There’s no shutdown in the cards: Washington has finally passed a spending bill. The Consolidated Appropriations Act, 2020, includes a wide range of provisions from healthcare tax repeal to extenders. 

As expected, the Act included the repeal of three Affordable Care Act-related taxes: the so-called “Cadillac” tax on health insurance benefits, an excise tax on medical devices, and the Health Insurance Tax. The three taxes were originally part of the Patient Protection and Affordable Care Act, more commonly called Obamacare, which was signed into law on March 23, 2010.

The repeal dates for the Obamacare taxes are staggered: The repeals of the excise tax on medical devices and the Cadillac tax kick in beginning January 1, 2020, while the repeal of the Health Insurance Tax is effective in 2021.

The bill also includes what Forbes’ Ashlea Ebeling referred to as “seismic” retirement plan changes. The final version consists of the SECURE Act, or Setting Every Community Up for Retirement Enhancement Act of 2019, which passed in the House 417-3, but never made it to a vote in the Senate. Among the highlights:

  • The bill increases the age for required minimum distributions (RMD) from individual retirement accounts to 72 (from 70½), and it repeals the prohibition on contributing to a traditional IRA for those age 70½. 
  • It would allow part-time workers to participate in 401(k) plans.
  • It eliminates the so-called “stretch IRA” which allowed beneficiaries of IRAs and qualified plans to withdraw all money from inherited accounts over their lifetime, but now, distributions must be taken with ten years.
  • It allows new parents to take distributions from a 401(k), IRA or another qualified retirement plan within a year after a birth or adoption.

Most of the retirement provisions kick in beginning in 2020.

And since we just got around to understanding it, the new version of the kiddie tax introduced the Tax Cuts and Jobs Act (TCJA) has been repealed. The effective date is supposed to begin with the 2020 tax year, but you can elect to have it apply to the 2018 and 2019 tax years (expect guidance from IRS on this).

As I detailed earlier, the bill was expected to extend many expired tax provisions. Those provisions, often referred to as extenders, are now renewed on a short-term basis (and some of them retroactively). Here are some of the highlights:

  • If you have canceled debt that is also qualified principal residence indebtedness (in other words, you defaulted on a mortgage that you took out to buy, build, or substantially improve your main home), you were previously able to exclude that amount from income. The provision expired in 2017 but has been renewed.
  • The mortgage insurance premium (sometimes called PMI) deduction had also been allowed to expire. It is now extended through 2020.
  • The medical expenses deduction 7.5% floor has returned (it was previously bumped to 10%) for 2019 and 2020.
  • The above-the-line qualified tuition and related expenses deduction is back and has been extended through 2020.
  • The employer credit for paid family and medical leave and the work opportunity credit were slated to expire in 2019 but have been re-upped through 2020.
  • A handful of environmentally-related tax breaks, including the biodiesel credit, have been extended.
  • And my inbox has been chock-full of emails from happy brewers: federal excise taxes on beer and spirits will remain in place through 2020.

The law tweaked the rules for disaster relief (which had also been changed under the TCJA). Now, taxpayers who were impacted by a major disaster beginning January 1, 2018, and ending 60 days after the date that the law is enacted, can make tax-favored withdrawals from retirement plans (some restrictions apply). And good news for tax professionals and taxpayers: there is now an automatic 60-day filing extension for those taxpayers affected by federally declared disasters. No more watching for the IRS announcement!

And yes, the final version did repeal oh-so-unpopular section 512(a)(7), which had resulted in a tax on employer-provided parking for nonprofit organizations. Under that TCJA provision, employee parking for nonprofits, including churches, had been subject to a 21% unrelated business income tax (UBIT) – but that’s no longer the case.

These are just the highlights. The actual bill is 715 pages long, so there’s truly something for everyone (contraceptives! livestock demographics! racehorses! mine rescues!).

The bill passed the House of Representatives on December 17, 2019, with a vote of 297-120, and the Senate on December 19, 2019, with a vote of 71-21. The bill now goes to President Donald Trump, and he is expected to sign it into law.

You can read the bill here (downloads as a PDF).

There’s snow on the ground, the calendar is winding down, folks are gearing up for the new year, so of course, we’re getting… EXTENDERS?

Yes, it’s true. With the clock ticking, Washington appears to have reached a deal on tax extenders. Extenders are a term used to refer to expired or expiring tax provisions and tend to be short-term. That’s the case here, with most breaks renewed only through 2020.

So what’s in the extenders bill? Here are some of the highlights:

The mortgage insurance premium (sometimes called PMI) deduction may show up on your Schedule A again. As part of the efforts to revive the housing market, Congress passed a law allowing a tax deduction for the cost of PMI for homes and vacation homes. Under the law, premiums for mortgage insurance (PMI) were lumped together with deductible home mortgage interest on Schedule A. The provision expired but was renewed retroactively for 2017. Now, it would be extended to 2020.

The new-old medical expenses deduction floor may be back. Under the TCJA, the medical expense deduction survived, but there was a catch. While the 7.5% floor returned for the tax years 2017 and 2018, it bounced back to 10%. Under the extenders bill, the (old) 7.5% floor would be extended through 2020. We call it a floor because you can only deduct expenses over 7.5% of your adjusted gross income (AGI). Today In: Money

The qualified tuition and related expenses deduction may also be making a comeback. Pre-TCJA, the deduction allowed taxpayers to claim an above the line deduction for qualifying expenses – without having to itemize. The deduction was cut but could be extended through 2020.

Employers could get some breaks, too. The extenders bill would reinstate the employer credit for paid family and medical leave and the work opportunity credit. Both were slated to expire in 2019 but would be re-upped through 2020.

