On November 2, Speaker of the House Paul Ryan (R-WI) and House Ways and Means Committee Chairman Kevin Brady (R-TX) published the Tax Cuts and Jobs Act (TCJA). The long-awaited bill proposes major reforms for individual and corporate taxes.
Chairman Brady supported the bill and stated, "Today marks the beginning of the end of our nation's broken tax code. The Tax Cuts and Jobs Act will deliver real tax relief to Americans across the country - especially low and middle-income Americans who have been struggling for far too long to earn a raise and get ahead."
Senate Majority Leader Mitch McConnell (R-KY) echoed the favorable comments of Brady. He noted, "Today, the House of Representatives put a big step forward in our effort to help provide the American people with a robust economy that reaches for its full potential: that puts more money in middle-class pockets, that produces better jobs for workers, that secures more opportunity for our children."
House Ways and Means Ranking Member Richard Neal (D-MA) opposes the tax reform act. He stated, "A rushed, partisan and secret process yielded over 400 pages of broken promises to middle-class families. This bill falls short of reform, falls short of middle-class tax relief and falls short of the fiscal principles to which Republicans have long held themselves."
The individual provisions are designed to simplify taxes. With the standard deduction doubled to $24,000 for married couples and $12,000 for single persons, over 90% of Americans will be able to use a "postcard" tax return, which would include the taxpayer's income, retirement plan deductions, standard deduction and tax payment.
The other individual provisions are designed to simplify the tax process.
- Tax Rates - The new rates would be 12%, 25%, 35% and 39.6%.
- Retirement Plans - Retirement plan contributions would continue to be deductible as in prior years.
- Home Mortgage Deductions - Interest on loans for a primary residence would be deductible for mortgage amounts up to $500,000.
- Property Taxes - Property taxes would be deductible up to a limit of $10,000 a year.
- Charitable Gifts - Taxpayers would be able to continue to deduct cash gifts with a higher potential limit. The limit is increased from the current 50% to a higher amount of 60% of adjusted gross income.
- Other Deductions - Most other itemized deductions would be repealed.
- Alternative Minimum Tax (AMT) - The AMT would be repealed.
- Estate Tax - There would be an increased basic exclusion amount of $10 million. The estate tax would be repealed in 2023.
This overview of the 429 page proposed tax reform act is offered as an educational service for our readers. If major tax reform passes, it will impact all Americans. The Senate is expected to publish its tax reform bill within two weeks. The House hopes to vote on TCJA by Thanksgiving. After both the House and Senate pass tax reform acts, there will be a conference to draft the final bill. While House and Senate leaders are optimistic, it will be difficult for Congress to pass a comprehensive tax bill prior to the end of this year.