House Releases Tax Reform Legislation;
Senate Bill Expected Next Week
One day after initially proposed, Republicans in the House Ways and Means Committee unveiled a sweeping overhaul of the Tax Code yesterday. The Tax Cuts and Jobs Act, introduced by Chairman Kevin Brady (R-TX), is co-sponsored by Speaker Paul Ryan (R-WI) and all Republican Ways and Means members. It would impact every American individual and business on a level not seen in decades. The bill calls for lowering individual and corporate tax rates, increasing the standard deduction, repealing scores of tax credits and deductions, eliminating the alternative minimum tax, abolishing the federal estate tax, enhancing the child tax credit and much more. The committee is expected to begin a markup of the bill on Monday. After members are able to suggest amendments over the following days, they will vote to send it to the full House.
The White House signaled its support for the House GOP bill. Possible roadblocks to ultimately getting a bill to the President’s desk before year-end are unified opposition from House Democrats as well as intense lobbying efforts by to preserve tax breaks slated for elimination. The Senate Finance Committee continues to finalize its own tax reform legislation, which may or may not mirror the House GOP bill, and is expected to release it on November 8.
Prior to yesterday, it was not clear whether the new tax rules would become effective in 2018 or might be made retroactive to 2017. The Act clarifies that that the provisions would begin on January 1, 2018 – with one major exception. The immediate 100% expensing of fixed assets for businesses would apply to property placed in service retroactive to September 28, 2017. The actual effective date could also be impacted by whether a law can actually be enacted by year-end.
The more than 400 pages in the Tax Cuts and Jobs Act include these high-profile changes to the current tax code:
- Lower and consolidate individual tax rates to just four percentage levels: 12, 25, 35 and 39.6 (currently 10, 15, 25, 28, 33 and 39.6). The income breakpoints where these brackets kick in were revealed for the first time yesterday. For married taxpayers the thresholds for the 25 and 35 percent brackets would start at $90,000 and $260,000, respectively. The 39.6 percent bracket, which currently begins at $470,700 for married taxpayers, would start at $1 million.
- Increase the standard deduction to $24,400 and $12,200, respectively, for joint filers and single individuals (up from $12,700 and $6,350).
- Eliminate personal exemptions but create an enhanced child [family] tax credit.
- The home mortgage interest deduction would apply to only the first $500,000 of debt for new homes. Existing mortgages would be grandfathered in for debt up to $1 million.
- Exclude state and local income taxes from allowable itemized deductions.
- Allow property tax deductions, but only up to $10,000.
- Double the federal estate tax exemption now, with full repeal after six years.
- Cut the corporate tax rate to 20 percent.
- Create a top rate of 25 percent on small businesses organized as sole proprietorships, S corporations, partnerships and LLCs. Safeguards would guard against abuse.
- Repeal the AMT (alternative minimum tax) for both individuals and corporations.
- Create an immediate 100 percent writeoff for qualified business property for the next five years.
- Make numerous changes to the taxation of foreign income and foreign persons and businesses.
- Cap the deduction for net interest expenses at 30 percent of adjusted taxable income, except for small businesses.
- Modify the net operating loss deduction. NOLs could no longer be carried back, but will carry forward indefinitely (they currently expire after 20 years).
Further details on any of these, as well as other provisions, can be found in the Summary presented by the House Ways and Means Committee.