Also on tap? Relief for craft brewers and distillers. Under the TCJA, federal excise taxes on beer and spirits saw a dip with the biggest benefit going to domestic brewers producing fewer than two million barrels annually. According to the Beer Institute, 99% of U.S. breweries expected to see excise tax payments reduced by 50%. Those provisions were set to expire but are expected to be extended through 2020.

Producers of biodiesel and biodiesel mixtures would also see a benefit: the bio-diesel credit would be extended to 2022.

The extenders bill would also seek to undo an unpopular provision which resulted in a tax on employer-provided parking for nonprofit organizations. Under the TCJA, employee parking was subject to a 21% unrelated business income tax (UBIT). The parking tax provision would be repealed.

And it wouldn’t be an extender bill without tax breaks for auto racetracks and racehorses. Those regularly show up in tax extender bills, kind of like the distant cousin that you don’t understand and rarely see but know will be at Christmas dinner every single time.

What didn’t make the bill? Unrelated job expenses formerly deductible under Schedule A were not reinstated, and caps on interest and state and local taxes (SALT) remained unchanged. And despite a last-minute push from sectors in the automobile industry, the federal electric car tax credit was not extended.

And even though you didn’t necessarily ask for it, don’t expect this holiday gift to come without any strings attached: the extenders provisions are expected to add $35 billion to the deficit.

You can read the proposed bill here (downloads as a PDF).

Negotiations are ongoing, but it looks like the fiscal year 2020 spending bill will include permanent repeal of up to three Obamacare taxes: the so-called “Cadillac” tax on health insurance benefits, an excise tax on medical devices, and the Health Insurance Tax. The three taxes were part of the Patient Protection and Affordable Care Act, more commonly called Obamacare, which was signed into law on March 23, 2010.

The widely criticized 2.3% excise tax on medical devices has faced criticism from the medical industry since its inception. On December 5, 2012, the Internal Revenue Service (IRS) issued final regulations on the tax that manufacturers and importers pay on sales of specific medical devices. In 2015, Congress issued a two-year moratorium on the tax: it was slated to begin after December 31, 2017. But on January 22, 2018, the reprieve was extended (retroactive to January 1, 2018) for another two years, scheduled to run out on December 31, 2019. If the current spending bill remains intact, there will be no more extensions: the tax will be permanently repealed.

The so-called Cadillac Tax was intended to target high-cost health care plans, hence its moniker. The tax was targeted to high-cost health care plans and related perks exceeding certain limits (for 2015, they were $10,200 for a single person or $27,500 for a family). Those limits were purposefully calculated at the time to be more than twice as much as the average annual health insurance contributions made by employers.

The tax – a whopping 40% – applied to the amount over the limit. The burden was not on the employee but the insurers or employers, the idea being that it would force insurers and employers to reduce excess health care spending, especially for those at the top. But the law faced opposition from the beginning from among other groups, unions. As a result, the effective date on the tax was, like the tax on medical devices, constantly pushed out. The date was reset in 2015; by that time, the IRS hadn’t even published final regulations (I think they knew what was coming). The start date for the tax was eventually extended again to 2022 (where the limits would have been $11,200 for individuals and $30,150 for families). Now, it looks like the tax will never kick in.

A third tax, the Health Insurance Tax (sometimes called the HIT tax), is also likely to be repealed. The HIT tax is an excise tax on health insurance providers, though many, including the Congressional Budget Office (CBO), have noted that the overage would likely be passed onto consumers. The controversial tax took effect in 2014 but was suspended in 2017, and again extended through 2020.

The three taxes would not be the first Obamacare taxes to go: Congress has already effectively repealed the controversial penalty/tax on those who don’t have health insurance. Under the Affordable Care Act, the individual mandate required that Americans maintain health care coverage. If you couldn’t demonstrate that you have coverage and didn’t qualify for a waiver or exemption (typically based on hardship), you were subject to a penalty called the shared individual responsibility payment. However, under the Tax Cuts and Jobs Act (TCJA), the shared responsibility payment was reduced to zero beginning in the 2019 tax year.

As concerns circulate about a potential recession, President Donald Trump insists that the economy remains healthy. Despite those assertions, there have been rumblings that White House officials are exploring the possibility of a temporary payroll tax cut to put more money in the hands of consumers. 

According to reports, economists inside the White House have drafted a white paper about the potential for a payroll tax cut. Earlier, a White House official released a statement saying that “more tax cuts for the American people are certainly on the table, but cutting payroll taxes is not something under consideration at this time.” However, President Trump confirmed to reporters that payroll tax cuts are on the table, along with those rumored potential changes to capital gains, saying, “I’ve been thinking about payroll taxes for a long time. Many people would like to see that.”

If the back-and-forth sounds familiar, it echoes themes from an earlier time. The last payroll tax cut for American workers—also controversial—was pushed through by the Obama administration in 2011, despite concerns that the cut would increase the federal deficit. The theory was that the benefit would offset any costs: The cut was intended to kick-start the economy following the 2008 recession. After the first round, Congress renewed the temporary payroll tax cuts in 2012.

Here’s how the payroll tax cuts worked. Wages and self-employment income are subject to Social Security and Medicare taxes. Together, Social Security and Medicare taxes are known as FICA (Federal Insurance Contributions Act) taxes and are taken right out of your paycheck. Taxes on self-employment income are separately referred to as SECA (Self-Employment Contributions Act) taxes since self-employed persons pay both the employee and employer contributions.

If you’re employed, you pay Social Security tax (6.2%) as the employee, and your employer also pays the same rate of tax (6.2%); again, if you’re self-employed, you pay both portions.

