After many months of debate, on December 15, 2017, House and Senate leaders finished drafting the final version of the Tax Cuts and Jobs Act proposed by the Trump Administration. The bill will go to the Joint Committee on Taxation for analysis, as well as the House on December 19. President Trump is scheduled to sign the bill in order to make the it official sometime before Christmas.
The core of the tax bill aligns with the versions passed by the House and Senate: cuts in individual income-tax rates, fewer itemized deductions but a bigger standard deduction, and larger benefits to high-income business owners. Middle-income households will see tax cuts that will expire in 2025, and some households, particularly upper-middle class residents of high-tax states, will likely pay more than they do currently in the future. This new tax bill is planned to increase the standard deduction to slightly less than double its current level ( $12,000 for an individual or $24,000 for a family)*. The bill also explains that it would drop the corporate tax rate from the current 35%, to 21%, and scrap Obamacare’s provision that requires Americans to buy health insurance or pay a penalty, beginning in 2019. Doing so is projected to lead to 13 million fewer people with insurance and raise the average Obamacare premiums, according to the nonpartisan Congressional Budget Office.
The estate tax, also more casually known as the ‘death tax,’ would remain, but the exemption for it would be doubled. Of course, the child tax credit would double to $2,000 per child from $1,000. It would be refundable up to $1,400 and start to phase out at $400,000 in total household income. The bill plans to limit state and local tax deductions, allowing deductions of up to $10,000 in state and local sales, income, or property taxes. It will not change the mortgage interest deduction for existing homeowners; for new homes, taxpayers can deduct interest on up to $750,000 in mortgage debt, down from $1 million currently.
In summary, the new tax plan will: nearly double the standard for deduction; cap state and local tax deductions; expand the child tax credit; create temporary credit for non-child dependents; lower the cap on mortgage interest deductions; exempt almost everybody from the estate tax; eliminate the mandate for buying health insurance; lower tax burdens on pass-through businesses; and alter how U.S. multinationals are taxed.
Many Republicans are excitedly anticipating the eventual passing of this bill into law; as White House press secretary Sarah Sangers said, “…he [President Trump] is on the precipice of fulfilling a campaign promise and passing a plan that she said would boost wages and ensure economic growth. The president applauds the House and Senate conferees on coming to an agreement on the Tax Cuts and Job Act, and looks forward to fulfilling the promise he made to the American people to give them a tax cut by the end of the year,” she explains.
Meanwhile, many democrats across the country are fearing and anticipating the anticipated repercussions for the middle class. Senate Minority Leader, Chuck Schumer, called the plan ‘counterproductive’ as he explains, “Under this bill the working class, middle class and under middle class get skewered while the rich and wealthy corporations make out like bandits. It is just the opposite of what America needs, and Republicans will rue the day they pass this.”
No matter whom you agree with, this plan has been encouraged, debated, and endorsed by trusted political leaders of all parties.
*Definition of Itemized Deductions. Every taxpayer can take out some of their income to be exempt for taxes. They can do this by claiming itemized deductions, like payments to doctors, capital expenditures, or necessary travel expenses. Or, they can claim the standard deduction, which is a fixed amount of money depending on how many dependents they have. Families making over $75,000 usually take the itemized deduction, as it is worth more for them, and less wealthy families take the standard.
– Maggie Di Sanza