit for making contributions to traditional individual retirement accounts and would make it easier for small businesses to band together to offer 401(k) plans, among other provisions.

It also would make it easier for 401(k) plans to offer annuities by creating a regulatory “safe harbor” and, as long as plan administrators meet certain requirements when choosing an annuity provider, they’d get some legal protection.

Although that provision initially was excluded from the Tax Reform 2.0 package, it was added via an amendment that was tacked on to one of the House bills late Wednesday.

“Some parts of [Tax Reform 2.0] might have some issues, but we’re optimistic that the retirement piece might get some traction in the Senate,” said Paul Richman, vice president of government affairs for the Insured Retirement Institute, which advocated for the amendment.

House GOP leaders have been committed to pushing the tax bills through this month before members head to their districts to campaign ahead of the November mid-term elections.

Even if most of the provisions in the House bills end up shelved this year, they could be revived next year when a new Congress is in place or at another time in the future, depending on the balance of power.

Here are some highlights of the bills getting voted on this week.

The first bill is called the Protecting Family and Small Business Tax Cuts Act of 2018 (H.R. 6760). In addition to making permanent the cuts to individual tax rates that took effect this year, it would also lock in other changes that are set to expire at the end of 2025.

That means the doubled standard deduction and elimination of personal exemptions would become permanent, along with the increased child tax credit, the elimination of most deductions and the $10,000 SALT, or state and local tax deduction, cap. The higher federal estate tax exemption of $11.2 million per individual also would be extended.

Separately, the bill would continue the higher deduction for medical expenses. Under rules implemented in last year’s tax legislation, qualifying medical expenses in excess of 7.5 percent of your adjusted gross income can be deductible if you itemize. Instead of letting that floor rise to 10 percent in 2019 as scheduled, H.R. 6760 would extend the lower threshold through 2020.

The measure also would make the 20 percent deduction for so-called pass-through businesses permanent.

The second bill, the Family Savings Act of 2018 (H.R. 6757), includes changes to retirement and education accounts and creates a new tax-deferred savings account.

For starters, the measure would remove the age limit on individual retirement account contributions. Currently, IRA owners cannot make additional contributions beginning in the year they turn 70½. Roth IRAs, by contrast, do not have a contribution age limit.

It also would exempt people with less than $50,000 in their retirement accounts from taking required minimum distributions, which start when you turn 70½. It also would allow families to withdraw up to $7,500, penalty-free, from retirement accounts for costs related to a new child, whether by birth or adoption.

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Additionally, 529 education accounts could be used to cover the cost of home schooling, for fees related to a trade apprenticeship and to help pay off a student debt.

The bill also endorses Universal Savings Accounts, which would allow savers to set aside tax-advantaged money for basically anything.

The accounts, which would come without restrictions on when (or why) the owners can make use of them, would work similarly to Roth IRAs. Up to $2,500 of after-tax income yearly could be contributed to an account, while the withdrawals — including any investment gain or interest — would be tax-free.

Another provision would allow smaller firms to more easily band together to offer their employees a 401(k) plan. As it stands, so-called multiple employer plans restrict exactly which businesses can team up.

The third bill is called the American Innovation Act of 2018 (H.R. 6756). Just 15 pages long, it would let new businesses deduct up to $20,000 in start-up expenses in the year they are incurred as long as they meet certain qualifications.

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