Unlike Medicare, Social Security taxes are subject to a wage cap. In other words, you pay Social Security taxes on your earnings until you hit a magic number. After that, your wages are no longer subject to Social Security taxes. For 2019, that magic number is $132,900. That means that whether you make $1,000 or $100,000, you will pay Social Security taxes on that income. But if you earn $132,901? You’ll pay Social Security taxes on $132,900, but not on the extra dollar. And if you earn $1,132,900? You’ll pay Social Security taxes on $132,900 but not on the extra million.

In contrast, all wages are subject to Medicare taxes. If you’re employed, you pay Medicare tax (1.45%) as the employee, and your employer kicks in tax at the same rate (1.45%). As before, if you’re self-employed, you’ll pay both portions. And, thanks to a change in the law which took effect in 2014, high-income taxpayers are also subject to a Medicare surtax (0.9%) tacked on to wages that exceed $200,000, or $250,000 for married taxpayers.

Your employer collects those Social Security and Medicare payments and remits them to the government on your behalf (or you pay them directly if you’re self-employed). These taxes are sometimes referred to as “trust fund” taxes and are credited toward your retirement benefits.

(You can find out more about trust fund taxes here.)

With that, here’s how the 2011 payroll tax cut worked. On the employer side, payroll tax contributions for federal purposes remained the same. On the employee side, payroll tax contributions for federal purposes were reduced by 2%: Instead of paying in at 6.2% for Social Security taxes (up to the cap, which was, at the time, $106,800), contributions were 4.2% for Social Security taxes (still up to the cap). Self-employed persons also got a 2% reduction. Contributions for Medicare remained the same.

A similar payroll tax cut in 2019 could save top wage earners up to $2,658. Most full-time wage and salary workers would save in the neighborhood of $908, or about a week’s wages (based on data from the Bureau of Labor and Statistics for the quarter ending July 2019, downloads as a PDF).

Whether a payroll tax cut will become a reality is yet to be seen. However, discussions about more tax cuts are likely coming. National Economic Council Director Larry Kudlow told Fox News Sunday viewers, “Tax cuts 2.0, we are looking at all that.”

The second night of the Democratic debates marked a shift both in tone and topics. While the first night of the debates was short on tax policy, tax talk nearly doubled in the second debates. 

The candidates who were onstage during the second round of debates were Sen. Michael Bennet (D-CO), former Vice President Joe Biden, Pete Buttigieg, Sen. Kirsten Gillibrand (D-NY), Sen. Kamala Harris (D-CA), John Hickenlooper, Bernie Sanders (D/I-VT), Rep. Eric Swalwell (D-CA), Marianne Williamson, and Andrew Yang. The word tax was uttered 32 times (as compared to 18 in the first debate). Here’s how it broke down.

As before, NBC’s Savannah Guthrie started things off with a question about the economy, benefits and how candidates intended to pay for their policies, asking Sanders:

You’ve called for big, new government benefits, like universal health care and free college. In a recent interview, you said you suspected that Americans would be, quote, “delighted” to pay more taxes for things like that. My question to you is, will taxes go up for the middle class in a Sanders administration? And if so, how do you sell that to voters?

Sanders responded by touting his tax on Wall Street, which he says would fully pay for his proposals. The tax – more appropriately known as a financial transaction tax (FTT) – has previously been described the tax as a “Wall Street speculation tax.” Sanders claims that it will raise $2.4 trillion over the next ten years by imposing a 0.5% tax on stock trades, a 0.1% fee on bond trades and a 0.005% fee on derivative trades. (You can read more about it here.)

Guthrie followed up by asking pointedly:

Will you raise taxes for the middle class in a Sanders administration?

Sanders replied in the affirmative, but explained, “Yes, they will pay more in taxes, but less in health care for what they get.”

Guthrie next moved onto Biden, asking about comments he made to wealthy donors, claiming that we should not “demonize the rich.” Biden says that “we’ve got to be straight-forward.” He then called out income inequality, declaring that “the one thing I agree on is we can make massive cuts in the $1.6 trillion in tax loopholes out there, and I would be going about eliminating Donald Trump’s tax cut for the wealthy.” Biden was, of course, referencing the Tax Cuts and Jobs Act (TCJA). You can read more about that here.

All of the candidates have touted new government benefits, prompting Guthrie to ask Harris whether Democrats have a responsibility to explain how they will pay for every proposal they make. Harris retorted, “[W]here was that question when the Republicans and Donald Trump passed a tax bill that benefits the top 1 percent and the biggest corporations in this country?” 

Harris went on to say that she would propose a change to the tax code to include a tax credit up to $500 per month for every family that is making less than $100,000 a year. That would, she says, be “the difference between those families being able to get through the end of the month with dignity and with support or not.”

She added, “And on day one, I will repeal that tax bill that benefits the top 1 percent and the biggest corporations of America.” That’s another reference to the TCJA, which has been heavily criticized by some for lowering corporate tax rates to 21% and doubling the federal estate tax exemption amount, benefitting corporations and the wealthy. Following the markup in the Senate, the corporate tax cuts were made permanent under the TCJA, but the individual tax cuts will expire after 2025. Sanders subsequently commented that under the TCJA, “83 percent of your tax benefits go to the top 1 percent.”

Yang was queried about his signature policy, which is to give every adult in the United States $1,000 a month, no questions asked. Noticias Telemundo host and debate moderator José Díaz-Balart asked Yang to clarify how he could pay for the plan, which works out to $3.2 trillion a year. Yang explained that he would try a different kind of tax: a value-added tax. 

