We finally have the details for how Republicans in the House intend to simplify the tax code, and cut taxes for the vast majority of Americans. The bill is called the Tax Cuts and Jobs Act, it’s 429 pages long, and I’ve been reading it for the past week or so. (I’m one of those folks who believes it’s important that Members of Congress actually READ legislation before voting on it.)
There was a preview of the plan released about five weeks ago, and I wrote my blog about it back then. But we now know more details, and I want you to have the most up-to-date information. You may want to go back and check out my earlier blog of October 4, 2017, which was titled “So How Will the New Republican Tax Plan Affect You?”
Okay, here we go. One of the main things we didn’t know five weeks back, was at what income levels the new tax brackets kicked in. Now we know. To keep it simple, I’m going to use as an example a married couple. For couples earning up to $24,000 per year, the tax rate is 0. Between $24,000 and $90,000 the tax rate is 12%. Between $90,000 and $260,000 the tax rate is 25%. Between $260,000 and $1 million, the tax rate is 35%. And over $1 million, the tax rate is 39.6%. Suffice it to say that these rates are significantly lower than most taxpayers are currently paying.
One way the plan dramatically reduces the complexity of the tax code, and pays for cutting taxes, is to eliminate most of the current deductions in the code. Two current deductions which will NOT be eliminated, are the mortgage interest deduction and the deduction for charitable contributions. There was considerable support for keeping these popular deductions, and they will remain.
Other highlights of the Republican tax plan. A new “family credit” of $1,600 per child and $300 each for parents and dependent adults will be allowed. The bill streamlines the complexity that currently exists in the tax code relative to saving for college tuition. And the bill rewards saving and investing for retirement.
The Alternative Minimum Tax (AMT) is eliminated altogether. This outdated provision in the existing tax code requires many taxpayers to figure their taxes not once, but twice, and then pay the higher of the two. In addition, the Death Tax, or Federal Inheritance Tax, is reduced significantly, and eliminated altogether after six years.
On the business side, the goal is to make American businesses – small, medium, and large – more competitive in the world marketplace, and create more jobs here in America. Small business taxes will be reduced to 25%, which will be the lowest tax rate on small businesses since before World War II. And business owners will also be allowed to fully deduct the purchase of new equipment the same year it’s purchased.
As for larger American businesses (corporations), they will see their taxes cut by 40% – down to 20%, thus making them more competitive on the world scene. (The United States currently has the highest corporate tax rate in the industrialized world.) In addition, the legislation will end the double taxation of American businesses (they’re currently taxed here in the U.S., and also in foreign countries in which they’re located.)
There’s a lot more in the Tax Cuts and Jobs Act, but it’s impossible to do an exhaustive analysis of such a complex piece of legislation in a few pages. If you’d like to dig a bit deeper into the bill, you can click here for a pretty good 30-page summary of the bill. Or you can see all 429 pages of the bill by clicking here.
So will the tax reform bill pass, and if so, when? The plan is for the House to vote on the bill by Thanksgiving, and the Senate by Christmas. That schedule may be pretty optimistic, but we’ll see. I’m far more concerned about the Senate’s ability to pass a bill, after their dismal failure in repealing Obamacare. I hope they prove me wrong.
It’s also possible that the bill will be changed, maybe substantially, in order to garner enough votes to pass in both houses. It’s already changed pretty significantly to get it to where we are now. As always, I welcome your input throughout the process. Let me know what you think.
