Details on the Republican Tax Plan
Republicans Unveil Tax Plan. Some facts about the tax cuts and simplification proposal passed by the House. Among several items of improvement over current tax laws, here are 11 things you need to know and hopefully help you understand. After many hours of research, I have come to know this not a tax cut for the wealthy.
1. Corporate Taxes Are Slashed Dramatically. The proposal lowers the corporate tax rate from 35% to 20%. For example, that puts America in line with the U.K. rather than above virtually every other industrialized country. According to the International Tax Competitiveness Index the world wide average is 25%. Meanwhile, pass-through corporations will see their tax rates reduced from 39.6% to 25%. A pass–through entity (mostly small business owners) is a special business structure that is used to reduce the effects of double taxation. Pass–through entities don’t pay income taxes at the corporate level. Instead, corporate income is allocated among the owners, and income taxes are only levied at the individual owners’ level.
2. Individual Tax Rates Change. Instead of the current seven-bracket system, the number of brackets is reduced to four. High income earners will earn a slight reprieve for income between $418,400 and $500,000 (the top tax bracket now kicks in at $418,400); earnings of between $200,000 and $500,000 will be taxed at 35%, meaning a slight increase for some of those households; between $45,000 and $200,000, tax rates will be 25%; below $45,000, the income tax rate will be 12%.
3. The Bill Kills Medical Expense Itemized Deductions, As Well As Adoption And Student Loan Interest. This will be the provision the Democrats choose to target: if you have extraordinary health care costs, some of these costs will no longer be deductible. The tax deductions for adoption and student-loan interest also go away.
4. The Bill Limits Mortgage Deductions. The bill will reduce the amount of mortgage interest deduction available from loans up to $1 million to loans up to $500,000. This will particularly effect people who live in high real estate value areas.
5. Executive Compensation Becomes Less Deductible. As The Wall Street Journal points out: Businesses would lose the ability to deduct certain executive compensation above $1 million, which they can now do for performance-based pay.That means bonuses are no longer deductible for CEO, CFO and the “three other highest paid employees” at a company.
6. The Tax Reform Package Repeals The Johnson Amendment. The Johnson Amendment (Lyndon Johnson) now penalizes 501(c)3 religious organizations for supposed electioneering; under the new tax plan the law will allow religious organizations to speak politically and endorse candidates without losing their tax exempt status.
7. The Child Tax Credit Increases…Some. While some Republicans wanted the child tax credit increased to $1,800, the bill increases it to $1,600. The House bill also creates a $300 tax credit for non-child dependents, but those are phased out in 2022.
8. Removing State Tax Deductible. Right now, you can deduct the amount you pay in state taxes from your federal income. This bill would remove that capacity. The federal government will no longer subsidize higher tax rates in some states.
9. Standard Deductions Double. The first $6,000 of your income now tax exempt for a single filer will increase to $12,000. (no taxes on the first $12,000 of your income) The first $12,000 now tax exempt for a family joint filing will increase to $24,000. (no taxes on the first $24,000 of your income) This is a huge tax reduction for those who don’t itemize.(more than 70% of tax payers)
10. Total elimination of Inheritance Tax. The taxes now paid by your heirs of your estate will no longer be a part of the tax system. Your family will no longer have to sell the property in order to pay the taxes on it. This tax is also known as “The Death Tax.” Under current tax laws, virtually everything you own has been taxed as you lived and earned and accumulated it, and when you die it is all taxed again for you children to pay.
11. Tax code (laws) reduced, tax filing much simplified. The Tax Code is now more ten million words, nearly as long as seventeen volumes of Tolstoy’s, War and Peace. According to the Tax Foundation, the U.S. tax code was over 10 million words long at the end of 2015, growing by an average of 144,500 words per year since 1955. This doesn’t even include the substantial body of tax-related case law that we need to even understand the tax code. If you go on the IRS’ website, there are more than 100 pages of instructions explaining how to fill out a Form 1040 and what each line means. And this is the most basic tax form!
Amazingly, in the first 26 years of the federal income tax, the tax code only grew from 400 to 504 pages. Even through President Franklin Roosevelt’s New Deal, the tax code was well under 1,000 pages. Changes during World War II made the length of the tax code balloon to 8,200 pages. Most of the growth in the tax code came in the past 30 years, growing from 26,300 pages in 1984 to over 77,000 pages. today.
The new tax proposal will shrink the number of pages from more than 77,000 to only 429 pages. The majority of income tax filers will be able to do so on a single sheet of paper. The long complicated and cumbersome 1040 that you need a CPA to help you with, will be gone. Below are the current 7 brackets and tax rates & proposed 4 brackets and rate changes. Keep in mind this is taxable income, not gross income. Refer to your last year’s tax return to see where you will fall. Income thresholds are for married couple filing jointly. Display full screen to view properly.
Bracket….Current taxable income……….Current rate….Bracket…. Proposed rate….Proposed taxable income.
(1) More than $480,000 39.6% (1) 39.6% $1,000,000
(2) $424,950 to $480,000 35% (2) 35% $260,000 to $1,000,000
(3) $237,950 to $424,950 33% (2) 35% $260,000 to $1,000,000
(4) $156,000 to $237,950 28% (3) 25% $90,000 to $260,000
(5) $77,4000 to $156,150 25% (3) 25% $90,000 to $260,000
(6) $19,050 to $77,400 15% (4) 12% $0 to $90,000
(7) 0 to 19,050
While the lowest income rate would increase, typical families in the existing 10 percent bracket would most likely be better off because of a larger child tax credit and an increase in the standard deduction.
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