A Summary of the GOP Tax Reform Bill

 

On Friday, Republicans released the final version of their tax bill. It combines parts of both the House and Senate versions. Here are the details.

On the individual side:

  • We’re back up to seven tax brackets again, but the rates on each change slightly. They are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. (The current ones are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%, respectively.)
  • It eliminates the individual health insurance mandate which, as we all know, is actually a tax.
  • The much-discussed state and local tax deduction remains, but the deduction is capped at $10,000.
  • The cap on the mortgage interest deduction is lowered from $1 million to $750,000.
  • The AMT remains, but the income exemption is raised to $70,300 for singles and $109,400 for married couples.
  • The estate tax remains, but the exception is raised so only 0.2 percent of estates will get it.
  • The standard deduction is almost doubled. From $6,350 to $12,000 for single filers and from $12,700 to $24,000 for joint filers. This probably means fewer people will itemize their deductions.
  • The personal exemption is eliminated. You can currently claim a $4,050 personal exemption for yourself, your spouse, and your dependents. That is gone now.
  • The child tax credit is double to $2,000 and is now available to higher earners, up to $200,000 for single parents and $400,000 for married couples.
  • There is a temporary tax credit for non-child dependents. People can take a $500 credit for non-dependent children, ailing elderly adults, or adult children with disabilities.
  • There are other smaller tax breaks that were gone in earlier versions of the bill but are restored for the final version. For example, allowing teachers to deduct supplies they buy with their own money.
  • There is a change to the inflation adjustment to the tax code. The new measure is slower than the current measure, so the net effect of deductions and credits will be worth slightly less.

On the corporate side:

  • The corporate tax is cut from 35% to 21%.
  • The AMT for corporations is gone.
  • There is a change to how US multinationals are taxed. It goes from a worldwide to a territorial system, with extra rules to keep companies from gaming the system.
  • The pass-through rate is lowered on business. There is a 20% deduction with lots of caveats.

Overall:

The point of this bill was the corporate tax rate cut. The changes to individual taxation were included to make it more politically and fiscally palatable. The cost for these bills is calculated out to 10 years, so, to make the numbers “work” (to the extent they do), most of the individual provisions expire at the end of 2025.

Despite that, the Joint Committee on Taxation estimates the bill will increase the deficit by $1.46 trillion over a decade. And that number will be higher if Congress changes things so the individual tax cuts continue past 2015.

Also, it’s important to remember that this bill will not affect your 2017 taxes, so you have a whole year to learn all the changes, not just a few weeks.

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  1. I Walton Member
    I Walton
    @IWalton

    They should have just cut corporate taxes and left individual taxes for a later date when they could go about it intelligently which isn’t going to be easy.   We shouldn’t call these cuts costs.  The costs are the spending but it matters how we finance them.  Moreover, corporate profits are all savings until they are paid out in dividends some of which will also be savings.  Retained earnings are savings that finance investment.  That’s the goal, e.g. save so we can invest without borrowing savings abroad.  It is dumb to tax savings and work so any cuts to corporate profits taxes are a good thing as would be the elimination of the payroll tax.   Hopefully we’ll have another go at this in a few years, but we need to start educating folks on the hill so they have some sense of what they are doing.  Still this, because of the cuts in corporate profits tax, is a good thing.  What happens to individuals we’ll see when it goes into effect.  Eliminating individuals exemptions seems to me will harm people with large families unless they can qualify for child tax credits.  Please explain to me why raising the standard deduction but eliminating individual exemptions isn’t a dishonest way to raise taxes on the middle class who have kids.  If I’m right this must be changed.  Let me repeat we do not have to pay for revenues lost from cutting the corporate profits tax because corporate profits  are savings and that is what we need.

    • #1
  2. Stina Member
    Stina
    @CM

    So I know the major thing that helps with jobs in the business side. How do you see that new corporate tax cut helping with increase in jobs and business expansion?

    Does it make the US more palatable when compared to other developed countries’ corporate tax rate?

    In the next 10 years, do you see that this will help raise more people above their current threshold or have a negligible impact? Or do you think more is needed in regulation reform before we can actually see this tax relief as a boon? It is 14%, so I hope it is enough to spur on some economic activity in job growth and wages.

    • #2
  3. Z in MT Member
    Z in MT
    @ZinMT

    The Daily Shot: The cap on the mortgage interest deduction is lowered from $1 million to $750,000.

    Who in [expletive] the besides a Saudi Prince pays $750,000 a year in mortgage interest?

    • #3
  4. Valiuth Inactive
    Valiuth
    @Valiuth

    So all the individual stuff that would effect me is going to be gone in 10 years. Boy that doesn’t sound very fun. Luckily we know that  congress is supper competent and will easily act before that to not screw me over. No, stop laughing. I’m being serious.

    Why even bother with the temporary taxcuts? That seems insulting and it also doesn’t make it a tax reform. It makes it a gimmick. I guess I’ll take what I can get. The corporate realignment seems more worthy, but couldn’t they have done that without all the other hoopla? They should have started work on this sooner. This has somewhat the feel of a term paper written the night before it is do. It probably gets a passing grade, but hardly A material.

    For their sake I hope we hit 3% growth over the next year and beyond or this whole thing will seem like a joke. If we get even a mild recession (and frankly we might be due for one based on historical averages) Republicans will be killed by this.

    One question for the group as a whole. With “tax reform” done what will these guys do for a whole year? I don’t see them doing a normal budget. So what will they do?

    • #4
  5. ToryWarWriter Thatcher
    ToryWarWriter
    @ToryWarWriter

    Because its a reconciliation bill.  In order to get these made permament, you would need to get past 60 votes, just like the Bush Tax Cuts.

    • #5
  6. ToryWarWriter Thatcher
    ToryWarWriter
    @ToryWarWriter

    In Canada the Fed rate is 15 plus an average 11 provincial rate.

    So the US tax rate is on average now a point less.

     

    • #6
  7. Valiuth Inactive
    Valiuth
    @Valiuth

    ToryWarWriter (View Comment):
    Because its a reconciliation bill. In order to get these made permament, you would need to get past 60 votes, just like the Bush Tax Cuts.

    Ya I know. The whole use of reconciliation though is I think the worst part of all of this. It forces such a torturous process onto these subjects. It is really unhealthy in the long term, because you know in like 4 or 8 years we will be in this very spot with Democrats trying to pass their own “reforms” through reconciliation. And the hew and cry that will come form the Republicans then will be deafening. I think over all maybe not doing anything through regular order might be the healthier thing if it meant that we could have the expectations that we could do things through regular order if the will should consolidate on a consensus.

    • #7

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