Congress will soon begin work on making permanent the individual income tax reductions included in the Tax Cuts and Jobs Act (TCJA), U.S. Rep. Kevin Brady (R-TX) says.
In a June 26 interview with Washington Post reporter Robert Costa, Brady predicted Congress would begin working on Tax Reform 2.0, a follow-up measure refining reforms made by TCJA, in August.
“I expect to see the legislative outline released in early August with votes in the fall, depending on when leadership wants to schedule them,” Brady told Costa.
Permanence will be central to Congress’ tax reform effort this year, Brady told Costa.
“Yeah, so permanence, without a doubt, is the number-one request for middle-class families and for those who work in small businesses, our local small businesses,” Brady told Costa. “Because that permanence creates certainty over time, it actually contributes to growth, and frankly, they deserve that permanence. It would have been there but for the Senate rules, so I think in ‘tax reform 2.0,’ permanency for those middle-class families and those small businesses will be the centerpiece.”
President Donald Trump signed TCJA into law on December 22, reducing most individual income tax rates, permanently cutting the corporate income tax from 35 percent to 21 percent, and cutting overall taxes by an estimated $1.5 trillion.
Without congressional action, the individual income tax reductions will expire on December 31, 2025.
Already Paying Off
Christopher Garbacz, a policy advisor to The Heartland Institute, which publishes Budget & Tax News, says TCJA has already benefitted the public in obvious ways and some unseen ones.
“It is clear that there have been benefits, in terms of more current take-home pay, plus wage increases,” Garbacz said. “Unemployment is falling. Jobs are rising. Retail job vacancies exceed 700,000. Minority unemployment is at historic lows. Businesses are expanding.
“One area that is often overlooked as a rock-solid example of a benefit is the regulated utility area,” Garbacz said. “Without question, electric, gas, and water prices have fallen, as a result of the fall in corporate taxes. This is obvious since regulated utilities simply pass through, to consumers, any taxes that have to be paid.”
Calls for Spending Cuts
Tax Reform 2.0 would do what TCJA should have done, but Congress should also reduce spending to offset the resulting imbalance between income and outlays, Garbacz says.
“Why weren’t all rates set lower?” Garbacz said. “The argument was that we had to have a certain level of revenue to run the current level of governmental expenditure. This is a bogus argument based in establishment ‘swamp thinking.’ Why not cut expenditures? Why not cut them drastically?”
Alan D. Viard, a resident scholar at the American Enterprise Institute, says the current imbalance between revenue and spending is economically dangerous.
“We know we have a significant long-term fiscal imbalance,” Viard said. “The growth of Social Security, Medicare, Medicaid, and health insurance premium credits will outstrip the growth of revenue. Reality just keeps getting closer and closer. Proposals that reduce taxes or increase spending without offsets do tend to aggravate that fiscal imbalance.”
Concerned About Deficit Increases
The economy will suffer if the government does not reduce the deficit, Viard says.
“You have a significant reduction in government revenue that will ultimately need to be made up for, either through spending cuts or through offsetting tax increases,” Viard said. “Since there’s no indication that the spending cuts or tax increases are adopted right away, the revenue loss will be financed through larger government debt in the interim, which has the potential to raise interest rates and to crowd out private investment.”