The Republican tax plan has landed.
After months of secretive negotiations, Republican leaders on Wednesday released their plan for a sweeping overhaul of the tax code. The plan calls for lower rates on individuals and families while ensuring that the share of taxes paid by the wealthy does not fall. It would slash the corporate rate to 20 percent, down from 35 percent today. Small businesses would get a 25 percent tax rate with unspecified rules aimed at preventing wealthy owners from classifying wage income as business income.
Republican leaders are meeting Wednesday with rank-and-file lawmaker to sell the plan. President Donald Trump will give an address in Indiana to promote the plan to the American people. There’s even a provision that would allow for a surcharge on the wealthy, which the administration hopes will bring some Democratic lawmakers around to supporting the plan.
Here’s a quick breakdown.
Individuals and Families.
The Republican plan would greatly simplify the tax code by reducing the current seven tax brackets down to three: 12 percent, 25 percent, and 35 percent. It mentions the potential for one additional top rate “to ensure that the wealthy do not contribute a lower share of taxes paid than they do today.”
Although the lowest rate rises from a current 10 percent to 12 percent, it is unlikely that this would amount to an increase in the tax bills of any taxpayer. That’s because the proposal also nearly doubles the standard deduction and increases the child tax credit.
In another pro-family move, the proposal also calls for a new $500 credit for non-child dependents, such as grandparents and disabled adults.
Many of these moves represent breaks from Republican orthodoxy. Most importantly, the plan insists that it will not lower the share of taxes paid by the wealthy. And many supply-side Republicans are skeptical of the “economic value” of child tax credits.
The plan also calls for the end of the alternative minimum tax, a provision that was originally designed to ensure that the wealthy would not be able to avoid taxes altogether but which has become a burden on the middle class due to inflation and bracket creep. The “death tax” would also be ended.
The plan would preserve the mortgage interest deduction and the charitable giving deduction.
The plan released Wednesday still lacked a number of important details, including when the different tax brackets kick-in. For example, will all income now taxed at 33 percent be taxed at 25 percent? Or will some of it get pushed into the upper tax bracket? Details like these will determine how the plan will impact taxpayers at different levels of income.
Small business income that currently gets taxed at the personal rate would be taxed at 25 percent. This is one of the biggest changes in the proposal and one that has one of the greatest potential impacts in terms of generating economic growth.
Companies would be allowed to immediately write off investment expenses, though only for five years. Most economists expect this change to provide a one-time economic boost, making Trump’s goal of achieving higher growth levels more achievable. The plan mentions limits to interest deductions but provides no specificity.
The corporate tax rate would be cut to 20 percent, higher than the 15 percent Trump reportedly wanted but far below today’s 35 percent rate.
As first reported by Breitbart News, the plan would impose a one-time tax on foreign earnings currently held overseas by U.S. multinational corporations. This is a combination of a “repatriation holiday” with what amounts to a forced repatriation. Going forward, he U.S. would adopt a “territorial system” where the U.S> government would no longer attempt to tax companies’ overseas earnings. It also envisions a minimum corporate tax aimed to ensure that companies operating in tax haven countries are not able to avoid paying taxes altogether.
The plan released on Wednesday is more of a framework than a final product. Many details will need to be worked out, including limits on pass-throughs, limits on corporate deductions, and income levels for different tax brackets. The plan is vague, for instance, about what happens to the deductions for state and local taxes that many expect to be on the chopping block.
A lot of this work will be done by the tax-writing committees in Congress. And, of course, special interests and their lobbyists will fight tooth-and-nail to preserve their cherished deductions and loopholes.
“Now comes the hurricane,” one long-time tax lobbyist to Breitbart News.