Abstract: The need for a different economic agenda is already clear; what may be less obvious is how soon the political opportunity to enact one could arrive. This paper outlines a tax-reconciliation agenda built around four areas:
Health care: lower premiums through subsidized reinsurance, improve portability, and make public and private coverage work together more efficiently.
Student debt: provide greater help early in repayment while simplifying and improving the long-term repayment system.
Capital gains: make realization less punitive while making permanent avoidance harder.
Retirement: broaden access, portability, and effective saving incentives, particularly for ordinary workers.
These proposals illustrate how a future governing coalition could pursue structural economic reform rather than another temporary collection of tax cuts, subsidies, and expiring provisions.
Preamble: The Constitution does not expressly require the Speaker of the House to be a member of the House. That creates an intriguing constitutional thought experiment: what would I do if a closely divided House, unable to organize around a Democrat or a Republican, somehow decided that a former Treasury economist writing policy papers from Denver was the answer?
It is not quite as impossible as it sounds. In a narrowly divided House, a bloc of perhaps 10, 20, or 40 members unwilling to support either party’s leadership could become decisive. A centrist coalition might conceivably find it easier to agree on an outside Speaker than one inside the chamber.
This is a governing thought experiment, not a candidacy announcement. My wife nevertheless thinks she has devised the more effective campaign slogan: rather than my asking people to buy $1 million worth of my books so I can run for Speaker, she proposes that unless they buy $1 million worth of books, I will run.
But the policy exercise is serious.
The memorandum below asks what a new Speaker could realistically enact through budget reconciliation—the principal route for major fiscal legislation that cannot command 60 votes in the Senate. It begins with four areas in which I have already developed substantial proposals: health care, student debt, capital gains, and retirement policy. Additional work should eventually address the recurring federal fiscal cliffs, Social Security reform, and energy and environmental policy.
This memorandum and 95 percent of the material on this site are free. One recent exception behind the paywall is this assessment of the 2026 race for control of the House of Representatives.
Readers who want more detail on these proposals and who want to support my policy work can purchase the detailed papers on Kindle, but there is no pressure to do so; there is already plenty to read and think about here on www.economicmemos.com.
Memorandum from the Speaker of the House
From: Speaker David Bernstein
To: Appropriate House Committee Chairs
Subject: Development of a Comprehensive Tax Reconciliation Bill
As the newly elected Speaker of the House, I am directing the relevant committee chairs to begin work immediately on a single tax reconciliation bill built around the health care, student debt, capital gains, and retirement reforms developed in the policy papers summarized below, together with related legislative extensions of those ideas.
The objective is not simply to assemble another collection of tax cuts, spending increases, temporary subsidies, and expiring provisions. It is to construct a durable package of structural reforms that improves economic incentives, strengthens household financial security, uses federal resources more efficiently, simplifies unnecessarily complicated programs, and places federal policy on a more sustainable fiscal path.
These four titles should be treated as the first stage of a broader governing agenda. Separate policy work should proceed on the recurring federal fiscal cliffs, Social Security reform, and energy and environmental policy.
The provisions below are legislative starting points, with committee staff expected to preserve their policy objectives while refining the details through scoring, analysis, and negotiation.
I. Health Care
My paper, A Third-Party Tax Reconciliation Approach to Health Care, starts from the premise that health care reform need not require either dismantling the existing system or simply pouring more federal money into it. The better approach is to change the structure of the individual market, employer assistance, public coverage, and health savings so that the pieces work together more efficiently.
The central objectives are to reduce the cost of catastrophic claims through federal reinsurance, make individually owned insurance genuinely portable, use Medicaid and CHIP where public coverage is more economical, redesign tax subsidies around that structure, and give households better tools for meeting out-of-pocket expenses.
1. Federal catastrophic health reinsurance. Establish a permanent federal program assuming a specified share of exceptionally high individual medical claims, thereby reducing underlying premiums and federal premium-tax-credit expenditures.
2. Portable individual health insurance. Allow workers to retain individually owned qualified coverage as they move among employers rather than requiring insurance to remain tied to a particular job.
3. Tax-free employer contributions to individual coverage. Give employer contributions toward qualified individual or Marketplace coverage tax treatment comparable to contributions for conventional employer-sponsored insurance.
4. Revised large-employer health contribution requirement. Require large employers to make a minimum contribution toward employees’ qualified health coverage while permitting workers to own and select their policies.
5. Expanded CHIP coverage. Expand CHIP as a pediatric coverage option and consider using it as a reinsurance backstop for high-cost pediatric claims, with income-related premiums or buy-ins for higher-income families.
6. Medicaid expansion to 200 percent of the federal poverty level. Establish a nationally available Medicaid option through 200 percent of FPL with an adequate permanent federal match where public coverage is more economical than heavily subsidized private insurance.
