The House passed tax reform legislation Thursday by a vote of 227-205, with 13 Republicans voting against the bill, as the Senate Finance Committee continued debating and marking up a significantly different version of the bill.
The Tax Cuts and Jobs Act has tax rates of zero, 12, 25 and 35 percent, along with a rate of 39.6 percent for high-income taxpayers. The bill roughly doubles the standard deduction from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples. It also establishes a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600 to help parents afford the cost of raising children, while providing a credit of $300 for each parent and non-child dependent to help families with everyday expenses. The bill also preserves the Child and Dependent Care Tax Credit, the Adoption Tax Credit and the Earned Income Tax Credit, and continues the deduction for charitable contributions.
The home mortgage interest deduction is preserved for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000. The bill also allows people to write off the cost of state and local property taxes, but only up to $10,000, which is expected to cause millions of taxpayers in states with high taxes to actually have to pay more under the legislation.
The bill retains retirement savings options such as 401(k)s and Individual Retirement Accounts, and it repeals the Alternative Minimum Tax. It also scales back the estate tax significantly, doubling the exemption and repealing the estate tax after seven years.
In terms of business taxes, the bill lowers the corporate tax rate to 20 percent from its current high of 35 percent. It also reduces the tax rate on pass-through businesses such as S corporations and partnerships to 25 percent.
The bill also provides a tax rate of 9 percent for the first $75,000 of business income earned by owners of pass-through businesses of all types who earn less than $150,000. The bill establishes safeguards to distinguish between individual wage income and pass-through business income.
Businesses will be able to immediately write off the full cost of new equipment, and small businesses can continue to write off the interest on loans.
The bill also retains the Low-Income Housing Tax Credit and the Research & Development Tax Credit.
On the international side, the bill imposes a territorial tax system so multinational businesses won’t be taxed on earnings abroad.
The Senate still needs to vote on its version of tax reform, which it is expected to do the week after Thanksgiving. Differences between the two bills, and the slim GOP majority in the Senate, remain serious obstacles. (See "Tax reform clears House hurdle, but obstacles remain.")
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