Civic Register
| 11.29.17

Tax Cuts and Jobs Act (House Passed Version)

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What is it?

This bill — known as the Tax Cuts and Jobs Act — would overhaul the tax code with the goal of reducing the tax burden on individuals and businesses. It would reduce the number of personal income tax brackets, lower tax rates, eliminate deductions, and also reduce the corporate tax rate.

Personal Tax Rates The current seven tax bracket tax code (ranging from 10 percent to 39.6 percent) would be consolidated into five brackets, with the lowest starting at 0 percent to reflect the increased standard deduction that’s $12,000 for individuals and $24,000 for married couples filing jointly:

  • The 0 percent bracket would apply to income up to $12,000 for individuals and $24,000 for married couples filing joint returns.

  • The 12 percent bracket would apply to income from $12,000 up to $45,000 for individuals, and from $24,000 to $90,000 for married couples filing joint returns.

  • The 25 percent bracket would begin at $45,000 for individuals and $90,000 for married couples filing joint returns.

  • The 35 percent bracket would apply to individuals at $200,000 of incomes and $260,000 for married couples filing jointly.

  • The 39.6 percent bracket would apply to income over $500,000 for individuals and over $1 million for married couples filing joint returns.

Personal Tax Credits and Deductions Several tax credits and deductions would be expanded, preserved, or created including:

  • A new Family Credit would be created that includes an expansion of the Child Tax Credit from $1,000 to $1,600 to help parents with the cost of raising children. It would also include a credit of $300 for each parent and non-child dependent to help families with everyday expenses.

  • The Child and Dependent Care Tax Credit would be preserved to help families care for children and older dependents who need additional support.

  • The Earned Income Tax Credit would be preserved to provide low-income, working Americans with additional tax relief.

  • The deduction for charitable contributions would remain in effect.

  • The adoption tax credit would remain in effect.

Several tax tax credits and deductions would be modified or eliminated including:

  • The mortgage interest deduction would be preserved for existing mortgages and would remain available for newly purchased homes up to $500,000.

  • The state and local income tax deduction would be eliminated, while taxpayers could continue to deduct state and local property taxes up to $10,000.

  • The deduction for medical expenses would be eliminated.

  • The student loan interest deduction would be eliminated.

Other Personal Tax Provisions

  • The Alternative Minimum Tax (AMT), which taxpayers must pay if their AMT tax liability exceeds their regular income tax liability, would be repealed.

  • The estate tax (aka the death tax) would be repealed after six years, and in the meantime the exclusion threshold would be increased to $10 million.

  • The gift tax tax rate would be lowered from 40 percent to 30 percent, with the basic exclusion of $10 million and the annual exclusion of $14,000 remaining at their current levels, indexed for inflation.

  • No changes would be made to the tax treatment of 401(k) retirement accounts or Individual Retirement Accounts (IRAs).

  • Individuals would be able to rollover funds in a 529 savings plan to ABLE accounts, which are tax-advantaged for individuals with disabilities and their families.

Corporate Tax Provisions

  • The corporate tax rate would be lowered from 35 percent to 20 percent starting in 2018.

  • Pass-through businesses would be subject to a flat tax rate of 25 percent on net income from business activities. In some cases, depending on a formula, that rate would be 30 percent. Currently such businesses are taxed based on the owner's personal income tax bracket.

  • Businesses earning less than $75,000 in income would be taxed at a 9 percent rate.

  • Businesses would be allowed to immediately write off the full cost of new equipment to improve operations and enhance the skills of their workers. They would also be able to continue writing off interest on loans.

  • The Research & Development Tax Credit would be preserved, as would the low-income housing tax credit that encourages investment in affordable housing.

  • The international tax system would be modernized so that American companies don’t face double taxation, and earnings could be repatriated at a reduced tax rate.

  • Incentives that reward companies for shifting jobs, profits, and manufacturing plants overseas would be eliminated.

  • Tax-exempt organizations like churches, charities, and foundations would have to comply with additional accountability rules.

Cost

The CBO estimates that this legislation would increase deficits by $1.4 trillion over the 2018-2027 period (not including the effects of enacting the legislation on the economy).

More Information

In-Depth: House Ways and Means Committee Chairman Kevin Brady (R-TX) introduced this bill to “deliver tax reform that creates more jobs, fairer taxes, and bigger paychecks,” adding:

“Our legislation is focused entirely on growing our economy, bringing jobs back to our local communities, increasing paychecks for our workers, and making sure Americans are able to keep more of the money they earn… For families, we’re lowering rates, eliminating costly deductions that drive up taxes, and significantly increasing the standard deduction to protect more of each paycheck from taxes… By delivering tax relief to businesses of all sizes, the Tax Cuts and Jobs Act makes it easier for entrepreneurs to achieve the American Dream -- to start a business and create jobs in our local communities, and it entices employers to bring their headquarters and jobs back home.”

House Democrats have largely expressed opposition to this bill, calling it “disastrous for middle class families.” The Ways and Means Committee’s ranking member, Rep. Charles Neal (D-MA), added:

“The legislation that advanced today will hurt Americans at every stage of their lives. Students trying to pay back the loans they took out to afford college; teachers buying classroom supplies with money from their own pockets; veterans looking to earn a good living after putting their lives on the line for our nation; working folks struggling to save for a secure retirement; and aging Americans suffering from chronic illnesses will all be hit with new expenses and face higher barriers under the Republicans’ tax bill. As Democrats repeatedly pointed out this week, corporations will keep many of the same benefits middle-class families are losing.”

This legislation passed the House Ways and Means Committee on a 24-16 party-line vote and has the support of 24 cosponsors in the House, all of whom are Republicans. The Trump administration released a policy statement expressing strong support for the bill, calling it "an important first step in achieving comprehensive tax reform that cuts taxes for hard-working families and puts the Nation's economy of a path of higher economic growth."

Media

Summary by Eric Revell

(Photo Credit: Xesai / iStock)