Tax Policy Analyst
Update, July 25th: We've updated this post.
The House Republicans’ “Tax Reform 2.0” framework doubles down on the 2017 tax law’s fiscal irresponsibility, regressivity, and opportunities to game the tax code. Its centerpiece is a permanent extension of the 2017 tax law’s individual provisions, which are set to expire after 2025. That would add substantially to the nation’s long-term fiscal challenges, deliver far more to those with high incomes than to low- and middle-income filers, and make permanent some of the law's provisions that most encourage tax avoidance by wealthy filers.
The framework touts its new retirement- and education-related incentives but, in fact, many of them are also likely tilted to high-income filers and fail to transform a bill that prioritizes the those at the top of the income ladder over low- and moderate-income families.
Rather than build on the 2017 tax law, policymakers should fundamentally restructure it to fix its flaws. Instead, the new framework:
The framework proposes a new set of retirement- and education-related tax benefits, but such measures don’t transform the proposal’s primary focus on the wealthy. In fact, while the framework doesn’t provide details on many of these provisions, some of them are also likely tilted to the top. For example, it proposes “Universal Savings Accounts” (USAs), an idea promoted by Rep. Dave Brat and Sen. Jeff Flake. Notably, there are no income limits on the Brat/Flake USAs and their tax benefits would also be highly skewed: a married couple making less than $100,000 that faces a 0 percent long-term capital gains tax rate may receive no tax benefit from a USA, whereas a married couple making $1 million facing a 20 percent long-term capital gain rate would get a benefit of 20 cents on the dollar.
Rather than doubling down on the 2017 tax law’s flaws, policymakers should set a new course and deliver true tax reform — one that raises revenue to meet national needs, benefits low- and moderate-income working people far more, and improves economic efficiency by strengthening the integrity of the tax code.