According to Yang, if we had a value-added tax “at even half the European level” it would generate over $800 billion in new revenue each year. A value-added tax is similar to a sales tax, but not quite the same thing. A sales tax is a tax typically tacked onto the end of a sale of goods or services, much like state and local sales taxes are imposed. A value-added tax is a consumption tax but, unlike a sales tax, it’s collected at every stage along the production chain. One of the key components is the idea is that spreading the collection of tax out over many sources might reduce the potential for fraud – which means more taxes collected, less tax gap. You can read more about VAT here.

Noting that many of the candidates would provide health care coverage for undocumented immigrants, Guthrie turned to Buttigieg and asked simply, “Why?” Buttigieg replied that “our country is healthier when everybody is healthier.” He then the notion of community to taxes, noting that undocumented immigrants pay taxes, including sales taxes and property taxes. Biden echoed those comments in his follow-up.

Buttigieg also took on foreign policy with China, explicitly referencing tariffs. “Tariffs,” he says, “are taxes. And Americans are going to pay on average $800 more a year because of these tariffs.” Claiming that China’s “fundamental economic model isn’t going to change because of some tariffs,” Buttigieg said that we needed to “invest in our own domestic competitiveness.” You can find out more about tariffs here.

The focus on taxes continued with Biden citing his record in negotiating with Mitch McConnell to raise the top tax rate. Bennet disagreed, calling it “a complete victory for the Tea Party.” The deal, he noted, extended the Bush tax cuts permanently. He’s referring to a 2013 vote – sometimes called the fiscal cliff deal – which extended the individual tax cuts (but the tax geeks among us more favorably recall the permanent adjustment of the alternative minimum tax (AMT) for inflation). You can read more about the 2013 vote here.

Buttigieg was asked about his climate plan, and he responded by touting the benefit of a carbon tax, just as John Delaney had done the night before. With a carbon tax, you put a price on the emissions of carbon dioxide and other greenhouse gases; the idea is that making certain kinds of energy more expensive will encourage clean energy technologies.

For the final question of the night, NBC’s Chuck Todd asked each candidate:

You may only get one shot, and your first issue that you’re going to push, you get one shot that it may be the only thing you get passed, what is that first issue for your presidency?

Harris was the only candidate to label taxes at the most important issue, leading off with “passing a middle-class and working families tax cut.”

For more on the candidates’ stances on tax, you can check out their websites:

This was the second night of debates. The candidates who were onstage during the first night of debates were Sen. Cory Booker (D-NY), New York City Mayor Bill de Blasio, Julián Castro, John Delaney, Rep. Tulsi Gabbard (D-HI), Washington Governor Jay Inslee, Sen. Amy Klobuchar (D-MN), Beto O’Rourke, Rep. Tim Ryan (D-OH) and Sen. Elizabeth Warren (D-MA). You can read my summary of the tax talk in the first debate here.

You can find their websites here:

If you tuned in during the first night of the Democratic debates to hear what the candidates had to offer on tax policy, you were likely disappointed. With ten candidates vying for time and answers limited to 60 seconds, the debate was more like a series of mini-speeches on a variety of topics from immigration to abortion. And when it was time to talk tax, answers were mostly short on details.

The candidates who were onstage during the first round of debates were Sen. Cory Booker (D-NY), New York City Mayor Bill de Blasio, Julián Castro, John Delaney, Rep. Tulsi Gabbard (D-HI), Washington Governor Jay Inslee, Sen. Amy Klobuchar (D-MN), Beto O’Rourke, Rep. Tim Ryan (D-OH) and Sen. Elizabeth Warren (D-MA). Despite the number of candidates, the word tax was used just 18 times throughout the evening: more than 20% of the time, it was used by a moderator.

NBC’s Savannah Guthrie started things off by querying Sen. Warren: 

You have many plans — free college, free child care, government health care, cancellation of student debt, new taxes, new regulations, the breakup of major corporations. But this comes at a time when 71 percent of Americans say the economy is doing well, including 60 percent of Democrats. What do you say to those who worry this kind of significant change could be risky to the economy?

Warren’s answer focused on the economy but did not address the issue of taxes directly.

Guthrie tried another tack when she moved to O’Rourke, asking him squarely: 

“…some Democrats want a marginal individual tax rate of 70 percent on the very highest earners, those making more than $10 million a year. Would you support that? And if not, what would your top individual rate be?”

O’Rourke launched into an attack on the Tax Cuts and Jobs Act (TCJA), calling out a “$2 trillion tax cut that favored corporations while they were sitting on record piles of cash and the very wealthiest in this country at a time of historic wealth inequality.” He didn’t, however, answer the question, directly, prompting Guthrie to follow-up: 

“I’ll give you 10 seconds to answer if you want to answer the direct question. Would you support a 70 percent individual marginal tax rate? Yes, no, or pass?”

O’Rourke responded, “I would support a tax rate and a tax code that is fair to everyone. Tax capital at the same rate…”

Guthrie interjected with “Seventy percent?”

O’Rourke did not answer that question but did suggest that corporate tax rates should be pushed up to 28%. Currently, under the TCJA, corporations have a flat 21% tax rate; rates for individuals are a bit higher (you can see the 2019 tax rates here.)

If you’re wondering where that number comes from, it’s tied to a proposal from Rep. Alexandria Ocasio-Cortez (D-NY). She suggested a 70% tax rate on incomes over $10 million. That’s not a flat 70% tax rate across the board; instead, it’s likely an additional marginal tax bracket. The marginal tax rate is your top tax rate, or the tax rate you’ll pay on the next dollar of taxable income (so in this case, high-income taxpayers would pay 70 cents in tax for every dollar they report in taxable income over $10 million, but their rate on the first $10,000 or so would remain the same as for you and me). That’s because the U.S. has a progressive income tax system. A progressive income tax is exactly what it sounds like: the rate of tax increases as income increases but everyone pays the same rate for the same income. You can read more about marginal rates here.

