Will it be enough to persuade the House Republicans from high-taxed states?
The House GOP decided to wait a day to release its tax reform bill to smooth out some disagreements. That plan was finally released Thursday and like the framework President Donald Trump’s administration released, it reduces the number of tax brackets, eliminates deductions, and reduces the corporate tax rate.
But will it be enough to persuade the House Republicans from high-taxed states to pass the bill?
TOP LINE TAX BILL OBTAINED pic.twitter.com/3UjBEAFueE
— Kevin Cirilli (@kevcirilli) November 2, 2017
The plan outlines five tax brackets instead of seven. The framework touted three, but I guess it didn’t stick:
39.6% for high-income Americans
That top rate will become “the income threshold for that rate to $1 million for married couples.”
They did not release the incomes for the other brackets, though.
You can still write off property taxes, but that deduction caps out at $10,000. The mortgage-interest deduction will remain, but only applies for “newly purchased homes up to $500,000.” It looks like they will do away with deductions for state and local taxes, which is likely to be problematic for representatives from high-taxed states.
Best news: Despite the threats, the 401(k) plans remain untouched.
The Child Tax Credit goes up to $1,600 from $1,000 and “creates a $300 credit for expenses related to care of parents and non-child dependents, and it preserves the child and dependent care credit and the earned income tax credit.”
The alternative minimum tax goes away, but unfortunately the Estate Tax remains in place…until 2024! From The Wall Street Journal:
The estate tax provisions also contain wrinkles. The estate-tax exemption, set for $5.6 million per person and $11.2 million per married couple, would double immediately. The tax would get repealed starting in 2024.
Even after repeal, heirs would continue to get something known as a “step-up in basis.” That means they would only owe capital-gains taxes on the difference between the sales price of an asset they inherit and the value of the asset at the previous owner’s death. Previous versions of estate-tax repeal had limited that benefit.
The bill lowers the corporate tax code from 35% to 20%. Pass-through businesses like S corporations and partnerships will receive the 25% rate Republicans promised, but the standard will change for them. WSJ continued:
The bill starts with the presumption that 70% of that pass-through income is attributable to labor and would be taxable at higher individual income-tax rates. For some that would create a blended top tax rate of about 35%, which those businesses and their influential trade groups may argue isn’t low enough.
For professional services firms, including lawyers and financial-services professionals, the default rate would be 100% labor income, meaning they would get none of the benefit of the 25% tax rate for pass-through businesses.
The tax code for multinational companies will include changes, some of which appear to veer away from the promises of the administration and top GOP leaders:
To prevent companies from shifting profits abroad, the bill creates a new 10% tax on U.S. companies’ high-profit foreign subsidiaries, calculated on a global basis.
The plan also imposes new restrictions on foreign companies operating in the U.S. They would face a tax of up to 20% on payments they make abroad from their U.S. operations. That is designed to prevent them from loading up their U.S. operations with deductions and pushing profits to low-tax jurisdictions. Companies could lower those taxes by agreeing to have more of their operations in the U.S. tax system.
Top conservative groups lashed out at this development:
It wasn’t immediately clear what those plans would entail, but Americans for Prosperity and Freedom Partners raised the specter of a tax on imports that White House and congressional negotiators tabled months ago.
“We strongly oppose adding a new tax that would raise prices on everyday goods while disproportionally hurting the poor and middle class,” said AFP President Tim Phillips. “In addition, any such tax would be an alarming departure from the vision outlined by the Trump Administration and the Big Six in the unified framework.”
Donations tax deductible
to the full extent allowed by law.