The House just passed its big tax bill. Here’s what is in it and what deductions vanish.

 In U.S.
President Donald Trump and GOP House Speaker Paul Ryan, Wis., won a major victory as the House passed the tax bill Thursday, the central piece of the Republican plan to boost the U.S. economy. No Democrats voted for the bill. Ryan could lose 22 GOP votes, but in the end, he only lost 13.

The legislation would affect every American household and business owner. The bill was first introduced Nov. 2 and was voted on just two weeks later, leaving little time for analysis or debate on the 440-page legislation. The next step is for the Senate to pass its version and then for both chambers to reconcile their substantial differences.

The main goal of the House’s “Tax Cut and Jobs Act” is to lower taxes on companies in an effort to make them more competitive and discourage them from moving abroad. The bill reduces the corporate tax rate from 35 percent to 20 percent and the rate for pass-through businesses down to 25 percent (with some restrictions). Many families would also pay less, although Ryan has admitted that won’t be the case for everyone. Here’s a rundown of what is actually in the final version of the bill that passed.

It keeps the Affordable Care Act’s individual mandate. The House voted on a tax bill only. The Senate bill includes a provision to scrap the legal requirement that almost all Americans buy health insurance or pay a penalty. The House isn’t touching that, which may lead to a showdown between the two chambers if they have to resolve their very different versions of the bill.

Big businesses win. The House bill cuts the top rate that large corporations pay from 35 percent to 20 percent, the biggest one-time drop in the big-business tax rate ever. It is a permanent change that does not expire. On top of that, companies would get some new tax breaks to help lower their bills, such as the ability to deduct all the costs of purchasing new equipment for five years, as well as a special low rate on any money they bring back to the United States from low-tax countries such as Ireland. Many businesses have been holding cash overseas to avoid 35 percent U.S. taxes. Now they would get to bring the money home at a tax rate of 12 percent.The entire business tax system would also change from a worldwide system, in which money anywhere around the globe is taxed, to a territorial system in which it’s mostly money made in the United States that is taxed. Businesses have long lobbied for this change.

Small businesses get a mini-win. The National Federation of Independent Businesses, the largest small business lobby, initially was against the House bill, but Republicans made some changes and now the NFIB is giving its blessing. 95 percent of American businesses are organized as pass through companies (LLCs, S-Corps, partnerships), and they “pass through” the business income to the owner’s individual tax rate. The House plan lowers the top rate from 39.6 percent to 25 percent for small businesses (excluding “service companies” like consultants and lawyers) and requires a complex formula where the 25 percent rate only applies to about 30 percent of the business income. But the reality is most small businesses – 85 percent – already pay taxes at rates of 25 percent or less. To help out the small “mom and pops,” the final bill has a 9 percent rate on the first $75,000 in income for business owners making $150,000 or less. But that tax break phases in, meaning it isn’t fully available until 2022.

The rich do very well. The wealthy get a lot of benefits in the bill. The estate tax, which is paid only when property and other assets worth over $5.5 million are passed on to heirs, doubles to about $11 million in 2018 (around $22 million for couples), meaning a lot fewer people have to pay it. And the estate tax goes away entirely in 2024. The mega-wealthy also would get to keep charitable deductions, a popular way that lowers their tax bills, and they no longer would have to pay the alternative minimum tax (AMT), a safeguard against excessive tax dodging that’s been in place since 1969. Some wealthy business owners would be able to take advantage of the lower pass-through rate as well. Overall, the Tax Policy Center found that half the benefits of the bill go to the top 1 percent by 2027.

Donald Trump would probably benefit a lot. As The Washington Post explains, many parts of the bill help Trump. One of the interesting ones is that the lower 25 percent pass-through rate would apply to all income for passive real estate investors like Trump, a much better deal than most active pass-through business owners get.

Most Americans pay the same – or lower – taxes until 2023.For the next five years, the vast majority of Americans (92 percent) would either pay less or see little change, according to the official estimates from the Joint Committee on Taxation. But that shifts sharply after five years. In 2023, only 40 percent of Americans would pay less. Twenty-two percent would pay more (the rest see little change), JCT found.

By 2023, a key middle-class tax break expires. Many of the people facing tax hikes are solidly middle class ($40,000 to $75,000) or else in the “upper upper” middle class ($200,000 to $400,000), JCT found. A key savings for the middle class – the Family Flexibility Credit – goes away after 2022. The House bill also uses a low measure of inflation after 2022, meaning more and more people start to jump from the 12 percent tax bracket to the 25 percent bracket (which starts to kick in at $67,500 for heads of households). Higher income earners are impacted by the elimination of numerous itemized deductions (see more explanation on those below).

Taxes will get simpler for many. The House bill collapses the seven tax brackets the country has down to just four (12 percent, 25 percent, 35 percent and 39.6 percent). The top rate becomes a “millionaire rate” applying to income of $1 million or more a year for couples (and of $500,000 or more for individuals).

In an effort to simplify, the House bill also does away with many of the credits and deductions and replaces them with a larger standard deduction, a slightly larger child tax credit ($1,600 per kid versus $1,000 now) and a new Family Flexibility Credit worth $300 a year for individuals and $600 for couples. The larger standard deduction means the first $12,000 for individuals and $24,000 for couples is tax-free.

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