Tax Reform: Congressional Republicans Release Proposed Tax Bill

Finally we have something to look at in the movement toward tax reform. At the end of this post there are two links (1) a 90 page “summary” of the tax reform bill and (2) the tax reform bill known as the Tax Cut and Jobs Act.

On a quick perusal of the 425 page bill, the thrust of the bill is as follows:

  • Increase standard deduction
  • Fewer income tax brackets
  • Many deductions eliminated (the charitable and mortgage interest deductions are essentially intact)
  • Reduced corporate tax rate to 20%
  • Reduced non-corporate business tax rate to 25%
  • Elimination of the Alternative Minimum Tax
  • Estate and Gift Tax exemption increased to $10,000,000 per person
  • Phase out of Estate and Generation Skipping Taxes to repeal after 2023
  • Retention of step-up income tax basis upon death

The proposed bill more than doubles the standard deduction to $24,400 for married couples, $18,300 for head of household and $12,200 for all other filers.  The tax brackets have been compressed from 7 to 4 (12%, 25%, 35% and 39.6%). The maximum rate is still 39.6% for especially high earners.  Both the standard deductions and the tax bracket thresholds are indexed for inflation.

The proposed rates and threshold income at which each bracket kicks in is as follows:

Married filing Joint Married filing Separately Head of Household Single Estate
12.0% $24,400.00 $12,200.00 $18,300.00 $12,200.00 $    –
25.0% $90,000.00 $45,000.00 $67,500.00 $45,000.00 $2,550.00
35.0% $260,000.00 $130,000.00 $200,000.00 $200,000.00 $9,150.00
39.6% $1,000,000.00 $500,000.00 $500,000.00 $500,000.00 $12,500.00

The act also repeals many itemized deductions for individuals.   This includes the deduction for state income taxes which primarily affects “blue” states such as New York and California.

As a side note, I ran the numbers and without itemizing, the tax “cut” was fairly modest and increased taxes on occasion.  For households of modest income that do not itemize, this ought to provide some tax relief (though I’d like to see the numbers taking into account refundable tax credits).

On the other hand, if you’re a high income earner and itemize, then it looks like what got cut was your deductions—not your taxes.

The Tax Cut and Jobs Act is highly unlikely to pass without any changes.  There are many obstacles to the passage of tax reform at all including members of the Republican Party.

With respect to the estate tax, even if this bill becomes law I caution you against considering the estate tax gone forever.  Just as Obamacare is (potentially) subject to repeal by the GOP, the estate tax could come right back should Democrats regain congressional control. Think of it as an opportunity to plan.

Click here to read a 90 page “summary” of the tax reform bill.

Click Here to read the tax reform bill.

Stay tuned.

Rob Malin, Esq.

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