Sen. Corey Booker (D-NJ) also highlighted corporate taxes, singling out companies “like Halliburton or Amazon that pay nothing in taxes and our need to change that.” Amazon did, in fact, pay no federal corporate income taxes for the past two years. The reasons are complicated but generally come down to low tax rates combined with tax credits, like those for research and development. You can read more from Forbes contributor Stephanie Denning here.

Sen. Tulsi Gabbard (D-HI) linked her tax talk to national security and the military. She chided previous leaders for “taking us from one regime change war to the next, leading us into a new cold war and arms race, costing us trillions of our hard-earned taxpayer dollars and countless lives.” She emphasized that if she were president, she would “take your hard-earned taxpayer dollars and instead invest those dollars into serving your needs, things like health care, a green economy, good-paying jobs, protecting our environment, and so much more.”

New York Mayor Bill DiBlasio offered a nod towards taxes – and perhaps a jab at O’Rourke – in his statement on income inequality that “we’re supposed to be for a 70 percent tax rate on the wealthy.” He did not offer more information.

John Delaney offered the most detailed tax statement of the evening when he reminded viewers that he has called for a doubling of the earned income tax credit (EITC). The EITC is a refundable tax credit targeted to working people with low to moderate-income. For 2019, the maximum EITC amount available is $6,557 for married taxpayers filing jointly who have three or more qualifying children. You can read more about the EITC here.

Delaney also reminded voters that he introduced the only bipartisan carbon tax bill. Noting that “[y]ou just have to do it right,” he suggested that you could put a price on carbon and give a dividend back to the American people. With a carbon tax, you put a price on the emissions of carbon dioxide and other greenhouse gases; the idea is that making certain kinds of energy more expensive will encourage clean energy technologies. The bill that Delaney’s referring to purports to do just that: the Energy Innovation and Carbon Dividend Act, would impose a tax of $15 for each ton of carbon emitted into the air and the amount would increase by $10 every year afterward. The bill, which has bipartisan support, has been referred to the Subcommittee on Energy; you can read it here (downloads as a PDF).

Tim Ryan only briefly touched on corporate taxes, noting that his home state of Ohio recently lost 4,000 jobs at a General Motors facility even though the company got a tax cut (a reference to the TJCA).

For more on the candidates’ stances on tax, you can check out their websites:

(For the record, no candidate from last evening has a tax-specific web page at this time. I’ve linked to the Issues page of the websites when such a page exists.)

And there’s one more debate to go in June. Ten more Democratic candidates will take the stage tonight. They are Marianne Williamson, John Hickenlooper, Andrew Yang, Pete Buttigieg, former Vice President Joe Biden, Bernie Sanders (D/I-VT), Sen. Kamala Harris (D-CA), Sen. Kirsten Gillibrand (D-NY), Sen. Michael Bennet (D-CO) and Rep. Eric Swalwell (D-CA).

Presidential hopeful Sen. Bernie Sanders (I-VT) has introduced a plan to cancel all U.S. student loan debt. The debt, which currently totals $1.6 trillion, affects nearly 45 million Americans. The proposal would be paid for by a new tax focused on investors.

Sanders describes the tax as a “Wall Street speculation tax” and claims that it will raise $2.4 trillion over the next ten years. The tax – which is more properly known as a financial transaction tax (FTT) – would include a 0.5% tax on stock trades. The tax would apply to trades on a per transaction basis and would work out to a 50 cent charge for every $100 of stock. The FTT would also include a 0.1% fee on bond trades and a 0.005% fee on derivative trades. Derivatives, like futures and options, can be tough to value, so the tax would be based on the value of the contract and not the underlying assets.

While FTTs have been criticized as creating distortions in the market, proponents argue that it would reduce unnecessary trading and stabilize the markets. That’s because an FTT would necessarily hit high-frequency traders including those that rely on computers to quickly spot trading patterns and buy and sell quantities of stocks. If that sounds familiar, high-frequency trading was considered one of the factors that contributed to high-profile collapses like Knight Capital

According to Sanders, dozens of countries have imposed a similar tax, including Hong Kong, Germany, France, Switzerland, and China. A 2012 paper (downloads as a PDF) prepared for the Committee on Economic and Monetary Affairs claims that $23 billion is raised each year by just seven countries through FTTs: half of this revenue is pulled in by the U.K. and South Korea alone.

A paper authored by Robert Pollin, James Heintz & Thomas Herndon estimating the revenue potential for the tax was published by the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst in 2017. The study focused on the Inclusive Prosperity Act, which was introduced in the U.S. House of Representatives in 2012 and the U.S. Senate in 2015 (downloads as a PDF). The authors concluded that the tax would generate about $220 billion per year, equal to about 1.2% of the current US GDP. You can read the paper here.

Sanders said about his proposal, “In a generation hard hit by the Wall Street crash of 2008, it forgives all student debt and ends the absurdity of sentencing an entire generation to a lifetime of debt for the ‘crime’ of getting a college education.”

To ensure that students do not rack up debt in the future, Sanders also proposed a cap on student loan interest rates. According to Sanders, the average interest rate on undergraduate student loans is currently more than 5%. Under his plan, student loan interest rates would be capped at 1.88%.

Another 2020 presidential candidate, Sen. Elizabeth Warren (D-MA), has also introduced a plan to wipe out student debt. Warren’s plan would cancel up to $50,000 in student loan debt for every person with household income under $100,000. The plan would also phase out student debt for those with household income between $100,000 and $250,000.

