STUMP » Articles » Taxing Tuesday: Republican Tax Ideas for an Election Year » 18 September 2018, 21:56

Where Stu & MP spout off about everything.

Taxing Tuesday: Republican Tax Ideas for an Election Year  

by

18 September 2018, 21:56

I had the Dems’ try last week. Let’s check out what the Repubs have put out there.

PRESS RELEASE

Brady Hails Introduction of Tax Reform 2.0: Permanent Tax Relief for Families and Small Business, Helping Families Save More, and Spurring Innovation Here In U.S.

The following bills were introduced today as part of this Tax Reform 2.0 package:

H.R. 6760, the Protecting Family and Small Business Tax Cuts Act of 2018, sponsored by Rep. Rodney Davis (R-IL), and cosponsored by Rep. Mark Meadows (R-NC), Rep. Mark Walker (R-NC), House Ways and Means Committee Chairman Kevin Brady (R-TX), and all other Ways and Means Committee Republicans.

H.R. 6757, the Family Savings Act of 2018, sponsored by Rep. Mike Kelly (R-PA), and cosponsored by Rep. Paul Mitchell (R-MI), House Ways and Means Committee Chairman Kevin Brady (R-TX), and all other Ways and Means Committee Republicans.

H.R. 6756, the American Innovation Act of 2018, sponsored by Tax Policy Subcommittee Chairman Vern Buchanan (R-FL), and cosponsored by House Ways and Means Committee Chairman Kevin Brady (R-TX) and all other Ways and Means Committee Republicans.

Let’s take a look into these.

UNIVERSAL SAVINGS ACCOUNTS

Universal Savings Accounts a Silver Lining in GOP Tax Reform

The Family Savings Act of 2018 includes some important attempts to ease rules around retirement savings and startup companies, among other changes. One change would simplify retirement savings. Another would create new universal savings accounts (USAs), while two others would expand the use of 529 education savings accounts and let families access their own savings to support parental leave.

The most innovative of these measures by far is the USAs—a reform I’ve written about in the past. The idea is to encourage savings by granting taxpayers a tax incentive to save, with total flexibility over the timing and use of the money saved.

Many of us are familiar with the different vehicles that currently exist to save money for retirement, college, and medical expenses. They all face different tax treatments, limits, and constraints on how and when the money can be used without facing a tax penalty, and some of these accounts aren’t available to all workers. Not so with USAs. They circumvent those rigidities by allowing taxpayers to annually contribute up to $2,500 of after-tax income to an account in which the savings would grow over time without any additional taxes paid on interest. Withdrawals would be tax-free, no matter how and when the money is spent.

While this is a good start, the $2,500 contribution is too small for Americans to really reap the benefit of these new savings accounts. And these benefits are numerous. A Cato Institute report by Chris Edwards and Ryan Bourne describes how the United Kingdom implemented its own version of USAs but allows for an annual contribution of $25,000 to benefit earners of every age and income level. So did Canada. Its $4,125 contribution limit is more modest than in the U.K.‘s, but it’s still higher than the one proposed by House Republicans.

Huh. So it reminds me a little of Roth IRAs, but without a whole bunch of the restrictions that exist on those.

I was unaware of these measures in the UK and Canada.

Tax Foundation: What are Universal Savings Accounts and Why Are They Important?

MULTIPLE EMPLOYER PLANS

I want to specify that the following are different from multiemployer union pension plans.

This has to do with making it easier for small businesses to band together to offer defined contribution retirement plans (like 401(k)s) to their employees. The point is to reduce costs through scale.

Trump Order on MEPs, RMDs Expands Retirement Options

The Trump administration recently issued an executive order that could have far-ranging implications both for individual retirement savers, and for small-business owners exploring retirement savings alternatives for their employees.

If the administration’s changes are eventually adopted, a potentially valuable retirement savings strategy could emerge for small-business owners, while planning for required minimum distributions (RMDs) would be dramatically altered. While it remains uncertain how the IRS and Department of Labor (DOL) will respond to the new executive order, the changes could have a broad and dramatic impact on the retirement savings tools currently available to both individual and small-business clients.

Wait a sec. This is hitting my day job! I will only explain a little about RMDs, but I have to drop it after that.

When you put money into a 401(k) or IRA, you are putting in pre-tax money. It wasn’t hit with income taxes.

BUT

Don’t think you’ll be able to leave without having to pay taxes on it!

RMDs are amounts you have to withdraw from tax-deferred accounts so that the IRS can finally take their chunk of flesh… though the theory is that you’d be at a lower tax bracket in retirement, so that the RMDs wouldn’t bite too hard, tax-wise.

Thing is, the RMDs are based on a withdrawal pattern not in line with actual retirement mortality, etc. And people get the wrong idea from this enforced behavior.

From Elizabeth Bauer: Required Minimum Distributions: Is There An Unintended Nudge?

How much do you need to spend each year from your traditional IRAs/401(k)s after you retire?

The conventional answer is, the Required Minimum Distribution, an amount determined by the IRS based on your life expectancy, or, in some cases, that of the original account owner of an inherited IRA. Reach age 70 1/2, divide your account balance by your remaining life expectancy according to IRS tables, spend the money, done.

But the catch is, of course, that one doesn’t actually need to spend this money at all. The only rule is that one must pay the previously-deferred taxes on this money, by moving the money into an after-tax account. Once in this account, the money can sit indefinitely.

But once you’ve removed the money from the “special” account, people think that there is some connection between this required withdrawal, and how much you should spend in retirement.

The RMD nudge may not mandate spending the RMD each year, but it surely creates the perception that the RMD can be taken as some sort of guidance regarding the amount that retirees should spend each year, regardless of whether this is the right decision for them taking into account their overall finances. Depending on an individual’s overall financial picture — the balance in their pretax accounts vs. other assets, their other retirement income such as Social Security benefits or pensions, debt levels, medical expenses and medical/long-term care insurance — spending the RMD each year can result in over- or under-spending, either leaving insufficient money for future needs or resulting in an unneeded frugality.

Educated retirees who work with a financial planner likely understand this and have worked out customized spend-down strategies. But we can’t assume that all retirees will have this, especially as an ever-growing share of the population has IRAs.

Anyway, there is other RMD stuff… but again, I get paid to write about that stuff for research I work on. So let me just move back to politics.

OH WOE BLUE STATE REPUBS

Without comment, excerpts from a piece in The Hill.

Blue-state Republicans fret over ‘Tax Reform 2.0’ — rightly so

The new tax bill, “Tax Reform 2.0,” is here, and it makes permanent the $10,000 cap on the state and local tax deduction (SALT) created by the Tax Cut and Jobs Act (TCJA) in December 2017.

Meanwhile, Republican politicians from districts where high percentages of taxpayers will be affected by the cap are wary of making the cap permanent. A deeper dive into theories of taxpayer psychology and tax policy indicates these politicians are right to be concerned.

Okay, whatever.

I’m a “blue state republican”, though not running for any office, and I think there should be no SALT deduction whatsoever.

Stick that in your pipe and smoke it.

TAX TWEETS

I understand people are tweeting about some other stuff going on right now. Football? Anything political going on?

Bah, I’m here to tweet tax!


Okay, that’s a different kind of thing, but it is interesting to call FBA agents the political enemies of Trump.




Yeah, I know, it’s not quite the same thing, but tariffs are just taxes with a fancier name.


Wait, is that lizard people Icke? Why, yes it is.

I break in here to share a Weird Al video:





Okay, enough taxes for this week.


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