Major overhaul of U.S. tax code may come to pass by Christmas
By the barest of margins, the House and Senate have adopted major revisions to the federal tax code that are considered the most significant changes in more than 30 years.
For the most part, we endorse the package of rewritten laws that impact both citizens and the businesses sector, and we encourage the House and Senate to reconcile an acceptable, viable single piece of legislation for President Trump to sign.
In the early morning hours of Dec. 2, Senate Republicans passed a bill to overhaul the US tax code. In all, 51 senators voted in favor – all GOP members except Bob Corker (R-Tenn.) Not a single Democrat cast a favorable vote.
The following are major changes hammered out on Capitol Hill in those midnight hours. Some of them are likely to change when congressional negotiators get through with them. But right now, we generally like what we see, and feel it will be a benefit to individuals as well as the corporate world.
Because the bill is so long, only the part impacting individuals will be discussed this week. Changes in the corporate tax sector will be examined in next week’s column.
Both the House and Senate versions would alter personal income tax brackets, but in different ways. The House’s plan would reduce the current seven tax brackets to four. The lowest marginal rate would rise from 10% to 12%, and the highest rate would remain at 39.6%.
The revised Senate version would retain seven brackets, but the rates and the income levels they apply to would change from current law. The top rate would fall from 39.6% to 38.5%, while the lowest rate would stay at 10%.
Both proposals drop the marginal rate from 39.6% to 35% for those in the $480,050 to $1,000,000 wage range.
Regarding the filing of income tax, the House bill would raise the standard deduction to $24,400 for married couples filing jointly in 2018 (from $13,000 under current law), to $12,200 for single filers (from $6,500), and to $18,300 for heads of household (from $9,550). The Senate version would raise the standard deduction to $24,000 for married couples filing jointly, $12,000 for single filers and $18,000 for heads of household.
Both the House and Senate bills would eliminate the personal exemption, which will total $4,150 in 2018. The House would scrap the additional standard deduction for the blind and elderly; the Senate would retain it.
In a move to declaw an odious provision of “Obamacare,” Senate Republicans announced they will seek to end the individual mandate, a provision of the Affordable Care Act that penalizes individuals who do not obtain health insurance coverage. (Actually, the mandate would remain in place, but the penalty would drop to zero.)
The House bill would also raise the child tax credit from $1,000 to $1,600 and providing filers, spouses and non-child dependents with a temporary $300 credit. Only the first $1,000 of the child tax credit would be refundable initially, but this amount would rise to $1,600 with inflation. The $300 credit would end after five years.
The Senate would raise the child credit to $2,000 – originally $1,650 – with the first $1,000 refundable, and create a non-refundable $500 credit for non-child dependents.
Also, the House bill would scrap most itemized deductions, including those for medical expenses and student loan interest. The charitable giving deduction would be left unchanged, as would the mortgage interest deduction for existing homes.
New mortgages would be subject to a lower cap: married couples can currently deduct interest on mortgages worth up to $1 million. That figure would fall to $500,000.
Next week’s column will address changes in the corporate taxing structure.