Like Sanders’ plan, Warren’s proposal would also be paid for with a tax. However, Warren’s tax focuses not on Wall Street trades, but on the holdings of the super-rich. Warren would impose a wealth tax of 2% on families with fortunes exceeding $50 million. The tax, dubbed “Elizabeth’s Ultra-Millionaire Tax” would affect the top 0.1% of households in the country or about 75,000 families. Warren estimates that the tax would raise $2.75 trillion over 10 years.

The wealth tax got an endorsement from a surprising source: some of America’s richest persons. An open letter to “2020 Presidential Candidates” calling for such a tax was signed by 19 people (including one “Anonymous”). Signatories included Abigail Disney, granddaughter of Roy O. Disney (co-founder of The Walt Disney Company), Facebook co-founder Chris Hughes, hedge fund advisor George Soros, and Asana co-founder Justin Rosenstein. You can read the letter here.

If at first you don’t succeed, try, try again. And again. After a number of iterations, the Taxpayer First Act has finally passed the House and the Senate.

The key provisions in the Taxpayer First Act have been reform talking points for well over a year. A proposal was introduced in the Ways and Means Oversight Subcommittee in March of 2018 but ultimately went nowhere. Congress tried again in 2019 with the originally-named Taxpayer First Act of 2019. The bill was intended to modernize the Internal Revenue Service (IRS) and strengthen taxpayer protections.

A final version of the House bill, H.R. 3151, Taxpayer First Act, was reintroduced by the Chairman of the Ways and Means Oversight Subcommittee, Representative John Lewis (D-Georgia) and Ranking Member Mike Kelly (R-Pennsylvania) on June 6, 2019. Chairman Lewis called the bill “a ray of hope.”

“It is,” he said, “a significant win for the American people because it demonstrates that even in the most difficult times, we can come together as a nation, as a people and as a Congress to accomplish important things for the American people. We developed this bill the way legislation should be created. We listened to the voices of taxpayers, advocates and experts. We asked questions for many months. The Oversight Subcommittee hosted hearings and roundtables. Democratic and Republican members shared their concerns and ideas. We negotiated. We took our time, and believe that we did it right.”

The bill passed by voice vote on June 10, 2019, and included many new provisions focused on improving service for taxpayers. Included are calls for a new Internal Revenue Service (IRS) Independent Office of Appeals, seizure modifications, improved IRS customer service, and provisions for cybersecurity and identity theft protection. (You can read more about the original provisions here.)

Most of the provisions focused on improving IRS service and strengthening taxpayer rights survived to the final version. There was, however, a notable exception: codification of the Free File program.

In the original version of the bill, the Free File program would have continued:


(a) In General.—

The Secretary of the Treasury, or the Secretary’s delegate, shall continue to operate the IRS Free File Program as established by the Internal Revenue Service and published in the Federal Register on November 4, 2002 (67 Fed. Reg. 67247), including any subsequent agreements and governing rules established pursuant thereto.

The IRS Free File Program shall continue to provide free commercial-type online individual income tax preparation and electronic filing services to the lowest 70 percent of taxpayers by adjusted gross income. The number of taxpayers eligible to receive such services each year shall be calculated by the Internal Revenue Service annually based on prior year aggregate taxpayer adjusted gross income data.

In addition to the services described in paragraph (2), and in the same manner, the IRS Free File Program shall continue to make available to all taxpayers (without regard to income) a basic, online electronic fillable forms utility.

The IRS Free File Program shall continue to work cooperatively with the private sector to provide the free individual income tax preparation and the electronic filing services described in paragraphs (2) and (3).

The IRS Free File Program shall work cooperatively with State government agencies to enhance and expand the use of the program to provide needed benefits to the taxpayer while reducing the cost of processing returns.

(b) Innovations.—The Secretary of the Treasury, or the Secretary’s delegate, shall work with the private sector through the IRS Free File Program to identify and implement, consistent with applicable law, innovative new program features to improve and simplify the taxpayer’s experience with completing and filing individual income tax returns through voluntary compliance.

With Free File, low-to-middle-income taxpayers have access to free tax prep software. According to the IRS, up to 100 million taxpayers, or 70% of filers, are eligible to use the program. (You can read more about Free File here.)

IRS Commissioner Chuck Rettig has called the program “an important tool that allows taxpayers free access to electronic filing of their tax returns.” He further noted that Free File “has been a great partnership with the private sector.” However, that partnership is what raised eyebrows for some lawmakers. While 70% of taxpayers could use the program, the actual use is closer to 3%. Some of the concerns were raised after a ProPublica article alleged that the bill would have barred the IRS from creating its own version of the program; Senator Kelly disputed that characterization in a subsequent op-ed.

Additional questions about the role of the private sector in the program made it clear that the provision was going to be a deal-breaker. The cleanest solution was to pull it: There is no mention of Free File in the final version of H.R. 3151 (you can read it here), which sailed through the House.

After the bill passed, Senator Charles Grassley (R-IA) noted that “The House passage of the bipartisan, bicameral Taxpayers First Act is the first step toward reforming the IRS and strengthening taxpayer protections. It should pass in the Senate without delay.”

An identical version passed the Senate a few days later. The President is expected to sign the bill.

On Memorial Day, we’re supposed to honor our fallen soldiers. But some military families aren’t feeling very appreciated this year: Congress still hasn’t fixed the Tax Cuts and Jobs Act (TCJA) tax hit impacting Gold Star families.

Gold Star families are those with an immediate family member who died while serving in the military. The term has been in use since 1918 when President Wilson took up the suggestion of Women’s Committee of National Defenses to allow mothers who had lost a child in World War I to wear a black armband adorned with a gold star. In 1936, Congress officially designated the last Sunday of September as Gold Star Mother’s Day; President Barack Obama expanded the day to recognize all Gold Star family members. Today, the U.S. Department of Defense issues Gold Star Lapel Buttons to spouses, parents, and children of fallen service members.

