5 things to watch for in the GOP tax overhaul plan
House leaders are promising to unveil legislation Wednesday to overhaul the corporate and individual tax code, and President Trump and Republican leaders of the House and Senate are hoping to pass it before Christmas.
The bill builds off a framework released in September by Republican leaders and the White House, but that plan left may unanswered questions. Rep. Kevin Brady, R-Texas, said Tuesday that Wednesday’s bill may not be the final version; he may bring an amended version to the Ways and Means Committee hearing next week.
Nevertheless, here are a few issues worth watching:
What’s up with retirement savings?
House leaders are looking at reducing the amount of pre-tax money that can be deposited in a 401(k).
Right now, a worker under 50 can put as much as $18,000 a year in pretax money into an IRA, but that money and any earnings it generates would be taxable when withdrawn. One plan would drop the pre-tax maximum to $2,400; after-tax income deposited beyond that amount would not be taxable when withdrawn.
Trump has said 401(k)s would not be changed, but it remains to be seen whether he’d reject a bill that did change them if it reached his desk.
What bracket would I be in?
Early framework indicated the seven income tax brackets — which range from 10% to 39.6% — would be compressed to three: 12%, 25% and 35%. People paying 10% now would owe no income tax, and those in the 15% bracket now would drop to 12%, Brady said. But the brackets have not been defined, so it’s unclear, for example, at what point someone would go from 12% to 25%.
House Speaker Paul Ryan, R-Wis., said a fourth rate for those at the top of the income scale would also be added.
How about deductions?
Republican leaders have said they are almost doubling the standard deduction, but they also are eliminating the personal exemptions for a taxpayer and spouse, and they may eliminate exemptions for children as well. The bill is also likely to increase the child tax credit.
The framework said other deductions would be eliminated except for mortgage interest and charitable contributions. One known to be on the chopping block is the deduction for state income taxes or sales taxes. The deduction for local property taxes will be preserved, Brady said, but there could be new limits.
How fast do rates drop?
Some in Congress have said they want tax cuts to be retroactive to the beginning of 2017. Leaders involved have been vague about the timing.
The framework called for lowering the top corporate tax rate from 35% to 20%, and Trump has said he wants that to happen all at once. But the House could be looking to phase in the reductions over a number of years.
Do the rich get a windfall?
Along with potentially adding a fourth tax bracket for those at the top of the income scale, House leaders are also said to be reconsidering their initial call for eliminating the estate tax, which applies only to estates worth $5 million or more. One possibility is that the threshold for estates may be increased.