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Yesterday, congressional Republicans unveiled the Tax Cuts and Jobs Act. The $1.51 trillion plan is intended to be the first major rewrite of the tax code in three decades. Republicans hope to get this to the President before Christmas.
House Ways and Means chair Kevin Brady thinks it should pass the House by Thanksgiving and it’s been designed to pass the Senate using the reconciliation process, which only requires 51 votes. And we’ve been assured that it has the “full support” of the President. (You know, until he publicly undercuts them.)
But enough throat clearing, let’s get to the details!
- The plan has four tax brackets (down from seven): 12, 25, and 35 percent and keeps the 39.6 rate for top income earners.
- Folks earning up to $24,000 will pay no income tax.
- For married couples earning up to $90,000, the rate is 12 percent.
- People making up to $260,000 will pay 25 percent.
- For those making up to $1 million, the rate is 35 percent.
- The top rate of 39.6 percent remains for those making above $1 million.
- All those numbers are halved for unmarried people and those filing separately, save for the 35 percent bracket where the threshold is $200,000.
- The standard deduction will be nearly doubled, up to $24,000 for married couples and $12,000 for individuals.
- The child tax credit gets bumped up to $1,600 plus a $300 credit for each parent and non-child dependent.
- There are several tax credits that get repealed as well as most itemized deductions, including for adoption, alimony, medical expenses, moving expenses, tax preparation, and local government bonds for sports stadiums.
- The $7,500 electric-vehicle tax credit is gone.
- The mortgage interest deduction changes. Current homeowners still have the deduction, but purchases in the future are capped at $500,000. (That’s expected to exclude about 7 million homes.)
- The Alternative Minimum Tax (AMT) is repealed.
- The Johnson Amendment, which prevents tax-exempt churches from endorsing political candidates, gets changed.
- The Estate Tax exemption is doubled to $11 million and gets phased out in six years.
- The state and local tax deduction stays, but it limits the property tax cap to $10,000.
- The corporate tax rate is cut from 35 percent to 20 percent. This cut is designed to be permanent.
- There will be a repatriation tax on overseas assets as high as 12 percent. It may also include a mandatory repatriation of overseas assets.
- There will be a global minimum tax of 10 percent on income earned by American companies anywhere in the world. This is designed to keep companies from shifting profits overseas.
- The tax rate for “pass-through” businesses is lowered to 25 percent.
- There’s a new 1.4 percent tax for private university endowments with assets of more than $100,000 per student on their net investment income.
And there you have it. The above is a simplification of the 429-page bill, but those are the highlights. There’s lots of good stuff in there and lots of stuff for people to complain about. (The National Association of Realtors and the National Association of Homebuilders are already saying it’ll cause a housing market recession.) And stocks fluctuated yesterday based on perceived winners and losers.
Republicans were quick to remind everyone that this isn’t the final version. As Rep. Carlos Curbelo put it, “This is just the kickoff to this tax reform exercise.”
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