The House-Proposed Tax Cut: Amendment to H.R. 88

The House-Proposed Tax Cut: Amendment to H.R. 88

Updated December 27, 2018
The House-Proposed Tax Cut: Amendment to H.R. 88
On November 26, 2018, Chairman Kevin Brady of the
In addition to these extenders, the November 26 bill extends
House Ways and Means Committee released the
the 9 cent per barrel tax on oil that funds the Oil Spill
Retirement, Savings, and Other Tax Relief Act of 2018.
Liability Trust Fund and the increased excise tax rate on
The bill was reported to the House on November 28, 2018.
coal that funds the Black Lung Liability Trust Fund through
The measure is an amendment to a minor bill already
2019.
passed by the House and Senate, H.R. 88. On December 10,
Chairman Brady released a new version, which was
The December 10 proposal dropped the extenders (which
subsequently modified on December 17 by a restoration of
may subsequently be considered in separate legislation), but
two extender provisions and passed the House on December
the December 17 proposal added the railroad track
20.
maintenance provision and the biodiesel credit. These
provisions were estimated to cost $18.8 billion over 10
The original bill had six major parts: (1) the extension of
years.
expiring provisions (the “extenders”), (2) disaster relief,
(3) provisions for retirement plans, (4) benefits for start-up
Disaster Relief (Retained)
firms, (5) some technical corrections to the 2017 tax
This section of the bill provides tax benefits for disasters
revision (P.L. 115-97), and (6) reforms to the Internal
including Hurricanes Florence and Michael; Typhoons
Revenue Service (IRS). The November 28 proposal was
Mangkhut and Yutu; the Mendocino, Camp, and Woolsey
estimated to cost $54.1 billion in revenue losses from
California wildfires; the Kilauea volcanic eruption and
FY2019 to FY2028, with a small $1.4 billion savings in
earthquake; and severe storms in Alabama, Hawaii, Indiana,
spending. The new version is estimated to cost $99.2
North Carolina, Wisconsin, and Texas (states except
billion.
Hawaii added in the December 10 proposal). The tax
benefits include access to retirement accounts without
The revised bill eliminates most of the extender provisions
penalties, employee retention credits, temporary suspension
as well as the start-up provisions and adds some additional
of limits for charitable contributions, increased casualty loss
provisions, including delaying some taxes and user fees
deductions, and the option to use prior-year earnings for
adopted as part of the Patient Protection and Affordable
purposes of the child credit and the earned income tax
Care Act (P.L. 111-148, as amended). This In Focus
credit. The disaster relief provisions lose $4 billion in
summarizes the original and new provisions with notations
revenue from FY2019 to FY2028, primarily due to the
as to whether the current bill eliminates, retains, or adds
increased casualty loss deduction.
provisions as compared with the November 28 bill.
Retirement and Savings (Retained)
Some of the provisions of these bills were in a prior tax
This section provides a series of rule revisions. Many of
package passed by the House in September 2018. See CRS
these retirement provisions were in H.R. 6757 (passed by
In Focus IF10977, Tax Reform 2.0: The Ways and Means
the House on September 27, 2018). They include
Tax Proposals, by Jane G. Gravelle.
simplifications to benefit multiemployer plans; relaxing
certain notification requirements for electing a safe harbor
Extenders (Partially Eliminated)
status for 401(k) retirement saving plans; treating taxable
A number of tax provisions that have been enacted on a
non-tuition fellowships and stipends as compensation for
temporary basis are extended or, in one case, made
Individual Retirement Accounts (IRA contributions cannot
permanent, and in another case are extended and phased
exceed compensation); repealing the prohibition on IRA
out. Expiring provisions are listed in CRS Report R45347,
contributions by those aged 70½ and older; prohibiting
Tax Provisions That Expired in 2017 (“Tax Extenders”), by
plans from making loans through credit cards and similar
Molly F. Sherlock. The November 26 bill extends through
arrangements; allowing the transfer of lifetime income
2018 all the provisions that expired at the end of 2017, with
investments (annuities) between plans or as a distribution if
some exceptions. First, the bill makes permanent the
no longer allowed as an investment option in a plan;
railroad track maintenance credit but reduces the rate from
allowing custodial accounts on termination of certain plans
50% to 30%. Second, it extends through 2021 and then
(Section 403 plans) to be converted into IRAs; clarifying
phases out over the next three years the $1.00 per gallon
which individuals will be covered by church-controlled
credit for biodiesel fuel. Two of the extenders, the special
organization plans; increasing a cap on increases in auto-
rate for capital gains on timber and the production activity
enrollment retirement plans to achieve nondiscrimination
deduction for Puerto Rico, were made obsolete because of
safe harbors; increasing the credit (for three years) for
changes in the 2017 tax revision (P.L. 115-97). The one-
setting up small employer plans from $500 to the greater of
year extensions include 3 individual provisions, 9 business
(1) $500 or (2) the lesser of $250 times the number of non-
provisions outside of energy, and 12 energy provisions.
highly compensated employees or $1,500; increasing the
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The House-Proposed Tax Cut: Amendment to H.R. 88
credit by $500 for small employers that establish automatic
(RIC or mutual fund) that holds shares in a Real Estate
enrollment plans; exempting individuals with accounts of
Investment Trust or publicly traded partnership to be
$50,000 or less from minimum distribution rules; and
eligible for the 20% deduction for business income. (3) The
allowing elective deferrals by members of the Ready
