The Republicans’ new 9-page tax reform framework relies mainly on general statements about reform goals, but it does include a specific proposal for a tax credit for caregivers.
The framework drafters would offer ”a non-refundable credit of a non-refundable credit of $500 for non-child dependents, to help defray the cost of caring for other dependents,” according to the framework text.
A copy of the framework text is available here.
A “refundable tax credit” is a tax provision set up in such a way that a taxpayer with a credit that exceeds taxable income can get cash back from the Internal Revenue Service.
The language in the framework document that the Republicans released today, which appears to be a summary of a longer document, seems to imply that the tax credit might be most useful for a ”member of the sandwich generation,” or a taxpayer who is caring both for a dependent adult and for a dependent child at the same time.
Some Republicans and Democrats have used hearings and bills focusing on the needs of caregivers to mend fences in recent years. In 2015, for example, Sen. Susan Collins, R-Maine, worked with Democrats to introduce S. 1719, a family caregiver support bill.
Framework drafters have emphasized that the framework document simply describes Republicans’ tax reform goals. The House Ways & Means Committee and the Senate Finance Committee still have to draft tax reform bills.
Other Life and Health Provisions
In addition to proposing a tax credit for caregivers, the document released today also proposes the following changes of special interest to life and health insurance agents:
It would eliminate the estate tax and the generation-skipping transfer tax.
It would eliminate the alternative minimum tax system.
It would cap the tax rate for the business income of small businesses and family-owned businesses at 25%.
It would preserve charitable deductions.
It would preserve retirement savings tax incentives.
The provisions referring to charitable deductions and retirement savings offer no details.
The document refers to deductions for charitable contributions along with deductions for home mortgage interest.
Dirk Kempthorne (Photo: ACLI)
“The framework eliminates most itemized deductions, but retains tax incentives for home mortgage interest and charitable contributions,” according to the document released today. “These tax benefits help accomplish important goals that strengthen civil society, as opposed to dependence on government: homeownership and charitable giving.”
The document released today refers to retirement savings incentives in a section on “work, education and retirement.”
“The framework retains tax benefits that encourage work, higher education and retirement security,” according to the work section. “The committees are encouraged to simplify these benefits to improve their efficiency and effectiveness. Tax reform will aim to maintain or raise retirement plan participation of workers and the resources available for retirement.”
The document does not refer directly to proposals to convert all 401(k) plan accounts to “Roth” accounts, with workers losing the ability to use contributions to reduce their tax bills now but getting a promise that the government will let them withdraw distributions free from income taxes when they retire.
The document released today does not say anything about another major employee benefits tax issue: the tax exclusion for group health benefits.
Industry Groups React, Cautiously
Dirk Kempthorne, the president of the American Council of Life Insurers, put out a statement welcome the general idea of Congress and the Trump administration trying to update the tax code.
“The life insurance industry serves as a private-sector safety net for families by providing financial and retirement security through life insurance, retirement plans and annuities, and long-term care and disability income insurance,” Kempthorne says in his statement. “A strong life insurance industry helps Americans prepare for their financial futures, alleviating pressure on government programs.”
The ACLI “looks forward to reviewing any legislative text to ensure that it strengthens the private-sector safety net that millions of Americans rely on for their financial and retirement security,” Kempthorne says.
Cathy Weatherford, the president of the Insured Retirement Institute, said in a statement of her own that surveys show the current income tax rules are central to encouraging Americans to save for retirement.
“Any tax reform legislation that is developed must continue to provide encouragement to Americans to save for their retirement during their working lives — when income, taxes and expenses are highest,” Weatherford says. “While the challenges associated with providing financial security in retirement are complicated, we must ensure that we do everything possible to protect and enhance Americans’ ability to save.”
— Read Both Parties Agree: Kill the AMT on ThinkAdvisor.