Congress' final proposal on tax reform

Published
  • December 16 2017, 1:24pm EST
Late in the day on Friday, the Republican leadership released the final details of their tax reform bill, after a week of hammering out compromises in the conference committee. They're expected to vote on it early in the week before Christmas.

Here are the highlights and most important provisions.

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Late in the day on Friday, the Republican leadership released the final details of their tax reform bill, after a week of hammering out compromises in the conference committee. They're expected to vote on it early in the week before Christmas.

Here are the highlights and most important provisions.

A compromise corporate rate

The conferees settled on a corporate tax rate of 21 percent, well down from the current 35 percent, and a rate that President Trump has said he would accept, though he had originally set 20 percent as his desired rate.

In addition, the rate would take effect in 2018, not 2019, as the Senate had proposed to offset some of the revenue loss.

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Forget 39.6%

The highest individual tax rate would drop from its current 39.6 percent down to 37 percent; there would be still be seven brackets, with the following rates for individual filers (and joint filers):
* 10 percent: $0 to $9,525 ($0 to $19,050)
* 12 percent: $9,525 to $38,700 ($19,050 to $77,400)
* 22 percent: $38,700 to $82,500 ($77,400 to $165,000)
* 24 percent: $82,500 to $157,500 ($165,000 to $315,000)
* 32 percent: $157,500 to $200,000 ($315,000 to $400,000)
* 35 percent: $200,000 to $500,000 ($400,000 to $600,000)
* 37 percent: $500,000 and above ($600,000 and above)

A higher standard deduction, but no personal exemption

The bill would double the standard deduction, from $6,350 and $12,700 for individual and married couples, currently, to $12,000 and $24,000. The expectation is that this would significantly lower the number of taxyapers who itemize.

At the same time, the bill would eliminate the personal exemption, which is currently set at $4,150, through 2025.

A broader SALT deduction

Under the compromise bill, taxpayers would be allowed to deduct $10,000 of all sorts of state and local taxes, including property, income and sales tax. Earlier bills had done away with the deduction entirely, or limited it to property taxes.

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Splitting the difference on mortgages

The two houses literally split the difference on the mortgage interest deduction: The House had proposed capping it for loans up to $500,000, while the Senate had left it at its current $1 million. In the final legislation, interest could only be deducted on loans up to $750,000.

Resolution on pass-throughs

Owners of pass-through entities like S corps and LLCs would be able to apply a 20 percent deduction to their business income, with limits starting at around $157,000 for single taxpayers and $315,000 for married couples.

More for businesses

Besides lowering the corporate tax rate, the bill would also:
* Let businesses immediately write off the cost of new equipment.
* Move the U.S. to a "territorial" tax system.
* Preserve the R&D Tax Credit.

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Changes to AMTs

The House and Senate agreed to rescind the corporate Alternative Minimum Tax, which had been included in the Senate bill to help offset revenue losses elsewhere.

The new bill would preserve the individual AMT, but it would apply to even fewer people than before.

The estate tax

While some had hoped to kill the so-called "death tax" entirely, the final proposal settles for doubling the exclusion threshold to roughly $11 million, so it will apply to fewer estates. That doubling, however, would sunset in 2026.

The child tax credit

The legislation would increase the child tax credit from $1,000 to $2,000 for each child, and raise the phase-out amount from $110,000 to $500,000. In addition, as a result of last-minute pressure from Florida Sen. Marco Rubio and Utah Sen. Mike Lee, the amount of the credit that would be refundable was raised from $1,100 to $1,400.

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The medical expense deduction

For 2017 and 2018, the bill would expand the deduction for expenses exceeding 7.5 percent of adjusted gross income, rising to 10 percent beginning after that.

Other details

The compromise bill would also:
* Rescind the individual insurance mandate of the Affordable Care Act, which is widely seen as a short cut to repealing the act.
* Preserve the Child and Dependent Care Credit.
* Preserve the Adoption Tax Credit
* Include the student loan interest deduction, which would have been eliminated under some earlier proposals.