House Ways and Means Committee Chairman Kevin Brady yesterday announced the release of tax reform 2.0. The package is split into three pieces of legislation: H.R. 6760, the Protecting Family and Small Business Tax Cuts Act, H.R. 6757, the Family Savings Act, and H.R. 6756, the American Innovation Act.

The Tax Cuts and Jobs Act, which passed late last year, reduced taxes for Americans at every income level, raised wages and other employee benefits, grew the economy, and made America a more competitive place to do business.

Tax reform 2.0 will build on this success by making individual and small business tax cuts permanent, expanding tax-advantaged savings accounts, and allowing businesses to recover more startup costs.

Individual Tax Cuts Permanent

The Tax Cuts and Jobs Act contained numerous, important provisions for small businesses and middle class families.

Because of TCJA, 90 percent of wage earners will see increased take-home pay. A typical married family of four will save $2,917 in 2018 and could save $44,697 over a decade, according to the Heritage Foundation.

In addition, tax reform dramatically simplified the tax code in several ways. The standard deduction was doubled so that 93 percent of taxpayers can file on a single piece of paper. Personal exemptions and the child tax credit were consolidated, simplifying tax compliance for more than 22 million families. The Alternative Minimum Tax was reduced so that 96 percent of the 4.5 million Americans hit by the AMT no longer have to pay this additional tax.

Small businesses also saw tax relief in the form of a 20 percent deduction for the 30 million pass-through entities (LLCs, S-corporations, sole properties, partnerships) and relief for family owned businesses by doubling the death tax exemption from $5.5 million to $11 million.

Unfortunately, arcane procedural hurdles and unanimous opposition from Democrats in the House and Senate prevented lawmakers from making these provisions permanent. If Congress does nothing, these important tax cuts will sunset in 2026. Tax reform 2.0 will make all of these individual tax cuts permanent.

Expanding Tax-advantaged Savings Accounts

Tax reform 2.0 will strengthen family savings through the reform of tax-advantaged savings accounts. The legislation will update retirement accounts so that businesses have more flexibility to set up and contribute to plans, and workers have more flexibility to invest and save for retirement.

In addition to expanding existing savings accounts, tax reform 2.0 creates a new savings account – the Universal Savings Account (USA).

A USA allows a taxpayer to contribute after-tax earnings of $2,500 each year that they are free to invest as they see fit. These funds can be withdrawn at any time, and for any reason. USAs exist in Canada and the UK and have succeeded in promoting family saving and investment.

The tax bill also expands 529 savings accounts so that they can be used for apprenticeship programs or cover home schooling expenses. 529 accounts are a key way for middle class families to invest in their children’s futures and are currently used by 13 million families.

While national unemployment remains at a 17-year low, too many young people are not in the job market. The expansion of 529s will help address this problem by mitigating the cost of education opportunities.

Promoting Entrepreneurship

Tax reform 2.0 builds on the pro-growth aspects of the Tax Cuts and Jobs Act by encouraging innovation and entrepreneurship. 2.0 creates a deduction for start-up expenses of up to $20,000 and allows start-ups that bring in new investors to retain access to important tax benefits like the Research & Development tax credit.

While the TCJA promoted economic growth and investment through competitive business tax rates and the creation of immediate, 100 percent expensing, more work needs to be done to promote entrepreneurship. The number of start-up businesses has been in decline in the past decade. Reversing this trend will promote innovation and upward mobility and increase wealth.