The Latest on Tax Reform in Washington
Congress has been on recess these last couple of weeks, and it will return next week to begin (hopefully) diligently crafting a new tax bill using its reconciliation method. With House Republicans aiming to bring their reconciliation package to the floor within the next month, the debate over tax certainty is intensifying. Defend Main Street Growth is actively ensuring that the voices of entrepreneurs and small business owners are heard, emphasizing the critical need to make the tax relief provided by the 2017 bill permanent and to focus solely on policies that foster investment, innovation, and economic growth. The resounding message from Main Street is clear: tax hikes would undermine these vital objectives.
Understanding the Legislative Pathway: Reconciliation
The primary tool being utilized to potentially enact these tax changes is the process of reconciliation. For those unfamiliar, reconciliation is a special fast-track legislative procedure available to Congress for enacting changes to spending, taxes, and the debt limit, provided these changes are outlined in a budget resolution. A key advantage of reconciliation is its ability to bypass the Senate filibuster, which typically requires 60 votes to overcome. This mechanism was notably used to pass significant pieces of legislation in the past, including the Tax Cuts and Jobs Act (TCJA), the American Rescue Plan Act, and the Inflation Reduction Act.
The Legacy of the TCJA: A Foundation for Growth
At the heart of the current discussion is the 2017 Tax Cuts and Jobs Act (TCJA). This landmark legislation reduced average tax burdens across various income levels and offered a temporary simplification of the often-complex tax filing process. Crucially, it provided a significant boost to capital investment by reducing the corporate tax system and notably, the corporate rate small businesses have come to enjoy. This reform empowered Main Street businesses to invest more readily in their operations and scale their growth.
However, several key provisions of the TCJA are set to expire at the end of this year without congressional action. The implications of this expiration are significant. According to the non-partisan Tax Foundation, a staggering 62 percent of tax filers across the United States would face a tax increase if these provisions are allowed to lapse. Conversely, the Tax Foundation estimates that making the TCJA’s provisions permanent would provide a substantial lift to the American economy in the long run, potentially boosting GDP by over 1 percent, increasing wages by 0.5 percent, and generating an estimated 847,000 full-time equivalent jobs.
Beyond the critical need to extend the broad tax relief of the TCJA, Congress has a powerful opportunity to further empower small businesses by strategically supporting research and development (R&D) tax credits and returning 100% bonus depreciation. These targeted policies act as direct catalysts for job creation, business scaling, and the kind of robust investment that fuels long-term economic prosperity.
The Latest Developments: Setting the Stage for Action
Recent developments in Congress have laid the groundwork for this upcoming tax debate. The House adopted the Senate’s amended version of the budget resolution. This framework provides the fiscal space for tax legislation through the reconciliation process.
The Path Forward: Prioritizing Growth and Fiscal Responsibility
As lawmakers move forward in crafting this crucial tax legislation, the priorities should be clear: economic growth and fiscal responsibility. Achieving these goals necessitates permanent and well-designed tax policy changes that focus on broad incentives for work and investment. Policies such as cost recovery improvements, which allow businesses to deduct the cost of investments more quickly, can play a vital role in stimulating economic activity.
Equally important is resisting any efforts to reverse the corporate tax rate reduction that was enacted just seven years ago under the TCJA. Undermining this recent reform would create uncertainty for businesses, discourage investment, and ultimately hinder the economic growth that policymakers aim to achieve.
The coming weeks will be critical in shaping the future of tax policy in the United States. The focus must remain on policies that empower entrepreneurs, support small businesses, and incentivize the investment and innovation necessary for sustained economic prosperity. There are great ideas being thrown out there in Washington and others that are not so great. The TCJA was a well-crafted bill that aimed to help Main Street, and we shouldn’t overthink this effort. Protect Main Street and don’t raise taxes on some businesses to protect others.
