Thursday morning, House Republicans finally released the text and important details of their tax reform proposal. Called the Tax Cuts and Jobs Act, President Donald Trump’s campaign pledge of tax reform has reached an important milestone.
Speaker of the House Paul Ryan (R-WI) and Chairman of the House Ways and Means Committee Kevin Brady (R-TX) unveiled the legislation on Capitol Hill, calling it “the beginning of the end of this horrible tax code.”
A tax cut for individuals and families, and four tax brackets: these are the primary highlights of the GOP tax plan that has been developed behind closed doors for months.
2017’s Read My Lips
Much of what has been officially presented is in line with what media outlets have reported in recent weeks, including the corporate tax rate and the number of tax brackets.
Under the Republican plan, the corporate tax rate is slashed from 35% to 20%. Individuals and families will see their tax rates cut by merging the seven tax brackets to four: 12%, 25%, 35% and 39.6%. The House Republicans are also proposing doubling the standard deduction for individuals and families.
Additionally, the bill aims to keep the home mortgage interest rate deduction for current and new mortgages for homes up to $500,000. The deduction for state and local property taxes, capped at $10,000, would remain as well.
The child tax credit will be raised from $1,000 to $1,600. The Alternative Minimum Tax, tax credit for adoptions, student loan interest deduction, and tax credit for employer-provided childcare will be gone.
Despite some initial confusion last month, the GOP wants to preserve the tax benefits of various retirement savings programs, particularly the IRA and 401(k).
The legislation would limit the maximum tax rate on small businesses and non-corporate enterprises at 25%, down from 39.6%. As a way to differentiate between business income and individual wage income, the Republicans are establishing new standards to avoid abuse of the lower tax level.
Foreign businesses operating in the U.S. would face a tax of up to 20% on international payments from U.S. operations. Also, the GOP is trying to prevent corporations from allocating profits overseas by creating a new 10% tax on U.S. companies and their high-profit foreign subsidiaries.
A company like Tesla would suffer, as this eliminates a $7,5000 tax credit for electric vehicles. Ditto for sports entities: tax-exempt bonds will not be allowed to be used to construct professional sports stadiums.
Ryan and Co. will also eliminate the estate tax – critics call it the death tax – after six years.
The Trump administration and the Republicans want to enact this bill this year.
The most prominent concern is that Trump’s tax reform will lead to larger budget deficits, something that Republicans have been encouraged to refrain from discussing.
Trump: We’re Just Getting Started
Soon after the release of the Tax Cuts and Jobs Act, President Trump issued a statement, applauding the tax-writing committee for helping “provide massive tax relief for the American people.” The president noted that his administration is “just getting started,” adding that “there is much work left to do.”
“My tax reform priorities have been the same since day one: bringing tax cuts for hardworking, middle-income Americans; eliminating unfair loopholes and deductions; and slashing business taxes so employers can create jobs, raise wages, and dominate their competition around the world. The policies of my Administration have already helped to drive the stock market to all-time highs and the unemployment rate to a 16-year low. Economic confidence is skyrocketing and our GDP grew 3 percent yet again this quarter.”
Vice President Mike Pence echoed the president’s remarks in a tweet:
“With Republican unity, we’ll cut taxes across the board, rebuild America, and renew American strength at home and abroad.”
Thursday afternoon, President Trump will meet with GOP senators to encourage unity in passing the tax reform plan. He aims for Congress to approve the bill before Thanksgiving.
After the meeting, he is expected to announce his nominee to lead the Federal Reserve. Trump will then commence his 12-day trip to Asia on Friday, where he will visit with the heads of state of five countries.