Tax reform continues to be highly touted in Congress as lawmakers from both parties call for simplification of countless complex rules, overhaul of tax rates, and more.

At times this year, President Obama and Congressional Republicans seem far apart on a way forward, but at similar times in the past, agreements have quickly and often surprisingly emerged, most recently in the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). As the November elections approach more closely every passing day, lawmakers from both parties and the President have a short window to agree on tax legislation. The weeks leading up to Congress’ summer recess may be decisive.

PATH Act as Path Forward
The scope of the PATH Act surprised many Hill observers. Instead of merely extending the so-called tax extenders (including the state and local sales tax deduction, research tax credit, teachers’ classroom expense deduction), Congress voted to make permanent many of the incentives. Although there had been hearings and discussions about permanently extending some of the incentives, the prospect of getting a bill through Congress and to the President’s desk seemed remote right up to December. Behind the scenes negotiations between the White House and Congressional Republicans resulted in the largest tax bill since the American Tax Relief Act of 2012. The PATH Act went far beyond the extenders. It made changes to the rules for IRS administration, real estate investment trusts (REITs), how the Tax Court works, and more.

Passage of the PATH Act shows that another tax bill, possibly an even larger tax reform package, could make it out of Congress before year-end. Speaking in Washington, D.C. earlier this year, Senate Finance Committee (SFC) ranking member Ron Wyden, D-Oregon, suggested such an outcome. “Against all odds, Democrats and Republicans reached a bipartisan agreement on the PATH Act,” Wyden said. “The December agreement leading to passage of the PATH Act worked out because of the approach members took to the negotiations.” Wyden predicted that lawmakers would use the PATH Act as a “blueprint for broader reform.”

Everything on the Table
Almost everything in the Tax Code appears to be on the table at this time. House Ways and Means Chair Kevin Brady, R-Texas, who is a leading proponent of tax reform in the House has said as much. “Not all deductions and exclusions will stay; not all will go. The question to ask is: how will these policies drive economic growth?” Among the provisions/ideas being discussed by legislators are:

  • Consolidation of the individual income tax rates
  • Enhancing incentives for lower and middle income taxpayers
  • Revising/repealing some of the tax measures under the Affordable Care Act
  • Lowering the U.S. corporate tax rate
  • Consolidating education tax incentives
  • Eliminating/consolidating some energy tax breaks
  • Repealing the alternative minimum tax (AMT)
  • Tweaking the child tax credit, earned income tax credit, child and dependent care credit

Please contact our office if you have any questions about tax reform changes 417-881-0145.