Federal Tax Reform:
Republicans Unveil Federal Tax Reform Proposal
The U.S. House of Representatives Ways and Means Committee on November 2 released the Republicans’ tax reform proposal (HR 1, The Tax Cuts and Jobs Act), and sponsors estimated that during the first 10 years that the proposal would be in effect, it would reduce taxes on individuals by almost $1 trillion.
The proposal’s tax reductions, and their estimated savings to taxpayers, include:
- Corporate rate cut: $1.46 trillion.
- Individual bracket changes: $1.1 trillion.
- Standard deduction changes: $921.4 billion.
- Individual alternative minimum tax repeal: $695.5 billion.
- Child and family credit expansion: $640 billion.
- Special rate for pass-through businesses: $448 billion.
- Let U.S. companies earn future foreign profit tax-free: $205.1 billion.
- Estate tax changes, leading to repeal: $172.2 billion.
Tax increases, and their estimated cost to taxpayers, include:
- Repeal personal exemptions: $1.6 trillion.
- Changes to deductions: $1.3 trillion.
- One-time tax on stockpiled foreign profits: $223.1 billion.
- Limits on interest deduction: $172 billion.
- New 10 percent tax on high-profit foreign subsidiaries: $77.1 billion.
- Repeal tax credit for research into drugs for rare diseases: $54 billion.
- End of deduction on FDIC premiums: $13.7 billion.
In materials describing the legislation, the committee stated: “It will deliver much-needed tax relief to millions of families, help our workers and job creators compete and win here at home and around the world, and make the tax code simpler and fairer for all Americans. It will fuel economic growth – leading to more jobs, fairer taxes, and bigger paychecks for generations to come.”
The committee also said the reform package “prevents American jobs, headquarters, and research from moving overseas by eliminating incentives that now reward companies for shifting jobs, profits, and manufacturing plants abroad.”
Governor Jerry Browns strongly disagreed, and said in a written statement: “The hurried tax proposal unveiled by Congress today transfers income from individuals and families to large and powerful corporate structures. This is bad economic policy and bad for the American people.”
Some of the highlights:
- Corporate Tax Rate: Lowers the corporate income tax rate from 35 percent to 20 percent.
- Territorial Tax System: Foreign-source dividends and profits of U.S. companies will not be subject to tax upon repatriation. Repatriation of deferred foreign profits will be taxed at a rate of 12 percent for cash and 5 percent for reinvested foreign earnings. Imposes an additional excise tax at a rate of 20 percent on certain payments that multinational businesses operating in the United States make from their American operations. Transactions claimed as effectively connected income are excluded from this tax.
- Personal Income Tax Rate Reductions: Lowers individual tax rates for low- and middle-income Americans to zero, 12 percent, 25 percent and 35 percent, and maintains the 39.6 percent top rate.
- Modified Deduction for State and Local Taxes: Personal income tax filers would be allowed to deduct the cost of state and local property taxes up to $10,000.
- Standard Deduction Increase: Increases the standard deduction from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
- New Tax Credit for Families: Establishes a new “family credit,” which includes expanding the Child Tax Credit from $1,000 to $1,600, and providing a credit of $300 for each parent and non-child dependent.
- EITC Maintained: Preserves the refundable earned income tax credit for low-income Americans.
- Popular Deductions Maintained: Continues the deduction for charitable contributions, and the home mortgage interest deduction for existing mortgages. Maintains the home mortgage interest deduction for newly purchased homes up to $500,000 (this amount would apply throughout the country, and would not be adjusted based on individual states’ property values).
- No Change to 401(k) Limit: Retains tax treatment of 401(k)s and individual retirement accounts without change.
- AMT: Eliminates the alternative minimum tax for corporate and personal income tax filers.
- Pass-Through Income: Pass-through business income will be subject to a maximum 25 percent tax rate and new anti-abuse provisions.
- Expensing: Makes changes to expensing of capital investments, including full expensing of short-lived investments.
- R&D: Preserves the tax credit for research and development.
- Kills the “Death Tax”: Provides immediate relief from the federal estate tax by doubling the exemption, and repeals the tax after six years.
President Donald Trump said the plan “is another important step toward providing massive tax relief for the American people,” and said tax reform is “the rocket fuel our economy needs to soar higher than ever before.”
House Minority Leader Nancy Pelosi criticized the reform legislation as the “billionaires first tax plan,” and said it is “an unconscionable attack on working families.”
« Return to CalTax Homepage
© 2017 California Taxpayers
Association. All Rights Reserved.