Gold Star families also receive survivor benefits. The death gratuity program allows a one-time tax-free payment of $100,000 to eligible survivors of service members who die while on active duty or while serving in certain reserve statuses. The purpose of the payment is to assist families with immediate expenses.

Since families will no longer be receiving a regular paycheck, there are also monthly amounts payable. The Department of Veterans Affairs is responsible for paying Dependency and Indemnity Compensation (DIC). DIC is a tax-free monetary benefit paid to eligible survivors of service members who died in the line of duty or from a service-related injury or disease. The Department of Defense also pays under a Survivor Benefit Plan (SBP). SBP is a lifetime annuity based on a percentage of pay (adjusted for inflation) and is paid to an eligible beneficiary.

Here’s the tricky part: There’s an offset for Department of Defense benefits paid while also receiving Veterans Affairs benefits. The offset affects about 65,000 Gold Star families. The offset, which has been around since 1972, is sometimes referred to as the Widow’s Tax.

There is a way around the offset, however. Surviving spouses may opt to transfer their Department of Defense benefit to their children. Practically, this makes sense since surviving spouses are paying expenses on behalf of their children anyway—children who had previously benefitted from a parent’s military salary. And tax-wise, it worked out, too. The so-called “kiddie tax” meant that benefits paid out to children would be paid at the same tax rate as the parent so that the tax consequences were the same.

But that was before the TCJA. Now, benefits payable to children are subject to the new kiddie tax rules. Those rules tax unearned income payable to children at the same rates as trusts and estates, and those can be as high as 37%. And while that sounds as if the rates are the same as those for individuals, they’re not. Tax rates for trusts and estates “climb the brackets” much faster than individuals, which means that since the rates are compressed, kids hit the top rate much sooner. For example, a married couple didn’t hit the top tax bracket of 37% until income reached $600,001 in 2018, but taxable income hit the top rate of 37% for trusts and estates at just $12,501 in 2018.

(You can read more about the kiddie tax under the TCJA here.)

This result meant that Gold Star families saw tax bills double (and in some cases triple) for the 2018 tax year. There appeared to be a simple fix: change the tax characterization of the benefits. And so, Senator Bill Cassidy (R-LA) introduced the Gold Star Family Tax Relief Act, which would treat survivor benefits as earned income instead of unearned income; earned income payable to children is taxed at a much lower rate. That bill, which was introduced on May 8, passed in the Senate on May 21, 2019.

Representative Elaine Luria (D-VA) also introduced a bill, the Gold Star Family Tax Relief Act, in the House on May 2, 2019. H.R. 2481 had 155 cosponsors.

Great, right? That’s the way this is supposed to work. The House and the Senate pass similar bills, they hammer out their differences and the bill moves to the President for signature.

Only, that’s not the way it happened. The House is supposed to take the lead on tax and revenue-related legislation, so if Luria’s bill had been identical to Cassidy’s bill, no harm, no foul. But Luria’s bill wasn’t identical. It was tied to a retirement bill which would, among other things, make it easier for small businesses to offer retirement plans, allow long-term and part-time workers to participate in 401(k) plans and eliminate the age cap for IRA contributions. The bill also included the Gold Star tax fix. The revised bill, H.R.1994, Setting Every Community Up for Retirement Enhancement Act of 2019, or SECURE Act, was championed by both parties with the ranking member of the Ways and Means Committee Representative Kevin Brady (R-TX) declaring, “It will greatly benefit our workers. It deserves strong support.” The bill eventually passed in the House by a vote of 417-3 on May 23.

If a similar version of the SECURE Act bill had passed the Senate, it was that the President would sign it into law. It never got that far. In the original version of the SECURE Act bill, 529 plans would have been expanded to include homeschooling expenses. That bit was withdrawn before the final vote after pushback, including from the American Federation of Teachers (AFT) and the National Education Association (NEA)—a move we’ve seen before under the TCJA. But in the Senate, the withdrawal of the homeschooling provision drew opposition from Senator Ted Cruz (R-TX). Cruz, who does not oppose the Gold Star tax fix, balked at the revised bill. He made it clear to the Senate that he would not allow for unanimous consent and the bill has now stalled. The matter is expected to be brought up again when Congress reconvenes in a few days, but for now, there’s no tax fix for Gold Star families.

Separately, Senator Doug Jones (D-AL) introduced the Military Widow’s Tax Elimination Act, which would eliminate the offset provision altogether. There are 72 cosponsors of the bill, including Senator James Inhofe (R-OK), chair of the Armed Services Committee. The bill, which was introduced on February 28, 2019, remains in committee.

U.S. Senate Finance Committee Chair Chuck Grassley (R-IA) and Senator Ron Wyden (D-OR) have introduced legislation aimed at improving experiences for taxpayers. The bill, referred to as the Taxpayer First Act of 2019, is intended to modernize the Internal Revenue Service (IRS) and strengthen taxpayer protections.

