Category: 115th Congress

In an effort to set the agenda for tax reform later in the 115th Congress, the New Foundation for American Greatness Budget for FY 2018 does contain a number of tax provisions in various sections. The White House Budget provides few specific details about the Administration’s plans for tax reform, noting that details “will be released at a later date.” No Green Book has been issued.

Core principles:

• Lower individual income tax rates
• End the Alternative Minimum Tax
• Expand the standard deduction
• Protect charitable giving

Specific provisions within the FY 2018 Budget include:

• Exclusion of scholarship and fellowship income — Scholarships and fellowships are excluded from taxable income to the extent they pay for tuition and course-related expenses of the grantee. Similarly, tuition reductions for employees of educational institutions and their families are not included in taxable income.

• Tax credits and deductions for post-secondary education expenses — The budget would not allow credits for particular activities, investments, or industries.

• Deductibility of student loan interest — The budget accepts current law’s general rule limiting taxpayers’ ability to deduct non-business interest expenses.

• Qualified tuition programs — The budget generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.

• Exclusion of interest on student-loan bonds —The budget generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.

• Exclusion of interest on savings bonds redeemed to finance educational expenses —The baseline tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.

• Discharge of student loan indebtedness — Under the baseline tax system, all compensation, including dedicated payments and in-kind benefits, would be included in taxable income.

• Education Individual Retirement Accounts (IRA) —The baseline tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.

• Parental personal exemption for students age 19 or over —Under the baseline tax system, a personal exemption would be allowed for the taxpayer, as well as for the taxpayer’s spouse and dependents who do not claim a personal exemption on their own tax returns. To be considered a dependent, a child would have to be under age 19.

• Exclusion of employer-provided educational assistance —Under the baseline tax system, all compensation, including dedicated payments and in-kind benefits, would be included in taxable income because they represent accretions to wealth that do not materially differ from cash wages.

• Exclusion of interest on bonds for private nonprofit educational facilities —The baseline tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.

• Expensing of research and experimentation expenditures (normal tax method) —The baseline tax system would allow a deduction for the cost of producing income. It would require taxpayers to capitalize the costs associated with investments over time to better match the streams of income and associated costs. Research and experimentation (R&E) projects can be viewed as investments because, if successful, their benefits accrue for several years. It is often difficult, however, to identify whether a specific R&E project is successful and, if successful, what its expected life will be. Because of this ambiguity, the reference law baseline tax system would allow expensing of R&E expenditures.

• Credit for increasing research activities —The baseline tax system would uniformly tax all returns to investments and not allow credits for particular activities, investments, or industries.

• Exclusion of employee meals and lodging —Under the baseline tax system, all compensation, including dedicated payments and in-kind benefits, would be included in taxable income.