Acton Institute Powerblog

Explainer: What you should know about the GOP tax plan

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Earlier today, Congressional Republicans introduced the Tax Cuts and Jobs Act, the House version of their long-promised tax reform legislation. Here is what you should know about the bill:

How does the plan affect individual taxpayers?

The legislation proposes the following changes:

• Increases the standard deduction from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for married couples.

• Creates a larger “zero tax bracket” by eliminating taxes on the first $24,000 of income.

• Reduces the 7 tax brackets (10, 15, 25, 28, 33, 35, and 39.6 percent) to 4 tax brackets of 12 percent (up to $90,000), 25 percent ($90,000 to $260,000), and 35 percent ($260,000 to $1,000,000) , and 39.6 percent ($1,000,000 and above).

• Increases the Child Tax Credit from $1,000 to $1,600.

• Retains the Earned Income Tax Credit (EITC), but eliminates other tax credits such as the tax credit to offset expenses related to adoption.

• Provides a non-refundable credit of $300 for non-child dependents to help defray the cost of caring for other dependents (this credit would expire after 5 years).

• Repeals the existing individual Alternative Minimum Tax (AMT).

• Eliminates most itemized deductions (except those listed below).

• Eliminates the personal exemption (currently $4,050 per person).

• Retains deduction for state and local property taxes up to $10,000.

• Retains deduction for charitable contributions.

• Retains home mortgage interest for existing mortgages and maintains the deduction for newly purchased homes up to $500,000.

• Retains current 401(k) and IRA provisions

• Repeals the “death tax”, the federal estate tax which applies to the transfer of property at death on estates worth $5,490,000 or more.

How does the plan affect individual businesses?

The legislation proposes the following changes:

• Limits the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25 percent from 39.5 percent.

• Reduces the corporate tax rate from 35 percent to 20 percent.

• Eliminates the existing corporate Alternative Minimum Tax (AMT).

• Allows businesses to immediately write off (or “expense”) the cost of new investments in depreciable assets other than structures made after September 27, 2017, for at least five years.

• Preserves business credits for research and development (R&D) and low-income housing.

• Limits the debt that can be deducted to 30 percent of earnings before interest/taxes/depreciation/amortization (EBITDA).

• In an effort to bring overseas corporate profits back into the U.S., all overseas assets from US-owned companies will be considered repatriated and taxed at a one-time lower rate of 20 percent.

• Moves to a territorial tax system that no longer imposes the U.S. corporate tax on foreign profits of U.S. companies, though untaxed income currently held overseas will immediately be taxed at a fixed rate: 12 percent for money held in liquid assets like stocks and bonds, 5 percent for intangibles like buildings and factories.

How does this plan differ from the proposal outlined by President Trump during the campaign?

The new plan includes five items that Trump promised on the campaign trail: reducing the tax brackets, increasing the standard deduction, reducing business tax (though he promised a reduction to 15 percent), and eliminating the AMT and estate tax.

However, Trump’s campaign plan promised to be “revenue neutral” (i.e., would not increase the deficit), a claim which few economists outside of the White House believes is possible.

What happens next?

The bill has to be “scored” by the Congressional Budget Office and the Joint Committee on Taxation to determine the effect on the deficit. Senate rules require that any legislation that increases the deficit in the long term must be passed with 60 votes. Because this bill would likely increase the deficit by more than a trillion dollars over the next decade, it cannot pass the Senate without support from Democrats—which it cannot get. That means that to pass the Senate the legislation will have to be substantially revised.

Joe Carter Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).

Comments

  • Diana Brady

    How will the current tax proposals affect Social Security recipients? Will any or all Social Security benefits be taxed? Or, will the current calculations of other income be used to determine amount of Social Security would be used as income?

    • ddavid1

      The author didn’t mention SS neither did other reports I read, hence I would assume nothing has changed and tax on SS will continue to be calculated as is.

  • PHIL STEPHENSON, CPA TEXAS

    THE TAX CUT AND JOBS ACT OF 2017 IS NOT CLEAR WHAT HAPPENS TO EXEMPTIONS. PLEASE EXPLAIN. ARE FAMILIES GETTING TAX CREDITS INSTEAD OF DEDUCTION? ARE THEY LOSING EXEMPTIONS. THIS IS VERY UNCLEAR.

  • marylou

    I UNDERSTAND The new proposed tax bill will treat graduate study tuition waivers as taxable income. On top of the increasing amount of student loans and student debt, graduate students will now pay taxes for $80,000 on a $20,000 yearly stipend! This is suppressing higher education! THIS PUTS AN ALREADY BURDEN ON STUDENTS WHO ARE ALREADY PAYING HIGH COSTS OF EDUCATION WHILE TRYING DESPERATELY TO FURTHER THEIR EDUCATION TO ENHANCE OUR SOCIETY.

  • Steve Vinzinski

    Many people are missing two big issues number one on the Senate plan ones who pay their health plans and out of pocket medical no longer will be able to do that and deduct them..My insurance for my wife wife and me along with out of pocket has reached $44,000.00 in 2017 already.If i was a Corporation or LLC,etc. you can still can deduct.Simply put if one can not pay his own medical bills how can he pay his employee or two.You will be surprised how many employers have only one thru three employees in this country.The House plan also does not allow you to deduct real estate taxes and other local taxes.

    • ddavid1

      You can make yourself an S-Corporation, or an LLC, but beware LLC pay a minimum of $800 fee per year regardless of profit depending on which state. In other words go into business for a profit.

