Five Tax Cuts in the RSC Budget That Will Grow the Economy and Help the Middle Class

The Republican Study Committee led by RSC Chairman Jim Banks (R-Ind.) and RSC Budget and Spending Task Force Chair Kevin Hern (R-Okla.) has released the “Blueprint to Save America,” a Fiscal Year 2023 Budget proposal. This budget contains numerous proposals to reform government, rein in out-of-control spending, and reduce taxes.

Grover Norquist, President of Americans for Tax Reform:

“The RSC’s budget proposal contains numerous commonsense, pro-growth tax cuts including making the individual tax cuts in the Tax Cuts and Jobs Act permanent, indexing the capital gains tax to inflation, eliminating the death tax, and creating universal savings accounts,” said Grover Norquist, President of Americans for Tax Reform. “Not only will these policies grow the economy and cut taxes for the middle class, but they also draw a stark contrast with the tax increases and wasteful spending being pushed by President Biden and Congressional Democrats.”

Below are five tax proposals contained in the RSC budget that will grow the economy, cut taxes for the middle class, and make the tax code fairer for Americans:

1. Makes the Individual Tax Cuts from the TCJA Permanent

The Tax Cuts and Jobs Act (TCJA) passed in 2017 by President Trump and Congressional Republicans contained numerous tax cuts for American families. The law reduced taxes for Americans at every income level and across the country.

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, most Americans will see a tax hike when the tax cuts sunset in 2026.

The RSC budget would make these tax cuts permanent.

The law reduced tax brackets, doubled the standard deduction from $6,000 to $12,000 (double for a family), and doubled the child tax credit from $1,000 to $2,000.

Thanks to these tax cuts, a family of four earning the median household income of $74,000 is seeing a tax cut of more than $2,000. Families with Adjusted Gross Income (AGI) of between $50,000 and $100,000 saw a 15 percent reduction in their average tax liability, according to IRS Statistics of Income Data.

The TCJA also repealed the Obamacare individual mandate tax by zeroing out the penalty. Prior to the passage of the bill, the mandate imposed a tax of up to $2,085 on households that failed to purchase government-approved healthcare. Five million people paid this in 2017, and 75 percent of these households earned less than $75,000.

Additionally, the TCJA enacted a high alternative minimum tax (AMT) exemption and raised the income level at which the exemption begins to phase out. 

Making these tax cuts permanent would ensure American families continue to see lower taxes, higher take-home pay, and a simpler tax code.

2. Indexes Capital Gains Taxes to Inflation and Expands the Zero Percent Cap Gains Bracket

The RSC budget ends the inflation tax by indexing capital gains taxes to inflation.

Currently, when a taxpayer sells a capital asset, they pay taxes on their gains-the difference between the basis and the sale price. Under current rules, Treasury determines the basis by looking at the purchase price of the asset at the time of purchase without consideration of the inflation-adjusted cost of the asset in today’s dollars. 

Over the years, other provisions in the tax code have been reformed to account for inflation such as income tax brackets, the standard deduction, and the Earned Income Tax Credit. This tax year, there were 62 tax provisions adjusted for inflation.

Not treating capital gains this way unfairly exposes taxpayers to additional taxation. For example, an investor makes a capital investment of $1,000 in 2000 and sells that investment for $2,000 in 2021 will be taxed for a $1,000 gain at a top capital gains tax rate of 23.8 percent. After adjusting for inflation, the “true gain” is much lower – just $352. (1,000 in 2000 – $1,648 in 2021).

The RSC budget also expands the zero percent tax bracket for capital gains which currently applies to individuals making $40,400 or less ($80,800 for married couples). The RSC budget would expand this to $75,000 for single filers and $150,000 for married filers, providing middle class families with an important tax cut when they invest in their lifesavings.

3. Fully Repeals the Death Tax

The RSC budget fully repeals the death tax – a fundamentally unfair tax that harms the economy and targets family-owned businesses. 

The tax is levied on assets that have been taxed previously through income taxes, capital gains taxes, and the corporate income tax. The death tax disproportionately especially impacts family-owned businesses like farmers and ranchers that tend to be asset rich but cash poor. 

The mega-wealthy are largely able to avoid this tax through armies of accountants and lawyers while family farms and small business owners who cannot afford this expense get stuck paying the death tax.

Many countries recognize that a high Death Tax is bad tax policy. Currently, the United States has the 4th highest estate and inheritance tax among developed countries, just behind France.  

A 2017 study by the Tax Foundation found that the US could create over 150,000 jobs by rolling back the estate tax. Similarly, a 2012 study by the Joint Economic Committee found that the death tax has destroyed over $1.1 trillion of capital in the US economy, which results in fewer jobs and lower wages.  

The death tax is also extremely unpopular among Americans. A report by NPR found that 76 percent of Americans support full, permanent repeal of the Death Tax.

4. Makes Full Business Expensing and Implements Accelerated Depreciation for Structures

The RSC budget makes full business expensing permanent for new investments. This policy helps encourage new investment, which helps promote greater economic productivity, job growth and higher wages.

It also simplifies the tax code by equalizing the tax treatment of new investments with other business expenses such as wages, rent, and healthcare costs. There is no reason a business should be able to deduct the costs of its utilities, rent, insurance, office supplies, etc. but be required to deduct the cost of their property over decades.

The TCJA implemented full expensing for assets with 20 years or less of depreciable life through 2022. The provision begins phasing out through the end of 2026. 

In addition to making expensing permanent, the RSC budget builds on the success of this policy by providing accelerated depreciation for structures. Currently, both nonresidential and residential property are subject to extremely long recovery periods, 39 years and 27.5 years respectively. This budget would reduce the depreciation schedule for all non-residential and residential property to 20 years. 

Moving to a 20-year depreciation schedule for structures would increase long-term economic output by 1.2 percent, capital stock by 2.3 percent, increase wages by 1.0 percent and create the equivalent of 231,000 full time jobs according to the Tax Foundation.

5. Promotes Saving and Investment Through the Creation of Universal Savings Accounts

The RSC budget proposes creating Universal Savings Accounts (USAs), allowing Americans to invest in their future, free of double and triple taxation. Currently, there are numerous tax-advantaged savings accounts that can be used for healthcare, education, and retirement. These accounts can drastically reduce the tax burden for individuals and families. Unfortunately, the complex requirements of how these accounts can be utilized causes many individuals to under-save.

USAs solve this problem by allowing individuals to save or invest a certain amount in tax-free accounts without limitations on how the money can be spent. By introducing a simple, streamlined saving account available for any expenditure, Americans will save more, be taxed less, and be able to better manage their finances. USAs would also allow families’ savings, already taxed twice through income taxes, to avoid a triple round of taxation through capital gains.