bill would allow losses that occurred in 2017 and predated
Reserve of the Armed Forces.
the bill to be eligible for offset under prior-law net
operating loss carryback provisions. (4) The bill would
The proposal also has some administrative changes. It
clarify that the nondeductibility of attorneys’ fees for sexual
allows due dates for establishment of employer plans on the
harassment or abuse does not apply to plaintiffs’ costs. (5)
tax filing day rather than year-end; modifies the
The bill would allow overpayments for tax installments on
antidiscrimination rules so they are not triggered by
accumulated income earned abroad (Section 965, deemed
participation in the plan of older, longer-service employees;
repatriation) to be treated as overpayments and refunded.
provides a safe harbor to satisfy prudence requirements for
The Joint Committee on Taxation reports no revenue effect
fiduciaries who are trustees of plans; requires employers of
for these provisions. In addition to these five changes
defined contribution plans to provide a lifetime disclosure;
relating to the 2017 law, the bill would clarify that veterans
and reduces the premiums of the Pension Benefit Guaranty
housing complies with the general public- use requirements
Corporation (PBGC) for cooperative and small employer
for the low-income housing tax credit and tax-exempt bond
charity plans that are a subset of multiemployer plans, as
treatment.
well as requiring use of the same discount rate used for
benefits to measure unfunded liabilities. The bill also
Manager’s Amendment (Retained)
allows penalty-free withdrawals of up to $7,500 from
The Ways and Means Committee adopted a manager’s
retirement plans in the case of birth or adoption.
amendment that removed the provision in the 2017 act that
taxed fringe benefits of nonprofits under the unrelated
The revenue loss from these provisions totals $13.8 billion
business income tax (UBIT), as well as some other minor
for FY2019-FY2028, with $6.2 billion due to the exemption
changes, and would clarify refunds of overpayments and
from the required minimum distribution rules, $3.7 billion
installments of deemed repatriation net tax liability, allow
due to the multiemployer plans, $1.9 billion due to
for automatic filing extensions in disaster areas, and clarify
withdrawals for birth or adoption, and $1.4 billion due to
the applicability period for Section 403(b) plan revisions.
the modification of PBGC premiums.
The UBIT provision loses $1.8 billion in revenue for
FY2019-FY2028.
Provisions for Start-Up Firms (Dropped
in the December 10 Bill)
Repeal or Delay of Health Related Taxes
This proposal would increase the amount of start-up costs
(Added)
that can be deducted immediately from $5,000 to $20,000,
The December 10 proposal extends the moratorium on the
(phased out dollar for dollar after start-up costs exceed
medical device excise tax by five years until 2025, delays
$120,000 rather than $50,000). The proposal also would
the excise tax on high-cost insurance (the “Cadillac” tax) by
allow net operating losses and unused tax credits arising
one year until 2023, extends the suspension of the fee on
within three years of start up to be carried over to a new
health insurance provisions by two years until 2022, and
owner that continues the business, without regard to the
repeals the tax on indoor tanning services. These provisions
general rules that restrict these carryovers. These provisions
are estimated to cost $52.4 billion for FY2017-FY2028.
cost $4.9 billion for FY2019-FY2028, with each provision
responsible for about half the cost. These provisions were in
Additional Provisions in the December
H.R. 6756 (passed by the House on September 27, 2018).
10 Proposal
In addition to the health-related tax delays, the proposal
Technical Corrections to the 2017 Tax
includes several additional provisions. It would extend the
Cut and Clarifications (Retained)
exemption from interest deduction restrictions on floor
Several proposals address provisions viewed as drafting
stock of motorized vehicles to nonmotorized trailers and
errors in the 2017 tax revision.
campers, which some have viewed as a drafting error. It
would limit the scope of new stock attribution rules adopted
(1) The 2017 act combined certain categories of real estate
in 2017 to U.S. persons with a majority control of a foreign
improvement property (qualified leasehold improvements,
corporation. (See CRS Report R45186, Issues in
qualified restaurant property, and qualified retail
International Corporate Taxation: The 2017 Revision (P.L.
improvement property), which previously had a tax life of
115-97), for a discussion.) It disregards purchases of
15 years and were eligible for bonus depreciation
employee-owned stock for determining the foundation tax
(deducting half of the cost immediately or deducting all of
on excess business holdings, allows charitable and other
the cost for certain small business) into one category,
nonprofit organizations to make political statements
qualified improvement property. The legislative language,
(limiting the “Johnson amendment”), permits charitable
however, resulted in the tax life becoming the tax life for
organizations to make collegiate housing and infrastructure
new nonresidential buildings, 39 years, which made the
grants, and prohibits restrictions on contingency fees for tax
property not eligible for temporary expensing of
services. These provisions are estimated to cost $8.2 billion
investments. The bill restores the 15-year life, which also
for FY2019-FY2028, with $7.7 billion due to the limits to
restores eligibility for expensing and shorter lives if
the Johnson amendment.
expensing is allowed to expire. (2) The bill would ensure
individual shareholders of a regulated investment company
Jane G. Gravelle, Senior Specialist in Economic Policy
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The House-Proposed Tax Cut: Amendment to H.R. 88

IF11033

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