Here’s a quick peek at some of the provisions in the bill:

  • A new IRS Independent Office of Appeals. Under the proposed legislation, an Independent Office of Appeals would generally be available for all taxpayers as part of the administrative review process. Additionally, the bill would allow taxpayers access to “the case against them,” meaning that the IRS would be required to provide certain individual and business taxpayers with their case files if requested before any dispute resolution process begins (that’s not currently the case).
  • Improvements in IRS customer service. The bill would require the IRS to develop and submit “a comprehensive customer service strategy” to Congress. The strategy must also establish metrics and benchmarks for measuring success (something that the NTA has been passionate about).
  • Guarantees for FreeFile, Volunteer Income Tax Assistance (VITA) and other assistance programs. Currently, free tax help and free filing options are available for certain taxpayers including low-income populations, persons with disabilities, taxpayers with limited English proficiency, and other underserved communities. The proposal would provide resources to ensure that these programs continue and would permanently authorize the VITA matching grant program.
  • Seizure modifications. Over the past few years, the IRS has made news with seizures related to structuring. Structuring occurs when large transactions are broken into smaller ones to avoid bank reporting requirements which kick in at $10,000. If you do that with the intent to evade, it’s illegal and the IRS can seize certain assets. Amid concerns about abuse and misunderstandings, the proposal would require that the IRS show probable cause that the structuring was linked to an illegal source or connected to other criminal activity. The new law would also provide new administrative procedures, including a post-seizure hearing within 30 days of the seizure.
  • Clarification of equitable relief from joint liability. Typically, married couples who file tax returns jointly are both responsible for the total tax due on the return. Some exceptions apply, including innocent spouse relief (you can read more here). The provision clarifies that the Tax Court has jurisdiction to redetermine equitable claims for relief, meaning that each taxpayer would be responsible for their fair share. It would also make clear that the standard of review shall be de novo (that means “a fresh look”—remember that tax lawyers love Latin) so that a review will be based on the record as well as any newly discovered or previously unavailable evidence.
  • Modification of procedures for issuance of a third-party summons. Remember the Coinbase/Bitcoin case? The key feature in that case was the issuance of a John Doe summons, which is one that does not specifically identify the person in the summons (more on the Coinbase case here). Currently, the IRS can issue a John Doe summons as part of an investigation of a specific, unidentified person or group or class of persons whose identity is not ascertainable. This provision seeks to clarify the IRS’ authority to issue John Doe summonses by emphasizing that the IRS must narrowly tailor such a summons—in other words, no fishing expeditions.
  • New threshold for private debt collections. Rather than put an end to a program that many, including the National Taxpayer Advocate (NTA), consider a terrible idea—ferreting out debt collection to private companies—Congress wants to change the rules. After reports of abuse, Congress took a second look, noting that IRS does not have a filter in place to prevent low-income individuals from being referred for collection. This, even though the NTA reported that a disproportionate number of taxpayers on private debt collector lists are poor: 80% are taxpayers below 250% of the federal poverty level and one-third of taxpayers turned over for collection have income below $20,000. The new law creates a specific low-income exemption to prevent such referrals to private collection agencies.
  • Reform of notice of contact of third parties. During an audit, the IRS is required to notify a taxpayer before initiating third-party contacts. This provision requires that the IRS provide notice to taxpayers at least 45 days before contacting third parties, including friends, neighbors, and clients.
  • Cybersecurity and identity theft protection. With a nod to the seriousness of identity theft, the new law proposes several changes, including expanding the Identity Protection Personal Identification Number (IP PIN) program and establishing a single point of contact within the IRS for any taxpayer who is a victim of identity theft.
  • Modernization. The bulk of the new law focuses on bringing the IRS into the 21st century, including technology improvements. Chief among them, establishing secure online accounts for taxpayers and allowing the IRS to directly accept credit and debit card payments without the need to go through a third-party processor.
  • Changes to the Office of the National Taxpayer Advocate. The National Taxpayer Advocate (NTA) reports directly to the IRS Commissioner and also submits an annual report to Congress (you can read more about this year’s report here). This provision would require a response from the IRS Commissioner within a specific amount of time and would limit the number of “most serious problems” included in the NTA Annual Report to Congress to ten.
  • Whistleblower reforms. This provision would allow the IRS to exchange information with whistleblowers where doing so would be helpful to an investigation. It also requires the IRS to notify whistleblowers of the status of their claims and would prohibit whistleblowers from disclosing information they receive from the IRS.
  • Electronic filing of returns. Currently, the IRS requires tax professionals who are filing more than 250 returns for individuals to file them electronically. This provision eventually would lower that threshold to ten and would be phased in. The magic number for electronically filing returns would drop to 100 for partnerships. An exception would exist for tax preparers located in geographic areas with limited or no internet access.
  • Notice required before revocation of tax-exempt status for failure to file a return. Under the Pension Protection Act of 2006, most tax-exempt organizations are required to file an annual information return or notice with the IRS regardless of how much (or little) income the organization receives. Failure to do so for three consecutive years results in an automatic loss of tax-exempt status (more on that here). This provision requires the IRS to notify an organization after the organization’s second consecutive failure to file to give the organization time to file an information return and prevent their tax-exempt status from being revoked.
  • Increase in penalty for failure to file. The provision would increase penalties for failure to file tax returns by about $100.
  • Hold times. In what I view as the most controversial of the proposed changes, the provision instructs the IRS to provide the following information over the telephone, while taxpayers are on hold: information about common tax scams, direction to the taxpayer on where and how to report such activity, and tips on how to protect against identity theft and tax scams. That’s right. As I read it, that means no more hold music. Whatever will tax professionals complain about now?

If much of this sounds familiar, it is: A similar bill was introduced (and failed) last year (you can read about it here). They’re trying again, with some key additions and changes.

“There’s no federal agency Americans interact with more than the IRS, and it’s critical that it be reformed and modernized to better serve taxpayers,” Wyden said. “Our bill would strengthen tax-preparation services for low-income Americans, improve agency technology and better protect taxpayers’ personal data. This legislation has strong bipartisan support, and I’m hopeful it will be passed without delay.”

The bill has been discussed in the House Ways and Means Committee, as well as the Senate Finance Committee. The House Ways and Means Committee is expected to vote on the bill next week.