  • Donna Ward

    Under this tax plan our taxes would more than double. We would be bankrupt and our retirement savings would be wiped out in three years. My husband is a high school counselor and we both draw social security. How could the party that we have supported our whole lives destroy us with this bill?

    • Cravin Moore

      Donna, it sounds like you need to get a job too…good luck

  • Billy Redman

    What about the trillion and half dollars this will add to the national debt? What happened to the “Conservatives” who cursed Democrats for decades for creating debt?

    • Burke

      Not likely to happen. I expect that you have been told that the Reagan tax cuts caused the deficit to explode. You would do well to look at the attached chart for the years 1981-88 and see what really happened when we cut taxes, while also raising GNP, and reducing unemployment and inflation. The deficit came from spending, which increased even more quickly than revenue did. http://www.taxpolicycenter.org/statistics/federal-receipt-and-outlay-summary

    • Charles Williams

      A trillion over 10 years is a lot different than a trillion every year for the last 8 Obama adm. years

  • Jeffrey Fry

    Of course tax cuts favor the rich. Why? Because 47% of citizens do not pay any federal tax but receive benefits from the generous 53% who pay. Is it selfish to demand charity from others? Yes it is. Instead of being envious, be grateful to live in a country that offers so much opportunity and assistance. If my post offends you, then I know to which category you belong. Giver or Taker.

    • ddavid1

      You could do something about that — make Uncle Sam a partner in business and start giving charitable contributions, then you’ll be in the same boat.

    • Sonny Blarney

      Those 47% are children and the elderly. You were a child once, and you will be old sooner or later. It’s absurd to suggest that everyone should be working at all times.

    • cheryl Marsh ( Buchhorn )

      Hi Jeff, not to change the subject, but I think that I may know you. Did you attend Franklin High School ?

    • L Couture

      Eventually, Jeff, you too will be a taker. If we worked in this Country and paid into said system, we will all be takers at some point, if the system is still liquid that is!

  • John

    We are married and over 65. Our standard deduction is 15100. Will it be doubled ?

    • ddavid1

      Yes, assuming the additional allowance for being over 65 and blind isn’t repealed. (Nothing has been said about it as far as I know.)

    • Peter

      Will 100% of social security income now be taxed instead of the 50%-85% rule?

  • Phil Covell

    With the proposed elimination of the personal exemption as a deduction, isn’t the standard deduction for a married couple only increased slightly when you factor in the loss of $8,000 of personal exemptions?

    • ddavid1

      Yes you could look at it that way, basically if keeping the exception, the std deduction would only a be about a 4,000 increase. The doubling just sounds good. But there is an advantage, namely if you have a NOL or other disaster loss, the exemption is disallowed, subtracted is anyway, so then there is zero to subtract.

    • noshyst

      I don’t understand why they don’t raise it more to solve this problem? and why the 12% rate? why don’t they make it 10%.

  • noshyst

    why don’t they just make the standard deduction an itemized deduction? That would solve most complaints people have of eliminating the state income tax and mortgage interest deductions. And, why not phase out those deductions instead of eliminating them completely. This plan favors the rich and gives the poor almost nothing and still discriminated against the unmarried.

    • Integra92

      I read above that the mortgage interest deduction was not going to be eliminated up to $500,000. That covers most middle class America.

  • noshyst

    Any tax cut is going to benefit the rich. Liberals created it that way. It is the nature of a progressive tax code. If you cut the bottom rate that mean the rich get a tax cut too. If you raise the standard deduction, that is a tax cut for the rich too. If you want truly fair tax reform, just raise the standard deduction to $40,000, then you can eliminate all deductions and credits and 90% of people would benefit fairly.

    • cj

      or make a flat tax.

  • Cravin Moore

    Prove that POTUS said this on the campaign trail…go !

  • JOHN VANDERHOEK

    I am disabled and on my social security, SSI and section 8, will I have to eat dog food to pay for this Tax cut??!

  • Some thoughts on this:

    Trump promised that the carried forward interest deduction that hugely benefits the hedge fund managers would be eliminated. Neither the Senate or House bill does this.

    The pass thru exemption was tried in Kansas a few years ago. It took away so much money from the state budget that a Republican dominated state legislature repealed it a few years later over a Republican Governor’s opposition (Yes you read that right!)

    By eliminating business deductions, this will really hurt small businesses. Even one of the coal company executives came out and said this bill will put him out of business.

    And there is so so much more.

    The only large group of people who will not get screwed over by this tax “reform” are the richest of rich Americans.

    Don’t take my word on any of this. Do your homework!! Run the numbers on your own taxes! And then call your Representatives and raise holy Hell!

    • MZTYPLCK

      WHERE DOES THE BILL ELIMINATE BUSINESS DEDUCTIONS??????????/
      you mean you cant deduct the COST of doing business from the INCOME to the business?
      I THINK NOT!!

  • Phillip

    How can this tax bill hurt the poor when the poor don’t pay any federal tax for income up to $24,000? I don’t think Mr. John V. Will have to worry since he probably doesn’t pay federal taxes anyway. Stop parroting the democrat line and actually investigate what the tax bill does. It isn’t as great as the republicans are touting but it is the end of the world as the democrats would have you believe. Overall it will be a positive for the economy and most tax payers.

  • Janet Young

    They need to quit bragging about doubling the deduction from $6000 to $12000. Actually my son has $6000 plus personal excemption of $4050 now. He only gains $1600 in deductions. Tell it like it is!!

  • Rich Girod

    big biz tax cuts go to stock shares by back…

  • Bob Catz

    Will 100% of social security income now be taxed instead of the 50%-85% rule?