New Year, New Agenda
/The new year is well under way with a GOP-led federal government and taxpayer expectations of an extension of the Tax Cuts and Jobs Act of 2017 (TCJA). We’ve been talking about its sunset for over a year. Although I am not an expert beyond the fundamentals of government, I can say being a unified House, Senate, and White House could make it easier to extend these cuts and potentially make some permanent through the process known as budget reconciliation, which was how the Act originally passed.
Budget reconciliation allows Congress to pass budget-related measures with a simple majority, bypassing the unlimited debate (filibuster) designed to delay or prevent a vote on a bill. A simple majority sounds easy enough but there are limitations to the reconciliation process.
The purpose must be financial (taxes) and it cannot increase the deficit outside of the budget window, typically ten years. Inside the budget window you can only increase or decrease the deficit by the amount in the reconciliation instructions, meaning they must have revenue to offset a significant chunk of the cost. It’s a bit to chew on.
What does that mean for TCJA? It is impossible to know just yet, but the anticipation for individuals includes repealing the state and local tax (SALT) deduction limitation of $10,000, increasing the limit, or eliminating parts of it. Also, extending the increased standard deduction, making the unified gift and estate tax exclusion permanent (hey, someone has already paid tax on that money once), as well as other TCJA provisions.
With an estimated cost of $4.6 trillion, it is not expected to be a straight-out full extension of the Act, even with revenue action to offset the cost. How might it work if the revenue raisers are not met? Perhaps the budget window could be for less than 10 years to get most of their priorities in, including some of the campaign proposals (no tax on Social Security benefits, tips or overtime). That would be “kicking the can down the road”, a phrase used in political arenas for decades. To learn more about reconciliation, go to https://www.crfb.org/papers/reconciliation-101.
- Pam Smitson, CPA, CGMA®, Smitson Erhart-Graves Financial Advisors
