Why Congress Must Pass the Tax Reform Bill for Economic Growth

This week, the U.S. House Ways and Means Committee will advance tax reform legislation to make permanent and broaden the Tax Cuts and Jobs Act (TCJA). Failure to do so will mean an annual tax increase of $1700 per year, a 22% tax hike overnight.

This bill is a big step forward for taxpayers, and it should enjoy the support of every House Republican. Below are some of the highlights:

Makes the Expiring Parts of the TCJA Permanent and Building on TCJA's Success

When the TCJA was passed, the major individual sections could not fit into the overall package, and had to "sunset," or expire, at the end of 2025. The legislation under consideration this week makes almost all of the sunset TCJA provisions permanent, including:

Individual and Small Business Income Tax Rates

Current Law	One, Big, Beautiful Bill
10%	10%
15%	12%
25%	22%
28%	24%
33%	32%
36%	35%
39.6%	37%

The standard deduction doubled under the TCJA to $30,000 for married couples and $15,000 for individuals. This legislation makes that permanent, and creates a booster of $2000 for married couples and $1000 for singles through 2028. As a result, over 90% of taxpayers claim the standard deduction instead of choosing to itemize their mortgage interest, state and local taxes (SALT), and charitable contributions. This also allowed the TCJA to all but eliminate the hated "alternative minimum tax" (AMT), a repeal now made permanent.

The child tax credit doubled under the TCJA to $2000 per child. This legislation makes that permanent for the 40 million families that benefit from the credit, indexes it to inflation for the first time, and creates a $500 booster through 2028. Additionally, "MAGA Accounts" are created that give newborns a $1000 subsidy at birth, and allowing parents and others to contribute up to $5000 per year throughout childhood. This money may be used for college, skilled training, or to buy a first home. 529 education savings accounts are expanded to include additional K-12 expenses and vocational training expenses after high school. A new tax credit is created for contributions to qualified educational scholarship foundations.

Main Street businesses can received a "qualified business income deduction" of 23% of their profits, up from 20% under TCJA and now a permanent part of the tax code. The amount of new equipment small businesses can expense goes up from just over $1.2 million today to $2.5 million under the legislation. There's a new 100% full expensing provision for manufacturing buildings. The death tax "standard deduction" is permanently increased to $15 million and indexed to inflation. IRS paperwork burdens are reduced for millions of taxpayers.

Health savings accounts (HSAs) are expanded for 20 million more Americans, including seniors. HSA contribution limits are doubled, and rollovers from health flex spending accounts (FSAs) and health reimbursement accounts (HRAs) are allowed. There are numerous expansions of health options that allow Americans to have alternatives to Obamacare and Medicaid.

The wasteful "Green New Deal" tax credits enacted by Congressional Democrats and President Biden in 2022 are repealed.

Where the Bill Needs to Be Improved

1. The deduction for full business expensing of new business asset purchases was part of the TCJA. It began to phase down, and now only 40% of an asset can be expensed. This legislation restores full expensing for 2025 through 2029, but then it disappears entirely. This provision should be made permanent.
   

2. The deduction for research expenses (which is mostly the wages of researchers) has been around for as long as we have had a tax code. The TCJA switched it over to a five year amortization in 2023. This legislation restores full research deductions from 2025 through 2029, but then returns to five-year amortization. Full research expensing should be made permanent.
   

3. Business interest is deductible up to 30% of business profits. But TCJA changed the definition of "business profits" in 2022 with the effect of making interest deductions harder for capital-intensive industries. This discrimination in business interest deductions should be permanently repealed.
   

4. All businesses are currently allowed to deduct state income tax at the entity level on its federal tax return. This legislation singles out Main Street doctors, dentists, physical therapists, skilled nurses, community pharmacists, and other medical professionals from doing so. In addition, it denies this ordinary and necessary business deduction to Main Street accountants, attorneys, financial planners, etc. There's no reason that the tax code should deny a community pharmacy a tax deduction it makes available to CVS.