TAX REFORM: WHAT IT MEANS FOR YOU
- New tax brackets for every filer
- State and local income tax deduction ABOLISHED
- But $10,000 cap on state and local property tax deduction is allowed
- Mortgage interest relief for new homebuyers will only be on $500,000
- Student loan interest exemption ABOLISHED
- Child tax credit up from $1,000 to $1,600
- Charitable giving deduction left intact
- Estate tax exemption doubled from $5.49 million for single filers and $11 million for couples
- $401k allowances: No change
Capitol Hill Republicans rolled out the Tax Cuts and Jobs Act Thursday, a tax package that if passed would finally provide President Trump with his first big legislative win.
‘With this plan the typical family of four will save $1,182 a year on their taxes,’ House Speaker Paul Ryan, a Republican from Wisconsin, pledged during a roll-out press conference on Capitol Hill.
Ryan suggested the money could go toward ‘a year’s worth of gas for your car’ or the family phone bill, ‘depending on how much data your kids use,’ he said with a chuckle.
At the White House later, President Trump sold it like this: ‘We are working to give the American people a giant tax cut for Christmas.’
‘We are giving them a big beautiful Christmas present in the form of a tremendous tax cut,’ he said.
However, at the heart of the GOP’s plan is to slash the corporate tax rate from 35 to 20 percent and pay for that by killing a number of deductions, including that Americans now can subtract what they pay to local municipalities and their states when filing their federal taxes.
The bill puts Americans into five tax brackets at zero, 12 percent, 25 percent and 35 percent tax rates, with top earners continuing to pay 39.6 percent of their income.
House Speaker Paul Ryan rolled out the GOP’s tax plan Thursday on Capitol Hill pledging that it would save, on average, Americans $1,182 per typical family of four
President Trump applauded the GOP’s tax reform efforts from the White House on Thursday as he boasted about the company Broadcom moving its headquarters to the United States
House Speaker Paul Ryan held up a postcard and pledged that tax reform would lead to most Americans being able to file their taxes on just that
‘The Tax Cuts and Jobs Act will simplify the code so you can file your taxes on a form the size of a postcard,’ Ryan said, a pledge Republicans have been making for months as they attempted to roll out a tax package, which had already been delayed this week.
That top rate hits single filers who make $500,000 and more, and joint filers who make more than $1 million.
Individual filers don’t pay taxes on the first $12,000 they make. It used to stand at $6,350.
For joint filers, the first $24,000 of income will not be taxed, if the GOP plan becomes law.
The popular retirement savings plan, 401(k)s ended up not being touched, though as of Wednesday, House Ways and Means Chairman Kevin Brady, a Republican from Texas, had wanted them on the table.
Tax deductions would be capped at $500,000 on new mortgages. The current tax code’s cap is $1 million.
This could impact Americans living in large, high-cost cities including San Francisco, New York, Boston and Washington, D.C. – cities that didn’t vote for President Trump in last year’s presidential election.
However, the bill would allow people to deduct the first $10,000 of local property tax from their federal tax bill.
The legislation creates a new ‘family credit’ that bumps the child tax credit from $1,000 to $1,600. It also includes a $300 for parents and non-child dependents to help families with everyday expenses.
The Wall Street Journal reports that the student loan interest deduction and the medical expense reduction are also being cut.
American can still deduct donations to charity, but Democrats and also the National Council of Nonprofits fears that fewer taxpayers will take advantage of it because there is less of an incentive to itemize with the standard deduction being raised.
The wealthy will also benefit by the GOP’s plan to repeal the estate tax, which hits inheritance.
The Republicans have tried to sell that provision by pointing out that it impacts family farms.
Rep. Kristi Noem, a Republican from South Dakota, was on hand on Capitol Hill Thursday to make that point.
Noem’s father, a farmer, had died in an accident and then her family was hit by the estate – or as Republicans call it the ‘death’ – tax.
‘When he was killed, about a month later, we got a bill in the mail from the IRS that said we owed death taxes,’ she said, noting how unfair it was that, ‘Because you had a tragedy now you have to pay again.’
In the plan, the estate tax will be phased out by doubling the exemption and then repealing the tax in whole after six years.
WHO THE REPUBLICANS SAY WILL WIN… AND WHO THE DEMOCRATS SAY WILL LOSE
Winner: Family of four making $59,000 a year
Steve and Melinda have two children in middle school.
As a result of lower tax rates, a significantly larger standard deduction, and an enhanced Child Tax Credit and new Family Credit, Steve and Melinda will pay over $1,182 less in taxes than last year, reducing their total tax bill from $1,582 to only $400.
Winner: Single mom on $30,000 a year
Cindy is an assistant manager at a local restaurant with an 11-year-old daughter.
Come Tax Day, Cindy will receive a tax refund of over $1,000 as a result of the bill’s lower tax rates, larger Child Tax Credit, and Family Credit.
