Tax cut

The Tax Foundation is busy estimating the costs and benefits of House Republicans’ upcoming plan to consider legislation that would make the new tax law’s individual income tax changes permanent, which the group concludes would boost the economy.

In just-released research, the right-leaning Tax Foundation estimates how such a move would impact the economy, federal budget and the distribution of the tax burden.

As the group explains, the new tax law lowered individual income tax rates and reduced the value of certain itemized deductions. Those changes are set to expire at the end of 2025.

If extended, these provisions would:

  • Increase long-run GDP by 2.2%, long-run wages by 0.9%, and add 1.5 million full-time equivalent jobs;
  • Decrease federal revenue on a static basis by $638 billion over the 2019-2028 budget window, while on a dynamic basis, extending these provisions would lead to a loss of $576 billion in revenue over the same window;
  • Reduce federal revenue by $165 billion annually on a conventional basis and $112 billion dynamically, in 2019 dollars; and
  • Increase after-tax income for every income quintile by roughly 1.5%.

“Ultimately, making individual income tax provisions from the [new tax law] permanent would improve the long-run size of the economy, but it would also further reduce federal revenue,” said Kyle Pomerleau, director of the Tax Foundation’s Center for Quantitative Analysis and a co-author of the report.

“The distributional impact of making these provisions permanent would be approximately proportional across income quintiles,” according to the report.

House Ways and Means Committee Chairman Kevin Brady said on June 26 that the tax writing committee should have a draft “tax reform 2.0” package addressing charitable contributions and retirement savings measures ready to circulate to House Republicans after the July 4 recess.

Speaking at an event held at The Washington Post called “Tax Reform in America: A Six-Month Report,” Brady, R-Texas, said that the “centerpiece” of a tax reform 2.0 proposal will address “permanency” for middle-class families and small businesses.

During July, Brady said, Ways and Means members will be “listening to our colleagues in the House about what they want to see in 2.0 and incorporating those changes,” adding that he anticipates a “legislative outline” to be released in early August with votes in the fall.

— Check out As Interest Rates Change, So Must Trust Strategies on ThinkAdvisor.