Tax Reform Agreement Reached

The Senate passed their version of tax reform last week, and a House vote is now expected to take place on Tuesday as both chambers of Congress reconciled the differences in their respective tax plans.

As per CNBC, the bill released on Friday afternoon by the Tax Cuts and Jobs Act Conference Committee pegs the new tax brackets at 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent, reversing the prior plan to consolidate brackets. 

When it comes to the other notable changes, it’s mostly unpopular provisions in the Senate’s bill that got axed (such as a provision that would’ve taxed student stipends, or absolute removal of state and local tax/SALT deductions). Here’s the rundown:

• The final version of the Republican tax bill won’t increase taxes on graduate students who get breaks on their tuition. The provision had sparked outrage among graduate students who said the proposal would unfairly tax them on money they never saw. Given that the average graduate student stipend runs around 20k-25k annually, this clearly would’ve been a tax on the poor (and heavily indebted).
• The previous bills would have slashed the top corporate tax rate from 35 to 20 percent. The final legislation bumps that up to 21, to take effect immediately in 2018. The House initially planned on having the corporate tax reduction take effect in 2019, so even though this is one percentage point higher, it takes effect immediately.
• The Senate bill doubled the current child tax credit from $1,000 to $2,000, while making $1,400 of that refundable.
• The repeal of the ObamaCare individual mandate was kept.
• The House bill would have fully repealed the 40 percent estate tax for inheritances worth more than $5.49 million for individuals and $10.98 million for families. The estate tax remains in effect, but the thresholds will be doubled in 2026 (meaning an individual would be entitled to up to $11 million in tax free inheritance before the estate tax kicks in).
• Americans currently can deduct up to $1.1 million in mortgage interest against their income, and while the House would have moved that cap down to $500,000, the final bill settled at $750,000. Granted, most people’s annual mortgage interest expense is in the single-digit thousands anyway.
• A provision meaning that stocks & bonds would be taxed at a “first in, first out” basis, was removed. In effect, that provision would’ve required stockholders to sell any shares they acquired at earlier dates before shares they acquired at later dates (which would boost their effective tax rates, since the largest gains would be on shares they held the longest). The bill also would’ve had negative tax implication for ETF funds, though mutual funds were to be excluded from the rule (apparently they have a stronger lobby).

Looking good?

Now all they need to do is cut spending and we’ll be well on our way towards making America great again.

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