Reshaping the code: Understanding the new tax reform law – The impact of tax reform (H.R. 1) [REPORT]

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The enactment of tax reform legislation will have far-reaching consequences for businesses and individuals. Our report examines key provisions in the new law—formerly known as the Tax Cuts and Jobs Act—and its likely impacts.

Tax reform reaches its final destination

Congress has approved and President Trump has signed into law a massive tax reform package that lowers tax rates on corporations, pass-through entities, individuals, and estates and moves the United States toward a participation exemption-style system for taxing foreign-source income of domestic multinational corporations.

Some of the cost of this tax relief is offset by provisions that scale back or eliminate many longstanding deductions, credits, and incentives for businesses and individuals. The unoffset costs—roughly $1.46 trillion for the 10-year budget window covering 2018–2027, according to a revenue estimate from the Joint Committee on Taxation staff—will be added to the deficit.

The newly enacted law, officially known as An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (the Act), is an amalgam of two competing tax reform measures—one approved in the House on November 16, 2017, and the other approved in the Senate on December 2, 2017—although in some significant ways it tracks more closely with the Senate bill.

That outcome is a likely nod to several factors—most notably, the fact that the legislation moved through Congress under budget reconciliation protections that allow certain legislation to clear the Senate with a simple majority vote rather than the three-fifths supermajority required to overcome procedural hurdles that normally arise in that chamber.

Those protections come with a price, however, including strict budgetary and procedural rules (the so-called Byrd Rules) that, among other things, prohibit reconciliation legislation from increasing the federal budget deficit outside the 10-year budget window and make it more difficult for lawmakers to include provisions that have no impact—or only an incidental impact—on the federal budget.

Another significant factor in play was the GOP’s narrow margin of control in that chamber—a mere four seats in 2017—which left Senate Republican leaders with little room for error in securing final passage.

Our full report provides a detailed discussion of the approved tax reform legislation and observations on key provisions and their implications. Following are some of the report highlights.

To download report CLICK HERE.

 

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