The massive Republican tax plan is set to be released - here's what to expect
- The House GOP's massive tax reform bill is set to drop on Thursday.
- Details are starting to emerge - including a new proposed top tax rate and a compromise on the state and local tax deduction.
- The bill is the biggest step yet toward the GOP's promised overhaul of the US tax code.
House GOP leaders on Thursday are set to take their biggest step yet in their attempt to overhaul the US tax code by releasing legislation that proposes sweeping changes to the current system.
The bill will include a broad set of proposed changes to the corporate and individual tax system, building off a nine-page framework the White House and congressional Republican leaders dropped in September.
President Donald Trump reiterated his desire to get the tax bill on his desk by Christmas during a meeting at the White House on Tuesday. The president also concurred with the timeline House Ways and Means Committee Chair Kevin Brady, the author of the tax bill, has laid out. He wants to pass the plan through the House by Thanksgiving.
While the initial plan will be released Thursday, many GOP members are already suggesting that the bill could be rewritten over the weekend before a markup in the Ways and Means Committee on Monday.
This would allow Republicans to continue on track for their timeline, while also giving tax writers some leeway to solve issues some members might have with the bill.
Here are a few things to watch out for based on a trickle of details that are leaking Thursday morning:
- The highest tax bracket will remain at 39.6%: According to reports, the plan will include a fourth marginal tax bracket on high-income earners. It could apply to people making more than $750,000 or $1 million a year.
- A deal on the state and local tax deduction: One of the biggest hangups for Republicans in states like New York, New Jersey, and New York has been the proposed elimination of the state and local tax (SALT) deduction. The benefit allows people to deduct those taxes from their federal bill. Brady said Tuesday the GOP reached a deal that would allow people to deduct state and local property taxes but not income or sales taxes.
- Corporate tax cut will be immediate and permanent: What exactly to do with the corporate tax rate has been a fluid situation over the past week, but it appears the cut to 20% from the current 35% will happen as soon as the tax bill cuts in and is designed to be permanent. Reports on Monday suggested Republicans were considering phasing in their proposed slash of the corporate tax rate over five years, with the rate declining by 3 percentage points a year and eventually hitting 20% in 2022. On Tuesday, Republicans were considering making the tax cut only temporary and a phase out of the tax cut in the last year of the 10-year budget window.
- Elimination of the estate tax: The tax, which only applies to estates with greater than $5.6 million in assets during 2018, would likely be phased out over a few years - one report says it would be eliminated by 2024. The Senate GOP appears to be mulling the preservation of at least part of the tax.
- Repatriation tax rate: The repatriation rate on overseas assets for US companies would be as high as 12%. The bill also may include a mandatory repatriation of all foreign assets. Illiquid assets would be taxed at a lower rate, spread out over a longer period of time than liquid assets like cash.
- No repeal of Obamacare's individual mandate: Despite Trump's last minute push to eliminate the penalty for not having insurance, such a provision will not be included in the plan.
- No changes to 401(k) plans: Despite a back and forth between House tax writers and the White House that appeared to suggest some change to retirement savings accounts would be included in the tax bill, there will be no changes in the first iteration.
Here are some other elements from the framework expected to remain in the bill:
- A 20% corporate tax rate. Trump has publicly backed down from one of his earliest campaign promises: a 15% corporate tax rate. The budget math required for a 15% rate was too difficult, so the somewhat higher rate is the opening bid. The current statutory federal rate is 35%.
- A 25% rate for pass-through businesses. Instead of getting taxed at an individual rate for business profits, people who own their own business would pay at the so-called pass-through rate. The framework also said it will consider rules to prevent "personal income" from being taxed at that rate. Mnuchin previously suggested there may be limitations on what types of businesses get this rate - it could apply only to goods producers and not service-oriented companies to prevent people from creating limited-liability corporations to store their assets and receive a lower rate.
- A larger standard deduction. To avoid raising taxes on those currently in the 10% tax bracket, the standard deduction for all taxes would increase to $12,000 for individuals (up from $6,350) and $24,000 for married couples (up from $12,700). These are slightly less than the doubled deductions expected - and as Business Insider's Josh Barro noted, the idea that this would save people money may be misleading since it eliminates other personal deductions and a secondary standard deduction.
- Elimination of most itemized deductions. The only deduction preserved explicitly in the plan is for charitable gifts and home-mortgage interest.
- Repeal of the alternative minimum tax (AMT): The tax, which forces people who qualify due to an outsized number of deductions, will be eliminated. Incidentally, Trump's own tax bill has been shown to be millions of dollars more due to the AMT.
- Increase in the size of the child tax credit. A pet project of Ivanka Trump, the proposal is to make the first $1,000 of the child tax credit refundable and increase the income level at which the credit would phase out.