Are you ready for “Tax Cut 2.0”? Congressional leaders say they’ll bring another tax-cut package to a vote in the House within a few months.
Why go back to the same issue so soon? Because most of the tax cuts enacted last year aren’t permanent. If they aren’t extended, taxes will go back up in the future.
The 2017 reforms were a serious effort to fix an onerous and growth-inhibiting tax code. Thanks to the tax cuts, the typical American household will pocket an additional $1,400 this year. If Congress doubles down on tax reform this year, the benefits will keep getting bigger.
Making all of last year’s tax cuts permanent would be a huge boost to the economy, but Congress shouldn’t stop there. Lawmakers should look to make additional reforms that will build on the successes already materializing from last year’s improvement. Here are three growth-spurring reforms they should consider.
First, and most importantly, expand expensing. Expensing allows businesses to deduct their costs immediately. The old tax law made businesses wait years before deducting their investment costs from their taxable income. This had the effect of needlessly increasing the cost of investing in everything from new equipment and machinery to expansion of existing workspace or even building new facilities.
The feature of last year’s tax reforms that garnered the most attention was the reduction in tax rates. But equally important were provisions that allowed employers to expense many more of their investments in their businesses.
Expensing makes it more affordable for businesses to upgrade and expand their operations — something that results in more jobs and enables employers to raise wages.
But last year’s reforms didn’t extend to all types of investments, such as manufacturing floor space and storefronts. To further facilitate economic growth that helps American workers, Tax Cuts 2.0 should allow expensing for all investments. Paired with a permanent tax code, this change could more than double the 2017 tax reform’s increase of GDP.
Second, lawmakers should simplify the regulations governing personal retirement accounts — and create a new Universal Savings Account for good measure. Personal retirement savings accounts, such as 401(k)s and IRAs, are a crucial for personal savings, because they shield investments from being taxed twice.
Yet many Americans, especially those employed by small businesses, don’t take advantage of these plans due to their complexity. Simplifying retirement savings rules and including a new universal savings account where funds are not reserved strictly for retirement would further allow people to save, no matter what they are saving for.
Lastly, Tax Cut 2.0 should complete the unfinished education reforms started last year.
The 2017 reforms modified college savings or “529” plans, allowing parents to use money in these accounts for K — 12 expenses. It was a good step forward. Lawmakers should now take the next step, and make the money saved in these accounts eligible for paying home-school, career, and technical education expenses. This would increase the ability of parents to pay for education options outside the public school system, giving families more education choice.
Additionally, the seven existing and highly complex higher education tax incentives should also be consolidated into a single expanded and simplified credit. The reformed credit would better target benefits to those in need, simplify the system for those who are eligible, and reduce fraud.
The reforms mentioned here, when grafted onto a permanent tax code, would make it easier for businesses to invest in growth, easier for individuals to save, and easier for students to access the type of education they need.
The 2017 Tax Cuts and Jobs Act did not just benefit a select few. The average taxpayer in every single congressional district in the U.S. gets a tax cut this year. Congress should make sure that holds true — and gets even better — for every year into the future.
This piece originally appeared in The Washington Times