On September 28, The Washington Post reported that House Republicans were able to pass the second phase of tax reform that would include making individual tax cuts from last year’s bill permanent and extending deductions for certain business owners.
Under the bill, the rate reductions for individuals and the doubling of the child tax credit — which were due to expire in 2025 — would instead be made permanent. Further, it would extend a 20% deduction of “pass through” entities and reduce estate taxes. Small business owners, meanwhile, would be able to form group retirement plans.
The Post also reported that students would benefit from the new tax bill by allowing them to consider stipend payments as compensation when making a contribution to their Individual Retirement Accounts and use 529 savings plans to pay for home-schooling.
The article pointed out, however, two sticking points regarding the proposed reforms. The first one is that it will keep the $10,000 cap for SALT (state and local taxes) deductions intact, much to the chagrin of blue-state Republican officials, who voted against the initial tax bill. The second one is that these proposals would further increase the budget deficit. According to the Joint Committee on Taxation, the cost over the next 10 years would be $631 billion, and $3.15 trillion the 10 years after that.
Democrats who voted against the bill claimed the new tax bill, like the previous one, would benefit the rich. According to an analysis from the Tax Policy Center, the top 1% would receive an average tax cut of $40,000, while the middle 20% would get $980.
Unlike the first part of the tax bill — which was voted upon by party lines — the second part of the tax bill saw nine Republicans vote against it while three Democrats voted for it. The bill is supposed to go to the Senate, but the Senate refused to bring it to a vote because the Republican members did not think they would have enough votes to pass it, but also, with the midterm elections coming up, many members do not want to risk losing their seats.
If you have any questions about your federal, California, or New York State business taxes or filing requirements, contact William Abrams, the partner-in-charge of AGMB’s business management, corporate and securities law, and tax law practices. He has appeared on national and local news programs commenting on a broad range of tax and legal issues, has been quoted in publications such as Forbes, The Los Angeles Times, and The Chicago Tribune and has published articles in The Journal of Accountancy. For more information or to schedule a consultation, call the AGMB California tax law office at (310) 300-2900 or, for our New York tax law office, call (212) 201-1170.