Protecting Family and Small Business Tax Cuts - H.R. 6760

The House passed H.R. 6760 (220-191), which would make permanent all the temporary tax cuts for individuals that were part of last year's tax code overhaul (PL 115-97), which are currently set to expire at the end of 2025.

Summary              

H.R. 6760 would make permanent the tax provisions for individuals and pass-through entities in the Tax Cuts and Jobs Act that otherwise be sunset after 2025, including:[1]

• The lower rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
• The doubling of the standard deduction to $12,000/$24,000, for single or joint filers, respectively.
• The doubling of the Child Tax Credit to $2,000 with up to $1,400 refundable.
• The retention of popular deductions like mortgage interest (capped at $750,000 for new homes), state and local taxes (SALT) (capped at $10,000), medical expenses, and charitable deductions.
• The 20% tax deduction for small business owners.

The provision extends the reduction of the threshold above which unreimbursed medical expenses may be deducted, so that this reduction in the threshold from 10 percent to 7.5 percent of AGI applies to taxable years beginning after December 31, 2016 and ending before January 1, 2021.

Additional modifications made by this bill include:

• Modifying the breakpoints between the zero and 15% rate on long-term capital gains and qualified dividends to ensure taxpayers cannot have long-term capital gains income taxed at a higher rate than ordinary income.
• Modifying the tax filing requirement so that a married taxpayer does not need to file an income tax return if the combined gross income of the taxpayer is less than the applicable standard deduction.
• Modifying Section 15 that provides a rule for the computation of tax in the event of a tax rate change for a taxable year beginning on a date other than the first date of a taxpayer’s taxable year to have the rule only apply to changes in corporate tax rates.
• Technical and conforming changes related to rounding of income tax brackets, ITIN requirements for non-child dependents, gross income requirements for non-child dependents, increased limitations for certain charitable contributions, and limitations on deduction for state and local taxes.

Background

On December 22, 2017, Public Law 115-972 (“the Act”) was enacted into law. The Act made numerous changes to the individual income tax system, many of which expire for taxable years beginning after December 31, 2025. These temporary provisions include the following:[2]

• The Act modifies the tax rates and tax bracket breakpoints in order to provide tax relief to individuals.
• For taxable years beginning after December 31, 2025, the tax rates and brackets revert to their inflation-adjusted levels based on the law as in existence in 2017.
• The Act modifies the tax on unearned income of a minor child (known as the “kiddie tax”) such that the tax is generally imposed using the tax brackets applicable to trusts and estates, rather than with reference to the child’s parents’ tax situation.
• The Act creates a deduction for qualified business income, generally equaling up to 20- percent of non-wage income for qualified individuals.
• The Act limits the deduction for business losses to $500,000 for joint filers and $250,000 for other individuals.
• The Act increases the standard deduction to $24,000 for married taxpayers filing jointly and surviving spouses, $18,000 for heads of household, and $12,000 for all other taxpayers.
• These amounts are indexed for inflation. For taxable years beginning after December 31, 2025, the standard deduction reverts to its inflation-adjusted 2017 levels.
• The Act increases the child tax credit from $1,000 to $2,000, and increases the phase-out thresholds to $400,000 for married couples filing a joint return ($200,000 for all other taxpayers). Additionally, the Act provides for a $500 non-refundable credit for non-child dependents. The refundable child tax credit is modified by lowering the earned income threshold from $3,000 to $2,500, and increasing the maximum value of the refundable credit to $1,400 (indexed). Finally, the Act modifies the identification requirements applicable to a child on whose behalf the credit is claimed, requiring that the child’s taxpayer identification number be a Social Security number issued by the due date of the return in order to qualify for the $2,000 credit.
• The Act increases the charitable contribution percentage limit from 50 percent to 60 percent of the contribution base (generally, adjusted gross income) for contributions of cash to organizations described in section 170(b)(1)(A) (generally, public charities and certain private foundations that are not non-operating private foundations).
• The Act allows ABLE account owners to make contributions of earned income, but not in excess of the Federal poverty line, to their ABLE accounts, in addition to the limitations imposed on other contributions made to such accounts. Additionally, the Act allows individuals who make such contributions to be eligible for the saver’s credit. These modifications do not apply for contributions made to ABLE accounts after December 31, 2025.
• The Act allows amounts in qualified tuition programs (known as 529 accounts) to be rolled over into ABLE accounts, subject to the overall contribution limits on ABLE accounts. This provision does not apply to rollovers made after December 31, 2025.
• The Act grants combat zone tax benefits to those members of the Armed Forces serving in the Sinai Peninsula of Egypt.
• The Act reduces the threshold above which unreimbursed medical expenses may be deducted from 10 percent to 7.5 percent of adjusted gross income (“AGI”) for taxable years beginning after December 31, 2016 and ending before January 1, 2019.
• The Act provides that certain student loans that are discharged on account of the death or disability of the borrower are excluded from gross income. This exclusion does not apply for student loans discharged after December 31, 2025.
• The Act reduces the amount of the personal exemption deduction to zero.16 For taxable years beginning after December 31, 2025, the personal exemption deduction reverts to its inflation-adjusted 2017 level.
• The Act limits the itemized deduction for State and local property taxes (other than paid or accrued in carrying on a trade or business, or an activity described in section 212) and State and local income, war profits, and excess profits taxes (or sales taxes in lieu of income taxes) to $10,000 for all taxpayers other than married taxpayers filing separate returns, for whom the limit is $5,000. The Act also repeals the deduction for foreign real property taxes (other than paid or accrued in carrying on a trade or business, or an activity described in section 212).
• The Act reduces the $1 million limitation of acquisition indebtedness with respect to which interest is deductible to $750,000 ($375,000 in the case of married taxpayers filing a separate return) in the case of acquisition indebtedness incurred on or after December 15, 2017.
• Additionally, under the Act, home equity interest is not deductible. The Act suspends the deduction for a personal casualty loss, or for theft, unless such casualty loss or theft is attributable to a disaster declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act.
• The Act suspends the deduction for miscellaneous itemized deductions.
• The Act suspends the overall limitation on itemized deductions (commonly referred to as the “Pease limitation”).
• The Act suspends the exclusion from gross income and wages for qualified bicycle commuting reimbursements.
• The Act suspends the exclusion from gross income and wages for qualified moving expense reimbursements for all taxpayers other than members of the Armed Forces of the United States on active duty who move pursuant to a military order and incident to a permanent change of station.
• The Act suspends the above-the-line deduction for moving expenses incurred in connection with the relocation of a taxpayer for a new principal place of work for all taxpayers other than members of the Armed Forces of the United States on active duty who move pursuant to a military order and incident to a permanent change of station.
• The Act provides that wagering losses, and the limitations applicable to those losses, include expenses incurred in connection with the conduct of such individual’s gambling activity (and not only the actual costs of the wagers incurred by such individual).
• The Act doubles the estate and gift tax exemption amounts, such that for 2018 the exemption amount is $11.2 million per individual. For estates of decedents dying and gifts made after December 31, 2025, the exemption amount reverts to its inflation-adjusted 2017 amount. 
• The Act increases the alternative minimum exemption tax amount to $109,400 for joint returns and surviving spouses (half this amount for married taxpayers filing a separate return) and $70,300 for all other taxpayers (other than trusts and estates). Additionally, the phase-out thresholds for the exemption amount are increased to $1,000,000 for married taxpayers filing a joint return and $500,000 for all other taxpayers (other than trusts and estates).

