The Tax Cuts and Jobs Act was the most significant change to the tax code in the United States in three decades, but it looks as if Congress isn't done yet. The House Ways and Means Committee recently released a framework for the so-called "Tax Reform 2.0."
While the two-page framework is light on details, it does give us a good idea of what changes could potentially be implemented if the second round of tax reform is successful. Instead of a single tax reform bill, Tax Reform 2.0 will be a series of three bills, each with its specific focus. Here's what we know so far about each one.
The tax cuts that passed last year could become permanent
While the Tax Cuts and Jobs Act made several big changes for individuals, such as lower marginal tax rates and an expanded Child Tax Credit, the vast majority of individual tax changes are currently set to expire after 2025.
So the first bill of Tax Reform 2.0 would make the individual and small business tax cuts permanent. According to the framework, doing so would create 1.5 million new jobs, increase wages by 0.9%, and increase GDP by 2.2%.
Big changes for college and retirement savings
We already knew that some major changes to retirement savings were being considered, and the framework gives few other details, aside from saying that families would be allowed to access retirement savings for expenses related to the birth or adoption of a new child. It does say that it's important to help people save more for retirement, and that "Tax Reform 2.0 contains a range of proposals to achieve this."
On the other hand, the framework does have some new details about other types of savings vehicles. For starters, the bill would expand the acceptable uses of 529 savings plans to things such as apprenticeship fees, home schooling costs, and student debt payoff.
Finally, the bill would create a new type of savings account known as a Universal Savings Account. While the details of these accounts are unclear, reports indicate that contributions would be made in after-tax dollars, but earnings could be withdrawn tax-free, similar to Roth IRAs.
Tax changes to encourage entrepreneurship
The third part of Tax Reform 2.0 is the one we know the least about so far, but it would be intended to encourage Americans to start and grow businesses. It would allow new businesses to write off more start-up expenses and would also "remove barriers to growth."
Tax modifications every year?
Aside from the three-part structure, one of the most interesting things in the framework is that it says Tax Reform 2.0 is a "new commitment to improve the tax code each and every year for American families and local businesses -- like upgrading the apps on your phone." In other words, it would encourage Congress to examine and modify the tax code on an annual basis -- as opposed to every few decades, as has been the current practice.
Does it have a chance of passing?
The push to make the individual tax cuts permanent is likely to encounter serious resistance, so a bill that would do that faces an uphill battle in Congress.
On the other hand, there's bipartisan support for some of the provisions in the retirement and education savings portion of Tax Reform 2.0, as well as for some of the ideas put forth to encourage entrepreneurship.
The bills that are ultimately voted on are likely to look significantly different than this framework, just as the Tax Cuts and Jobs Act's final form was substantially different in several key areas from the framework that preceded it. For example, the original tax reform framework called for just three tax brackets (there are still seven), the complete elimination of the estate tax (there still is one), and a corporate tax rate of 20% (it's at 21%). However, the final bill generally matched the ideas contained in the framework, and the same is likely to be the case here.