Tax reform has taken giant leaps toward the finish line as the Senate and House versions attempt to adhere to President Donald Trump’s campaign promises of tax relief for the middle class and the business environment.
Among the most important aspects of the plans are cutting taxes for working families, reducing corporate taxes to boost the economy, and simplifying the tax code. A proposed one-page form could save the majority of taxpayers valuable time and preparation costs, but some observers say it will be difficult to accomplish.
Critics argue the tax cuts could increase deficits significantly over the years without bringing about substantial economic growth. Supporters are elated over the potential for the biggest tax cuts since the Reagan era and a subsequent economic boom.
Following passage of the House bill and measures from the Senate Finance Committee, tax reform now goes to the Senate floor. Although Trump is confident a tax plan can be finalized by the end of the year, there is no guarantee when lawmakers from both chambers will reconcile differences in their versions to reach a vote.
Here are eight of the most important things to know about tax reform:
1. Middle income tax cuts — Trump proposed reducing the number of tax brackets from seven to three, making the first $12,000 of income for individuals and $24,000 for married couples tax free. The proposal also included an increased Child Tax Credit and the creation of tax credits for people taking care of the elderly and adult dependents, according to The Blaze.
2. Individual tax rates — Individuals making less than $37,500 and married couples making less than $75,000 would be in the 12-percent bracket in Trump’s initial proposal, MarketWatch reported. Individuals making $37,500 to $112,000 would be in the 25-percent bracket along with married couples bringing in between $75,000 and $225,000. Individuals earning more than $112,000 and married couples with more than $225,000 in income would be in the 35-percent bracket.
3. Tax brackets — Congress is still working out income levels for the different brackets. The House bill reduced the number to four while the Senate bill retains seven, National Review noted. The Senate version reduced the top rate to 38.5 percent. The House bill keeps the 39.6-percent top rate.
4. Corporate tax rate — Both the Senate and House plans cut the corporate tax rate from 35 percent to 20 percent. The House plan would be effective in fiscal year 2018, while the Senate plan would have it take effect in 2019. Average American households could increase wages and salaries by $4,000 to $9,000 a year, the White House stated, citing an analysis by the Council of Economic Advisors. Reduced corporate tax rates allow higher wages for workers.
5. Standard deduction doubles — Taxpayers would see the standard deduction doubling under either plan with the House version $200 to $400 higher, depending on filers. Single filers would have a standard deduction of $12,000 or more; heads of households, $18,000 or more; and joint filers, $24,000 or more.
6. Estate taxes — Many Republicans had hoped to eliminate the estate tax. The House and Senate bills increase the exemption to more than $10 million for singles and $22 million for married people. The House bill eliminates the estate tax after 2024, Forbes explained.
7. Repeal of healthcare requirement — The Senate plan includes a repeal of the mandate under the Affordable Care Act for individuals to buy health insurance. The House plan does not include that because representatives decided to vote on it separately.
8. State and local tax deductions — Both the House and Senate plans eliminate deductions for state and local taxes, except for businesses, but the House bill keeps local property-tax deductions with a cap at $10,000.
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