This is over $700 larger than the refund she receives today
Winner: Firefighter making $48,000 a year
Alan is a young firefighter in the community he has called home his entire life.
Under this legislation, Alan will pay a top marginal tax rate of just 12% instead of the 25% top rate he pays today.
Alan will see his total tax bill go down from $5,173 currently to just $3,872 – a total tax cut of $1,301.
Winner: New homeowners on $115,000 a year in ‘high tax state’
John and Rebecca got married this past summer and just bought their first home.
Today, they make a combined income of $115,000. They will pay $8,400 in mortgage interest and $6,900 in state and local property taxes.
The bill reduces their tax bill from $12,180 to $11,050 – a total tax cut of $1,130. This results from lower tax rates, a significantly larger standard deduction, and the addition of the new Family Credit.
If John and Rebecca do have a child, they would be able to claim an increased Child Tax Credit of $1,600 – up from $1,000 today.
The Republican example’s ‘high tax state’ uses property not income tax.
Loser: Family of five making $75,000 per year
Sam and Molly have three children and live in Virginia. They are still paying off student loan debt, and they had large medical bills this year after one of their children became very ill. They currently itemize their taxes, taking advantage of the SALT, mortgage interest, student loan, and medical expenses deductions.
Sam and Molly actually see a tax increase. This young couple will pay at least $720 more in taxes.
Loser: Married couple over 65, $43,000 per year gross
Gina and Fred are over 65 and have an adjusted gross income of $43,000 a year. Under current law, they claim the standard deduction, the additional standard deduction for those over 65, and two personal exemptions.
As a result of House Republicans getting rid of the additional standard deduction and personal exemptions, their tax liability goes from $1,913 to $2,232, meaning they will pay $320 more in taxes.
Loser: Family of five, $100,000 a year
Luz and John have three children and live in New Jersey. They are paying off student loan debt from graduate school, and they paid large medical bills after their third child was born with complications.
They currently itemize their taxes, taking advantage of the SALT, mortgage interest, student loan, and medical expenses deductions. Under the House Republicans’ plan, they will pay more, not less.
Luz and John’s tax bill under the House Republican plan will go from $2,727 to $3,720. They will pay $993 more in taxes.
At the White House Thursday, President Trump met first with GOP Senators and then with Republican House leaders and members of the House Ways and Means Committee, the group tasked with writing the bill.
At the White House, Rep. Kevin Brady, the committee’s chairman, labeled the effort the administration’s newest way to ‘drain the swamp,’ one of Trump’s most popular campaign slogans.
‘The president is here today, leading on tax reform,’ Brady told reporters outside the West Wing. ‘He’s been traveling the country, his cabinet, everyone’s all in on this.’
‘So, you are seeing with singular purpose a unified effort to break the status quo, to drain the swamp of this tax code and change it for the better for the American people,’ Brady said.
The president put out a statement shortly after the tax package’s debut, applauding the efforts of the House’s Ways and Means Committee.
‘The special interests will distort the facts, the lobbyists will try to save their special deals, and some in the media will unfairly report on our efforts,’ Trump said.
‘But my administration will work tirelessly to make good on our promise to the working people who built our nation and deliver tax cuts and reforms – the rocket fuel our economy needs to soar higher than ever before,’ he said.
Democrats have responded fiercely to the plan, though if the entire Republican caucus embraces the bill, none of the opposition party’s votes are needed.
‘Today they have started to unveil a tax bill designed to plunder the middle class in order to put into the pockets of the wealthiest 1 per cent, more money,’ said House Minority Leader Nancy Pelosi at a press conference before the whole plan was revealed.
For Republicans in high-tax states, killing the state and local tax, or ‘SALT,’ deduction will likely be the hardest pill to swallow.
Pelosi already targeted California Republicans at her presser today.
‘The Republicans from California have gone straight down the line like lemmings to the sea to vote against the interests of their constituents, against the interests of our states,’ Pelosi said.
‘Our colleagues have gone off this deep end. We want to pull them back,’ she declared.
At that afternoon meeting at the White House with members of the House Ways and Means Committee, Trump articulated the timeline he’d like to see, beyond just promising the package as a Christmas present .
‘I want to have a bill on my desk, hopefully, Kevin, by Thanksgiving, if possible,’ he said, gesturing to House Majority Leader Kevin McCarthy, a California Republican.
‘And I want everybody in this room standing by me and we’ll add some other as we sign.’
Before that, the Republicans will have to sell the plan.
At a later afternoon press conference, Democrats suggested that wouldn’t be easy.
‘The bill is like a fish, it stays out in the sunlight too long, it stinks,’ said Senate Minority Leader Chuck Schumer, a Democrat from New York, who joined Pelosi at a joint presser.
While President Trump leaves for Asia tomorrow he’s leaving members of his cabinet behind, including Treasury Secretary Steve Mnuchin and economic adviser Gary Cohn, to sell the plan to regional media as they make stops around the United States.