Senator Ted Cruz has introduced S.B. 2687, described as a bill “to make permanent the individual tax rates in effect for taxable years 2018 through 2025.” Speculation about the success of the effort has run the gamut (see here and here), but after last year’s holiday surprise, the new bill, which would lock in rate gains across the board, merits a quick read-through. It is possible that Congress would pass this bill or a similar one. With the legislature having made corporate rate cuts permanent and individual rate cuts temporary, individual members may be motivated to respond to constituents’ distributive justice-based criticisms.
Notably, S.B. 2687 would make the increased estate tax exemption—previously $5 million, now $10 million—permanent. Given that this Congressional love letter to the wealthy is paid for by permanently eliminating deductions for things like health care expenses, it might be a wish-list item for Republicans to use as a bargaining chip. It affects a vanishingly small number of constituents, and allowing Democrats to win on this front might be face-saving enough to swing a vote or two.
Most of the proposed legislation is business as usual though. The bill would, as advertised, make the new personal income tax rate cuts permanent. It would permanently repeal the personal exemption and miscellaneous itemized deductions, and it would continue to limit the home mortgage interest deduction and the deduction for state and local taxes. As I previously have written, repeal of the personal exemption might adversely affect large and non-traditional families, a possibility that the original reform and Senator Cruz’s subsequent effort would mitigate (but not eliminate) by doubling the child tax credit. For more on that, see Shannon Weeks McCormack’s article here.
A couple of miscellaneous provisions in the bill are worth mentioning (and here, I am not claiming to be comprehensive). The first would permanently restrict deduction of moving expenses under IRC § 217 to members of the armed forces who relocate in connection with active duty. As long as we are re-upping this provision for Congressional consideration, why not add Americorp and Teach for America to it? Moving allowances for these programs may not cover all of the participant’s cost, but like members of the armed forces, participants move on assignment in service to their country. Adding Americorp and Teach for America to section 217 likely will not cost much—these young people don’t have high incomes, so their deductions are proportionately smaller— and their inclusion in section 217 signals the importance of their public service. Our laws embody our values, and allowing the moving expense deduction for Americorps and Teach for America participants would more broadly express the government’s vision of personal sacrifice for the public good.
A second interesting provision of S.B. 2687 is permanent repeal of IRC § 132(f)’s exclusion for qualified bicycle commuting expense reimbursements. Is it just me, or is this narrow repeal sort of peculiar? From a nudge perspective, the exemption seems like a net good. Biking is expensive, and people on the margins otherwise might choose to drive, causing pollution and diseases associated with a sedentary lifestyle. On the other hand, we all know that in most cities, only the truly committed bike to work. It’s dangerous; it requires a lot of gear and a funny hat; and at the other end, despite what people may tell you, you need a shower. Cyclists don’t need a tax incentive; they are impervious to people who swear at them from the passing lane, and they will bike whether we pay them to or not. In fact, the market appears to be so inelastic that Oregon taxes bicycles. Maybe the fringe benefit for cyclists is not warranted on behavioral grounds. But even if the section 132 allowance doesn’t change anyone’s behavior, allow me to park a final question in this spot. Why single out this one small piece of the Code for elimination when, perhaps, all of section 132 is due for a tune-up?
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