Republicans Release Long-Awaited Tax Reform Plan

By:
Chris Gaetano
Published Date:
Nov 2, 2017
Congress

House Republicans this morning released their proposed Tax Cuts and Jobs Act, the first major tax code overhaul in 30 years, according to the Wall Street Journal. The many changes that it proposes include: 

* Eliminating deductions for state and local income and sales taxes, and a $10,000 cap on property tax deductions, a topic which had been a contentious point between Republicans from high- and low-tax jurisdictions. While Republicans initially wanted to eliminate even the property tax deduction, this drew criticism from lawmakers in higher tax districts, leading to the GOP to seek a compromise. 

* Permanently lowering the corporate tax rate from 35 percent to 20 percent. 

* Compressing the seven tax brackets into four: 12 percent (up to $45,000 for individuals and $90,000 for married couples), 25 percent (up to $200,000 for individuals, $260,000 for couples), 35 percent (up to $500,000 for individuals and $1 million for couples) and 39.6 percent (over $500,000 for individuals and over $1 million for couples). 

* Setting the tax rate for passive owners of pass-through businesses at 25 percent. Active owners would be taxed assuming about 70 percent of their pass-through income is attributable to labor and therefore taxable at higher individual income tax rates, which would result in about 35 percent. Professional service firms like lawyers and accountants would not benefit at all from the new 25 percent rate, as the default assumption will be that 100 percent of their income is attributable to labor. 

* Eliminating most taxes on active foreign income from U.S. companies. To discourage these companies from shifting profits overseas, there would also be a new 10 percent tax on U.S. companies' high-profit foreign subsidiaries. 

* Making it so foreign companies operating in the U.S. would have to pay a tax of up to 20 percent on payments they make abroad from their U.S. operations, with the ability to lower the tax through agreements to have more operations be based n the U.S. tax system. 

* Expanding the child tax credit from $1,000 to $1,600, as well as adding a new $300 per person credit for those in the filer's family who are not children. This includes the primary taxpayer and non-child dependents like college students. These credits would expire after 2022. 

* Raising the threshold for the child tax credit phaseout from $75,000 for individuals and $110,000 for married couples to $115,000 for individuals and $230,000 for married couples. 

* First doubling the estate tax exemption (currently $5.6 million for individuals and $11.2 million for couples), followed by a full repeal in 2024. Even after repeal, heirs would still get step-up in basis. 

* Nearly doubling the standard deduction while, at the same time, getting rid of the ability for further exemptions on taxable income. 

* Capping interest deductions at 30 percent of earnings before interest, taxes, depreciation and amortization (except for real estate firms and small businesses). 

* Repealing itemized deductions for medical expenses, as well as the tax credit for adoption and the deduction for student loan interest. 

* Halving the home mortgage-interest deduction from $1 million to $500,000 for new home purchases, though existing loans would be grandfathered in. 

* Getting rid of deductions for certain executive compensation above $1 million. 

* Getting rid of deductions for payments to the FDIC by banks with assets over $50 million. 

* Ending the use of tax-exempt bonds to fund the building of professional sports stadiums. 

* A new 1.4 percent excise tax on net investment income for private universities with assets exceeding $100,000 a student. 

* No more entertainment expense deductions for businesses (though current rules for business meals would remain). 

The plan will now go to the House Ways and Means Committee for consideration. Republicans intend to move quickly with the bill, with the goal being to have it become law by Christmas. 

Click here to see more of the latest news from the NYSSCPA.