Only six weeks after the first draft of the GOP’s tax plan was introduced, both the House and Senate final tax-reform bills were revealed late last week.
Let’s break down the plan–
- Individual income-tax rates have been cut significantly. The seven tax brackets remain, but the percentages have been dropped in almost every one. The new rates are 10%, 12%, 22%, 24%, 32%, 35% and 37% compared to today’s 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.
- The corporate tax rate has been changed to 21% from the current 35%.
- The $4,050 personal exemptions have been eliminated.
- The standard deduction has been doubled from $6,350 currently to $12,000 for single filers and from $12,700 to $24,000 for married couples.
- Child tax credit has been increased to $2,000, but $1,400 is refundable and starts phasing out at $400,000 in income for married couples and $200,000 for non-married households. Currently, it’s $1,000 and starts to phase out for married couples with an income of $110,000.
- State and local taxes have been capped at $10,000, that can be deducted. Currently, these taxes are deductible with some limits.
- Mortgage-interest deduction limits have been increased from the current $750,000 to up to $1 million for both primary and second homes.
- The alternative minimum tax is preserved, but also makes it more narrow. This disallows high-earning households from filing personal exemptions and state deductions.
- There will no longer be a penalty for not having health insurance.
- Alimony payment agreements signed after 2018 will not be deductible.
- Estate taxes will be 40% on estates over $11.2 million per individual, versus the current $5.6 million.
- Business owners with an income under $315,000 will get a 20% deduction for pass-through income, versus currently, where a business taxes are based on the individual’s income tax rate.
- There have been no changes in regards to the student-loan interest, graduate student tuition waivers, and capital gains and dividends.
As you can see, the plan isn’t as simple as some Republicans, like House Speaker Paul Ryan hoped for.
But the bill is expected to pass in both chambers this week and for it to be on President Donald Trump’s desk to be signed into law before Christmas.
Democrats have been quick to criticize the bill saying it benefits the wealthy the most, but Trump stands by the bill saying that the middle class will benefit, especially from the tax cuts that will entice companies back from overseas and will in turn, create more jobs.
“It’s going to be one of the great Christmas gifts to middle-income people,” said Trump over the weekend. “The Democrats have their sound bite, the standard sound bite before they even know what the bill is all about. They talk about ‘for the wealthy.’ But this is going to be one of the greatest gifts for the middle-income people of this country that they’ve ever gotten for Christmas.”
“This really will mostly benefit the middle class – and jobs,” said Trump. “Companies are pouring into the country.”
The president also said that this plan could drastically increase the U.S. economic growth from the current 3% to “4, 5 and maybe even 6 percent ultimately.”
Author’s note: Primarily, most Americans will see tax breaks and the GOP has compromised by including current deductions that weren’t included in the past versions. Like Trump said, the massive drop in the corporate income tax in this plan will encourage businesses to incorporate and come to the U.S.