USA TODAY International Edition
President’s tax overhaul: Winners, losers, unknowns
Trump’s proposed ‘framework’ has much left to be worked out
Working poor people could owe no income tax, filing a return could get much simpler, and there would even be a new credit for caring for elderly relatives under a tax “framework” proposed Wednesday by President Trump and Republican leaders in Congress.
The plan cuts the top corporate tax rate dramatically and creates a new top rate for small businesses that is lower than the top rate for individuals.
The proposal also eliminates two taxes paid entirely by the wealthy while taking away a deduction for state and local taxes that is used most heavily in some of the most wealthy, and Democrat-dominated, states.
Exactly how many other deductions and credits disappear to help pay for it all, and how much gets added to the deficit or must be offset with other budget cuts, may not be worked out for a while — even though Republicans are eager to move taxes to the front burner after another defeat this week on revamping health care.
The goal is to adopt a new tax code by the end of the year, but that’s also when business such as setting the 2018 budget that Congress planned to tackle this month but postponed is supposed to be completed. So the odds of the plan being enacted are still uncertain.
Here’s a look at who benefits and loses under the proposal, which is being billed as a boost for working families, and what still needs to be worked out. It’s based on a plan distributed to House Republicans at a retreat away from Capitol Hill on Wednesday morning.
FEWER BRACKETS, NEW RATES
The seven individual income tax brackets in place now, which range from 10% to 39.6%, would be replaced by 12%, 25% and 35%.
Congress may, however, add a bracket higher than 35% if it needs to ensure that the overhaul “does not shift the tax burden from high-income to lower- and middle-income taxpayers,” the plan said.
Income levels for each tax rate are to be determined, so it’s not possible at this point to determine how individual taxpayers would be affected.
The proposed bottom rate of 12% is higher than the 10% the White House said it was seeking in a one-page list of goals for tax reform released in April. But people paying 10% now may not owe any tax under the new plan.
“We flatten out the tax code, lowering the rates at every level so people can keep more of what they earn,” said Rep Kevin Brady, R-Texas, chairman of the House Ways and Means Committee.
The plan would nearly double the standard deduction, the amount subtracted from incomes before the tax rate is applied. The deduction would grow from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples.
House leaders have said that the plan would simplify the tax code so much that most people would be able to file their returns on a postcard.
OTHER CREDITS, DEDUCTIONS
The goal of a new tax code was to eliminate the deductions and credits that benefit disparate groups and use the savings to lower rates overall. How much of that would happen remains unclear.
The plan calls for increasing the child care tax credit, now $1,000 per child, depending on the parents’ income. It also would remove a “marriage penalty” that allows two single parents making up to $75,000 each, or $150,000 combined, to get the full credit but begins to shrink the credit for married couples when their incomes exceed $110,000.
A new $500 credit also would be created for non-child dependents, such as an elderly relative.
STATE/LOCAL TAXES
Taxpayers would no longer be able to deduct what they pay in state or local income or property taxes, a deduction that helps offset high tax rates in such states as California, Connecticut, New Jersey and New York.
CORPORATE TAX RATE
Corporations would see their top tax rate drop from 35% to 20%, which is higher than the 15% Trump wanted but comparable to or lower than the rate for other major industrial nations.
The tax code would begin to transition from a system that taxes American companies based on worldwide profits to a territorial system based on domestic profits alone. Companies with cash held by overseas subsidiaries would be encouraged to bring it back to the United States through a temporary low tax rate, which was not immediately identified.
The plan also would eliminate the corporate alternative minimum tax, which seeks to prevent companies from using credits and other provisions to lower their tax rates too much.
TAXES ON THE WEALTHY
The plan eliminates the individual alternative minimum tax, which is designed to prevent people from avoiding tax entirely through deductions and credits and is overwhelmingly paid by the rich.
The plan also eliminates the estate tax, which is charged on estates worth about $5.5 million or more. Supporters of eliminating the tax say it can force familyowned businesses to be broken up and sold to pay taxes, affecting workers’ jobs.