7. Redesign the Premium Tax Credit. Coordinate Marketplace subsidies with Medicaid, CHIP, and federal reinsurance, concentrating assistance where it remains necessary and reducing sharp subsidy cliffs.
8. Individual-market health-insurance deduction. Provide an above-the-line deduction for qualified premiums paid by people who do not receive equivalent tax-free employer assistance, particularly self-employed and gig workers.
9. End FSA “use-it-or-lose-it.” Permit unused Flexible Spending Account balances to remain available for future health expenses or transfer into an eligible retirement account rather than being forfeited.
10. Modernize HSA and FSA rules. Expand the ability to use health-savings vehicles with portable individual-market insurance and eliminate artificial distinctions based on where coverage is obtained.
11. Health-savings assistance for lower- and middle-income households. Develop a refundable credit or direct federal contribution to help households accumulate funds for deductibles, copayments, and other medical expenses.
II. Student Debt
A Third-Party Tax Reconciliation Approach to Student Debt rejects the choice between indiscriminate loan forgiveness and a repayment system that can leave borrowers trapped for decades in complicated programs.
The objective should be to provide the greatest assistance when borrowers are young and financially constrained, preserve conventional repayment for borrowers able to repay their debts, repair structural defects in income-driven repayment, and create a much simpler way to resolve balances that remain after many years.
12. Introductory zero-interest period. Provide a temporary zero-percent interest period during the first years of federal student-loan repayment so early payments reduce principal when borrowers are generally most financially constrained.
13. Repeal the student-loan-interest deduction. Replace or phase out the existing deduction and use the savings to help finance more effective front-loaded interest relief.
14. Make conventional repayment the presumptive starting point. Encourage borrowers able to make conventional amortizing payments to reduce principal early while preserving immediate access to income-driven repayment for borrowers facing genuine financial difficulty.
15. Private-refinancing incentive. After a sustained period of successful repayment, provide a modest one-time principal reduction for borrowers refinancing qualified federal loans into private credit, thereby reducing long-term federal exposure.
16. Eliminate the RAP marriage penalty. Redesign Repayment Assistance Plan rules so marriage does not arbitrarily increase obligations for similarly situated borrowers.
17. Use marginal RAP payment brackets. Apply higher repayment percentages only to income falling within the relevant bracket rather than applying the higher percentage to all applicable income once a threshold is crossed.
18. Index RAP parameters. Automatically index income thresholds, protected amounts, dependent allowances, and related parameters so inflation does not quietly increase real repayment burdens.
19. Stabilize federal student-loan interest rates. Replace unnecessary annual interest-rate volatility with a predictable federal rate that appropriately balancing borrower costs and taxpayer protection.
20. Twenty-year Treasury resolution account. Transfer qualifying balances remaining after twenty years into a simplified zero- or very-low-interest Treasury repayment account rather than leaving older borrowers indefinitely inside complicated Education Department programs.
21. Improve student-loan treatment in Chapter 13. Develop rules ensuring that federal student debt receives an appropriate share of available bankruptcy-plan payments while maintaining necessary protection for financially distressed borrowers.
III. Capital Gains and Inherited Wealth
Tax Reconciliation and Capital Gains Taxes begins with a simple principle: lower rates should be paired with a broader, more coherent tax base.
Current law can discourage economically sensible sales by imposing substantial tax costs on realization, particularly for long-held real estate and other appreciated assets. The proposal therefore seeks to reduce tax-induced lock-in—including housing lock-in—through lower positive capital-gains rates and more consistent treatment of real property, while broadening the base by limiting open-ended deferral, reforming basis rules at death, and rationalizing the taxation of inherited wealth.
22. Reduce positive long-term capital-gains rates. Retain the zero-percent bracket while using 12.5 percent and 17.5 percent as starting points for replacing the existing 15-percent and 20-percent rates.
23. Increase and index the Net Investment Income Tax. Increase the Net Investment Income Tax to 6.0 percent but index the applicable income threshold for inflation.
24. Apply a unified capital-gains structure to real property. Subject taxable real-estate gains to the revised rate structure while reducing the principal-residence protections and tax-induced housing lock-in.
25. Phase out Section 1031 exchanges. End new open-ended like-kind-exchange deferrals while providing an orderly transition for existing investments.
26. Replace full step-up in basis with a partial adjustment. Preserve only part of unrealized appreciation at death rather than eliminating the entire accrued gain, while postponing taxation until the heir sells the asset.
27. Preserve basis on lifetime gifts. Ensure that changes to transfer taxes cannot be used to eliminate embedded capital gains through lifetime transfers.
28. Simplify inherited traditional retirement accounts. Require most nonspouse beneficiaries to distribute the account’s value at the time of inheritance in equal installments over 10 years, with each distribution taxed under the normal rules for traditional retirement accounts. Investment gains may remain in the account during the 10-year period; at the end of the period, any remaining balance would transfer in kind to a taxable account, with normal income tax due on the transfer but no penalty or forced sale.
