House Republicans released a sweeping overhaul tax plan on Thursday, November 2nd which includes a broad set of proposed changes to the corporate and individual tax system. Below is summary of major changes proposed.
New individual tax brackets
| Single filers | |||
| 2017 | Proposed under Trump’s Tax Plan | ||
| 10% | $0 – $9,325 | 12% | $0-$45,000 |
| 15% | $9,326 – $37,950 | ||
| 25% | $37,951-$91,900 | 25% | $45,001-$200,000 |
| 28% | $91,901-$191,650 | ||
| 33% | $191,650-$416,700 | 35% | $200,001-$500,000 |
| 35% | $416,701-$418,400 | ||
|
39.6% |
$418,401 or more | 39.6% | $500,001 or more |
| Standard Deduction: $6,350 | Standard Deduction: $12,000 | ||
| Personal exemption: $4,050 | Personal exemption: Eliminated | ||
| Joint filers | |||
| 2017 | Proposed under Trump’s Tax Plan | ||
| 10% | $0 – $18,650 | 12% | $0-$90,000 |
| 15% | $18,651-$75,900 | ||
| 25% | $75,901-$153,100 | 25% | $90,001-$260,000 |
| 28% | $153,101-$233,350 | ||
| 33% | $233,351-$416,700 | 35% | $260,001-$1,000,000 |
| 35% | $416,701-$470,700 | ||
|
39.6% |
$470,701 or more | 39.6% | $1,000,001 or more |
| Standard Deduction: $12,700 | Standard Deduction: $24,000 | ||
| Personal exemption: $8,100 | Personal exemption: Eliminated | ||
Other Changes:
- Itemized Deductions: Retains the mortgage interest and charitable deductions, as well as property tax deductions (capped at $10,000), but eliminates the remainder of state and loan tax deductions and other itemized deductions
- Other Deductions and Exclusion: Caps the mortgage interest deductions at $500,000 of principal of new home purchases. Eliminates the moving deduction, educator expense deduction, and exclusions for employer-dependent care programs, among others. Makes changes to the exclusion of capital gains on home sales.
- Family Tax Credits: Replaces the personal exemptions for dependents with an expansion of the child tax credit from $1,000 to $1,600, while increasing the phaseout threshold (from $115,000 to $230,000 for married filers). The first $1,000 will be refundable.
- Alternative minimum tax: Eliminates alternative minimum tax.
Business Taxes
- Corporate Tax Rate: Lowers the corporate tax rate from 35 to 20 percent.
- Pass-Through Rate: Creates a new 25 percent maximum tax rate on pass-through business income, subject to anti-abuse rules.
- Pass-Through Anti Abuse Rules: 70 percent of income derived from a business is compensation subject to ordinary rates of the owners and 30 percent is business income subject to the maximum 25 percent rate for active owners. Certain specified service industries, like health, law, financial services, professional services, and the performing arts are excluded from the 70/30 split and can only claim the benefit of the lower pass-through rate to the extent that they can “prove out” their business income.
- Capital investment: Allows full expensing of short-lived capital investment (currently subject to “bonus” depreciation), such as equipment and machinery, for five years. Increases Section 179 expensing from $500,000 to $5 million and increases the phaseout threshold from $2 million to $20 million.
- Tax Treatment of Interest: Limits the deductibility of net interest expense on future loans to 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA), with a five-year carryforward, for all businesses with gross receipts of $25 million or more.
- Alternative Minimum Tax: Eliminates the corporate alternative minimum tax.
- International Income: Moves to a territorial tax system, in which foreign-source dividends and profits of U.S. companies are not subject to U.S. tax upon repatriation. However, 50 percent of excess returns (those greater than a routine return, defined as AFR plus 7 percent) earned by controlled foreign corporations (CFCs) are included in U.S. shareholders’ gross income. In addition, payments made from US corporations to a related foreign corporation are subject to a 20 percent excise tax unless the US corporation claims the transaction as effectively connected income (ECI). ECI is added to the taxable income of the US corporation, but the related foreign corporation’s expenses can be deducted from this income.
- Deemed Repatriation: Enacts deemed repatriation of currently deferred foreign profits, at a rate of 12 percent for cash and cash-equivalent profits and 5 percent for reinvested foreign earnings.
Estate Tax
- Increases the estate tax exemption to $10 million, which is indexed for inflation, and repeals the estate tax after six years.