Tax cut windfalls
GOP eyes huge slash to biz rate, middle-class relief
WASHINGTON — Businesses would receive huge tax cuts and many middle-class Americans would see relief under a tax overhaul outline agreed to by President Trump and top congressional Republicans, according to people familiar with the plan.
But many of the specifics, such as whether the individual tax cuts would favor the wealthy, are still to be worked out.
After months of high-level negotiations, Trump will pitch what the party is calling its “unified tax reform framework” during a speech in Indianapolis on Wednesday. Lawmakers still must work out crucial details as they try to craft legislation and pass it by the end of the year.
Republican leaders have acknowledged the plan, if enacted, initially would add to the budget deficit. They claim that stronger economic growth spurred by the tax cuts eventually would offset the deficit increase. Democrats challenge that, based on experience with past tax cuts.
According to people familiar with the plan, it calls for slashing the 35% U.S. corporate tax rate to 20%. That’s not as low as Trump wanted, but it’s still a gigantic reduction, to the lowest top rate since 1940. The United States no longer would tax most foreign earnings.
Businesses have been lobbying heavily for a reduction in the corporate rate. It’s the highest rate among developed nations, although many companies pay a lower rate, if any tax at all, by using loopholes and deductions.
So-called pass-through businesses that pay taxes through the individual code — from mom-and-pop operations to large partnerships such as law firms, hedge funds and some of Trump’s own businesses — would see their top tax rate drop to 25% from 39.6%.
For individuals, there is much less clarity.
The current seven tax brackets would be reduced to three: 12%, 25% and 35%. But Congress still must determine what the income levels are for those brackets.
The lowest tax bracket would increase from the current 10%. And the highest current tax bracket of 39.6%, which applies to income over $418,400 for single filers, would be eliminated.
The estate tax, which largely hits the wealthy, would be axed.
Many individual deductions also would be eliminated in an effort to simplify the tax code. The most notable is the deduction for payment of state and local taxes, which would be a big hit to residents of states with high taxes and wealthy residents.
The deductions for mortgage interest and charitable contributions would be preserved, but they could be scaled back.
The increase in the lowest tax bracket would be offset by nearly doubling the standard deduction, to $24,000 for married filers. That would be a major benefit to taxpayers who don’t have enough deductions to itemize.
The existing tax credit of as much as $1,000 per child would be made substantially higher, but the figure hasn’t yet been determined.
The outline comes with a promise that the tax overhaul will be focused on relief for the middle class.
“We will cut taxes tremendously for the middle class. Not just a little bit, but tremendously,” Trump told reporters at the White House on Tuesday.
The House Republican plan would add $3.1 trillion to the deficit during its first decade because of reduced tax revenue.