What is it?

(Updated 12/16/17): 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. The bill was amended from its original form by the Senate, which replaced the House-passed version in its entirety and made further amendments to it during floor debate

Personal Tax Rates

The current seven tax bracket tax code (ranging from 10 percent to 39.6 percent) would be revised, with all but two of those brackets being reduced slightly. The cuts would be temporary under the Senate plan, sunseting after 10 years unless they’re extended by Congress.

• The 10% bracket would remain unchanged.

• The 15% bracket would be cut to 12%.

• The 25% bracket would be cut to 22.5%.

• The 28% bracket would be cut.to 25%.

• The 33% bracket would be cut to 32.5%.

• The 35% bracket would remain unchanged.

• The 39.6% bracket would be cut to 38.5%.

Personal Tax Credits and Deductions

Several tax credits and deductions would be expanded, preserved, or created including:

• The standard deduction would be doubled to $12,000 for individuals and $24,000 for married couples filing jointly.

• The individual mandate to buy health insurance imposed by Obamacare would be repealed.

• A new Family Credit would be created that includes an expansion of the Child Tax Credit from $1,000 to $1,650 to help parents with the cost of raising children. It would also include a credit of $500 for each 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 state and local property tax deduction would remain in effect with a $10,000 cap.

• The deduction for charitable contributions would remain in effect.

• The adoption tax credit would remain in effect.

• The electric vehicle 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• The mortgage interest deduction would be preserved as is, while the home equity deduction would be repealed.

• The Alternative Minimum Tax (AMT), which taxpayers must pay if their AMT tax liability exceeds their regular income tax liability, would be remain in effect but the exemption amounts would be increased, while its thresholds would be phased out.

• The state and local tax deduction for income and sales taxes would be repealed.

• The deduction for medical expenses would be phased out after two years.

• The personal exemption would be eliminated.

• The $3,000 tax deduction for living expenses like meals and lodging incurred by members of Congress while away from their home would be repealed. (This provision was also introduced as a standalone bill, the SQUEAL Act.)

Other Personal Tax Provisions

• The exclusion threshold for the estate tax (aka the death tax) 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.

• The $3,000 tax deduction for living expenses like meals and lodging incurred by members of Congress while away from their home would be repealed. (This provision was also introduced as a standalone bill, the SQUEAL Act.)

Corporate Tax Provisions

• The corporate tax rate would be lowered from 35 percent to 20 percent starting in 2019.

• Pass-through businesses would have a 23 percent deduction for non-wage income under certain circumstances.

• 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 of 14 percent for cash profits and 7 percent for non-cash assets.

• 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.

Other Provisions

• This bill would open a portion of the non-wilderness coastal plain of Alaska’s Arctic National Wildlife Refuge to energy development, estimated to raise $1.1 billion in tax revenue over the 10-year budget window.

Cost

The CBO estimates that enacting this legislation would increase budget deficits by about $1.44 trillion over the 2018-2027 period (not including the effects of enacting the legislation on the economy).

More Information

In-Depth: Senate Finance Committee Chairman Orrin Hatch (R-UT) introduced his chamber’s version of the GOP tax reform plan to provide “fiscally responsible tax relief for the middle-class, bring down tax rates across the board, and enhance America’s competitiveness”. Hatch added:

“For years, Congress has examined, debated, and vetted policies designed to remake the tax code in a way that will keep pace with the 21st century economy and better meet the needs of the American people. Helping Americans keep more of their hard-earned dollars, find new jobs and increase their take-home pay has always been at the heart of this effort. And now, with a willing president, we have an opportunity to turn this effort into a reality.”

The Finance Committee’s ranking member, Sen. Ron Wyden (D-OR), expressed opposition to this bill saying:

“More and more Americans will face a tax hike with every passing year under this bill. Stealthy tax tricks will force people into higher tax brackets over time, heaping a heavier burden on their shoulders. Millions of working Americans are going to lose their health care and the tax credits that make insurance affordable. Put it all together, it’s immense amounts of money being taken from people who already walk an economic tightrope, and it’s being handed to corporations that ship jobs overseas.”

This legislation passed the Senate Finance Committee on a party-line 14-12 vote, and the Senate Budget Committee on a party-line 12-11 vote. The Senate passed this bill December 1, 2017 on a 51-49 vote.

Media:

• Senate Finance Committee Chairman’s Press Release
• Senate Finance Committee Ranking Member’s Press Release
• CBO Cost Estimate
• White House Statement of Administration Policy

Summary by Eric Revell (Photo Credit: Xesai / iStock)