The GOP tax plan released Thursday presents Congress the opportunity to deliver on the most ambitious overhaul of the nation’s tax system since the Reagan administration. But there are still plenty of details to iron out and plenty of room for the plan to be watered down as lobbyists and lawmakers tear into the document in the weeks ahead. Here’s what you need to know.
Probably the most significant tax change included in the Tax Cuts and Jobs Act unveiled this week is the massive cut it would provide to corporate tax payers. The proposal calls for the biggest one-time corporate tax cut in history, slashing the rate from 35 to 20 percent.
The goal, according to proponents, is to spur economic growth by encourage big business to reinvest in the American economy.
Another effort aimed at facilitating that reinvestment is a provision that would allow companies that have stashed profits overseas to avoid the nation’s current 35 percent tax to bring the profits home at a lower rate of 12 percent. That could be a big incentive for businesses like Apple, which currently has around $246 billion stashed in offshore accounts. The plan would allow businesses to pay a one-time tax bringing profits back, either as a lump sum or over time and implement a territorial tax system that would prevent them from being double taxed on future overseas earnings.
The legislation also looks to get high income small business owners to drive economic growth by spending more in their local communities by slashing the top individual tax rate from 39.6 percent to 25 percent on 30 percent of business income.
The National Federation of Independent Business says it cannot support the current tax legislation because the aforementioned scheme would fail to offer new tax benefits to owners of smaller community businesses.
“We are concerned that the pass-through provision does not help most small businesses. Small business is the engine of the economy. We believe that tax reform should provide substantial relief to all small businesses, so they can reinvest their money, grow, and create jobs,” Juanita Duggan, the president and CEO of the National Federation of Independent Business (NFIB), said in a statement.
Also unhappy with the plan is the nation’s housing industry, which saw stocks plummet Thursday on news that the proposal would half the mortgage interest deduction. Under the GOP proposal, home buyers will be able to deduct mortgage interest payments on their first $500,000 in home loans. It also places a $10,000 cap on local and property tax deductions which will hurt wealthy homeowners living in high tax locales.
But for individual taxpayers, the GOP plan offers both simplification and lower rates in the tax code. The proposal would reduce the current seven federal income tax brackets down to just four: 12 percent, 25 percent, 35 percent and 39.6 percent. Lawmakers have yet to release specifics about the earnings brackets for the rates but the most likely scenarios looks to be: 39.5 percent for couples earning more than $1 million or single individuals earning $500,000; 35 percent for couples earning more than $260,000 or individuals earning $200,000; and 25 percent for couples earning $90,000 or more and individuals earning in excess of $45,000.
As the legislation stands, middle class and lower income taxpayers would see economic relief at tax time thanks to an increase in the amount of income not subject to federal tax. The GOP proposal almost doubles the standard deduction, raising it to $12,000 for single filers and $24,000 for families. It would also bump the child tax credit to $1,600, up from $1,000.