29. Five-year transition for inherited Roth accounts. Permit inherited Roth assets to remain tax-free for a limited period before automatically converting remaining assets into ordinary taxable investments without requiring a forced sale.
30. Mega-Roth excise tax. Impose a modest tax at death on Roth balances above a very high, indexed threshold, leaving ordinary retirement savers entirely unaffected. Unlike earlier proposals prompted by Peter Thiel’s multibillion-dollar Roth IRA, this approach would not force lifetime distributions or cap successful investment growth; it would simply recapture part of the tax benefit when an extraordinary retirement account becomes inherited wealth.
31. Replace estate, gift, and generation-skipping taxes with the new inherited-basis system. Coordinate repeal of the existing transfer-tax regime with strong basis reporting, carryover-basis rules for gifts, valuation requirements, and anti-abuse protections.
32. Prepare a companion capital-gains contribution for Social Security. Develop separately a capped contribution on a limited amount of capital gains accompanied by an actuarially appropriate Social Security benefit credit. Because direct Social Security changes cannot be enacted through reconciliation, prepare this provision as companion legislation.
IV. Retirement and Household Saving
Tax Reconciliation and Retirement Policy seeks to move retirement policy away from a system whose largest tax incentives frequently flow to households already able to save substantial amounts.
The goal should instead be universal access, portability, stronger protection of retirement assets, better treatment of spouses and caregivers, more effective incentives for lower-income workers, and simpler movement of savings from job to job.
33. Universal Auto-IRA. Establish a nationwide portable IRA default for workers without employer-sponsored plans, using automatic payroll enrollment with an employee opt-out.
34. IRA–401(k) parity. Increase IRA contribution capacity and permit employers, particularly small employers, to make matching contributions directly into employees’ individually owned IRAs.
35. Automatic rollover of stranded retirement accounts. Move small or dormant 401(k) balances automatically into low-cost portable IRAs after job changes unless workers affirmatively select another destination.
36. Automatic spousal and caregiver retirement saving. Modernize spousal IRA rules and create simple payroll or tax-return mechanisms allowing retirement contributions to flow automatically to a non-working spouse or caregiver.
37. Protect core retirement savings while permitting emergency access. Replace excessive reliance on early-withdrawal penalties with rules that protect a core portion of retirement assets from pre-retirement depletion while allowing reasonable access to a separate emergency-savings component in cases of genuine financial need.
38. Direct savings incentives toward lower-income workers. Rely more heavily on refundable matches or direct federal contributions whose value does not disappear when a worker owes little or no federal income tax.
39. Add a retirement-saving incentive for workers with tax-exempt tips and overtime. Allow workers who contribute qualifying tip or overtime income to a retirement account to receive a modest additional tax benefit—for example, a higher ceiling on the amount of tip or overtime income eligible for tax-free treatment. This would reward retirement saving without giving workers both tax-free income and a federal matching contribution on the same dollars. The Current no tax on tips can discourage retirement savings because a low or zero marginal tax rate reduces the incentive to contribute to a retirement account.
40. Safer and lower-cost default retirement investments. Strengthen standards governing automatically selected retirement investments, including safeguards concerning fees, illiquidity, private credit, and inflation risk. Specifically, allow the purchase of Series I bonds inside retirement accounts.
V. Instructions to Committee Staff
These 40 provisions reflect my best judgment about the direction of reform. I do not assume that every mechanism proposed here is the best possible one. Staff should recommend better approaches where they can achieve the same objectives more effectively, simply, or economically.
Committee staff should develop appropriate legislative language and alternatives; obtain conventional budget estimates and, where useful, dynamic analysis; identify Byrd Rule problems; recommend transition and grandfather rules; evaluate distributional effects; and look for opportunities to simplify administration or reduce federal costs.
The committees should also examine how the proposals interact across household saving, federal finances, and future Social Security reform. Stronger personal balance sheets can reduce financial vulnerability and dependence on public programs, while better retirement saving and household liquidity may make otherwise difficult Social Security reforms more politically and economically feasible. The bill should therefore be evaluated not only provision by provision, but also for how its combined effects strengthen both household finances and the federal budget.
Finally, the bill should acknowledge fiscal trade-offs openly. Tax reductions do not automatically pay for themselves, and new spending does not automatically generate offsetting savings. The objective is an integrated economic reform bill that improves incentives and household economic security while remaining attentive to long-term fiscal sustainability.
The Four Policy Papers
Health Care — A Third-Party Tax Reconciliation Approach to Health Care
Read the health-care paper
Student Debt — A Third-Party Tax Reconciliation Approach to Student Debt
Read the student-debt paper
Capital Gains — Tax Reconciliation and Capital Gains Taxes
Read the capital-gains paper
Retirement — Tax Reconciliation and Retirement Policy
Read the retirement-policy paper