The House GOP released their 2018 tax plan a few weeks ago, hoping to get it passed and sent on for a vote in the Senate by the end of November.
As we reported previously, there’s plenty to like, and dislike, in the plan. Among the tax decreases in the plan include:
- Consolidation of the seven income tax brackets into three, with rates of 12%, 25%, and 33%.
- Increasing the standard deduction from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
- Establishing a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600
- Preserving the Child and Dependent Care Tax Credit
- Preserving the Earned Income Tax Credit
- Preserving the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000, half the current $1,000,000
- Continuing to allow people to write off the cost of state and local property taxes up to $10,000
- Repealing the Alternative Minimum Tax
- Lowering the corporate tax rate to 20% – down from 35%
- Reducing the tax rate on business income to no more than 25%
- Allowing businesses to immediately write off the full cost of new equipment
- Retaining the low-income housing tax credit
On the other hand, the plan retains the mortgage interest deduction, but with a cap of $500,000 of principal on newly purchased homes, and eliminates the deductability of state income taxes. Additionally, to counteract part of their gains from lower marginal tax rates, there’s a “millionaire surcharge,” or “bubble tax,” where a 6% tax is added to income between $1,000,000-$1,200,000, then phased out.
In regards to business taxes, the bill allows small businesses currently being taxed at an individual rate to be taxed at a 25% rate. But there’s a catch (via Axios): “The default option is for 30 percent of income to be deemed business income, while the other 70 percent would be taxed at the filer’s individual rate. The business income would be taxed at the 25 percent rate, while the rate for the individual income would be higher.”
So obviously, there’s room for improvement, and the Heritage Foundation’s Daily Signal has a few ideas:
- Lower marginal rates at every level.
“As mentioned previously, the plan would claw back the benefit of the lower marginal rates for top earners by introducing a new bubble rate, which would temporarily increase the marginal tax rate to 45.6 percent, kicking in at $1 million for individuals and $1.2 million for married couples.”
“After the phaseout, at a 6 percent rate, the 39.6 percent rate would kick back in. It would also potentially set these taxpayers up for a large future tax increase, making the same mistake from 1986 when the then-bubble rate of 33 percent was expanded to all income beyond the threshold.”
- Increase expensing
“The most pro-growth component of tax reform is permanent, full, and immediate expensing of all business costs. This provision alone could allow the economy to grow 5 percent larger and create 1 million jobs over the next decade.”
“Currently, the Tax Cuts and Jobs Act would leave most, if not all, of the benefit of this provision behind by pursuing expensing as a temporary, five-year policy and limiting it to new equipment.”
- Maintain the commitment to a territorial tax system.
“The proposed tax reform plan promises a territorial tax system, but then walks back many of the new territorial system’s features by imposing various new rules on international activity.”
“The current U.S. system of worldwide taxation attempts to tax all U.S. corporate profits, even those earned in other countries, minus a credit for taxes paid elsewhere. The tax on these overseas profits can be deferred by keeping foreign profits overseas.”
“This system incentivizes American firms to move their headquarters overseas through a process known as corporate inversions. Prominent examples include Burger King and Anheuser-Busch moving to Canada and Belgium, respectively.”
- Repeal the individual mandate of Obamacare.
Repealing the individual mandate would provide significant tax relief to working-class Americans.
From the report: “Repealing the unpopular tax penalty for not buying insurance under Obamacare would actually benefit tax reform, as the Congressional Budget Office estimates that over 10 years the tax change would increase federal revenue by $338 billion, helping finance some of the other changes described above.”
Eight million people paid the penalty ($3 billion total) for not having insurance in 2016. Repealing the individual mandate would essentially rip the heart out of Obamacare. When Democrats fearmongered over the 20+ million who would lose insurance if the GOP passed their Obamacare replacement plan, 73 percent of those who “lost” insurance would simply not voluntarily purchase it in absence of the individual mandate.
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