For all of the above-described provisions except the reduction of the unreimbursed medical expense threshold, the proposal repeals the December 31, 2025 expiration date. Thus, under the proposal, these described provisions, which otherwise would expire for taxable years beginning after December 31, 2025, are made permanent.

Cost

The Joint Committee on Taxation (JCT) estimates that implementing the bill would cost 630.9 billion over the 2019-2028 period.

Democratic Whip Steny Hoyer:

H.R. 6760, House Republicans’ “Tax Scam 2.0,” would make permanent the major individual and pass through business provisions from the 2017 Republican Tax Scam, which overwhelmingly benefit wealthy Americans and leave the middle class behind while jeopardizing Medicare and Social Security.  In order to skirt Senate budget rules and ensure a partisan path to passage, these tax cuts were written with an expiration date at the end of 2025.  

H.R. 6760 makes permanent several of the expiring provisions of the individual tax code included in the 2017 Tax Scam, such as the lower top tax rate for the wealthy, lower taxes on so-called “pass through” income that will primarily benefit wealthy Americans, the doubled estate tax exemption to $22 million per couple, the cap on the deduction for state and local taxes (SALT), the cap on mortgage interest deduction, and several middle class tax deductions.

Less than one year after Republicans exploded the deficit by $1.8 trillion in order to give tax cuts to the wealthiest Americans, they continue down the path of fiscal irresponsibility, leaving future generations to carry the load.  The Joint Committee on Taxation (JCT) and Congressional Budget Office (CBO) estimate Tax Scam 2.0 will add $631 billion to the debt over the next ten years.  However, the vast majority of this bill does not take effect until 2026 – at which point it will add over $3 trillion to the debt in its first ten years of implementation, according to the nonpartisan Tax Policy Center (TPC).

Just like the 2017 Republican Tax Scam, the benefits of Tax Scam 2.0 are also skewed toward the wealthy and large corporations.  The JCT reports that 58% of the tax benefit from making the Tax Scam’s pass through business deduction permanent will go to the wealthiest 1.7% of Americans.  All told, TPC estimates Tax Scam 2.0 will give the top 0.1% of Americans with average incomes over $4 million per year an average tax cut of $105,000 in its first year alone.  That $105,000 tax cut exclusively for the 120,000 wealthiest Americans would be larger than the entire annual income for more than 120 million individual American households – before taxes – in that same year.

A recent survey commissioned by the Republican National Committee reveals just how unpopular the 2017 GOP Tax Scam is with the American people, leading the RNC to conclude: “we’ve lost the messaging battle on the issue.” By a 2-to-1 margin, respondents said the tax plan benefits “large corporations and rich Americans” over “middle class families.”  The study also shows that “most voters believe that the GOP wants to cut back on [Social Security and Medicare] in order to provide tax breaks for corporations and the wealthy.” 

While Democrats are For the People – focusing on legislation to lower health care costs and prescription drug costs, raise wages, and clean up Republicans’ culture of corruption – Republicans are once again jamming partisan legislation through the House that benefits the wealthy, leaves the middle-class behind, and puts Medicare and Social Security at risk.