What to Know
- Republicans are looking to simplify the tax code and lower the corporate tax rate in the first tax revamp in decades
- Democrats say it benefits the wealthy too much and won't help the middle class
- Some Republicans in high-tax states like New York and New Jersey are opposed to limiting the deductibility of local property taxes
House Republicans unveiled a tax cut plan Thursday that slashes the corporate tax rate and lowers taxes for most Americans but limits a cherished deduction for homeowners as President Trump seeks to deliver on the first tax revamp in three decades. The GOP's ambitious timetable to get a bill to Trump by Christmas faces numerous roadblocks, including from some House Republicans in high-tax states like New York. And Democrats have repeatedly complained the plan is too favorable to business and the wealthy, and that it wouldn't bring relief to the middle class. Here are the key takeaways:
• The plan shrinks the number of tax brackets from seven to four, with respective taxrates of 12 percent, 25 percent, 35 percent and 39.6 percent. Under this simplified tax system, most people would be able to file their returns on a postcard-size form.
- The 12 percent bracket applies to single filers from $12,000 to $45,000; it applies to married joint filers after the $24,000 deduction up to $90,000, according to CNBC.
- The 25 percent bracket starts at $45,000 for singles and $90,000 for married filers.
- The 35 percent bracket applies to singles starting at $200,000 and married filers beginning at $260,000. This means many upper-income families whose top rate is 33 percent would face higher taxes.
- The 39.6 percent bracket starts at $500,000 for singles and $1 million for married filers.
• The plan calls for nearly doubling the standard deduction used by most average Americans to $12,000 for individuals and $24,000 for families.
• The plan also calls for increasing the per-child tax credit. The child tax credit would be increased from $1,000 to $1,600, though the $4,050 per child exemption would be repealed.
Local
• The plan limits the deductibility of local property taxes to $10,000 while eliminating the deduction for state income taxes, which has generated significant opposition from Republicans in high-tax states such as New York and New Jersey. Rep. Dan Donovan, R-N.Y., said he still had concerns about the state and local tax deduction, and planned to meet with leadership.
• On net, it could mean tax increases for many upper middle-income families. Some two-income, upper middle class families would pay more after being bumped into a higher tax bracket and losing a valuable deduction on state income taxes.
• Middle-income families would pay less, thanks to doubling of the standard deduction and an increase in the child tax credit.
• Wealthy Americans, like Trump, would benefit from the repeal of the alternative minimum tax and phase out of the estate tax. The plan also slashes the corporate tax rate from 35 percent to 20 percent and repeals the inheritance taxes on multimillion-dollar estates, a big break for the wealthy.
• The proposal would leave intact the existing rules on 401(k) retirement accounts and the ability of Americans to contribute up to $18,000 into the accounts tax-free.
Parts of the plan that could prove controversial:
• The plan continues the deduction for charitable contributions, like donations to churches, charities and community organizations. But the larger standard deduction could mean fewer people would have a tax incentive to donate as they had before, according to the Wall Street Journal.
• The plan limits the widely used deduction for mortgage interest for new home loans of $500,000 or less, a sharp reduction from the current $1 million cap.
• It repeals the tax credit for adoption.
• It repeals the deduction for student-loan interest, the Wall Street Journal reports.
