GOP releases its tax plan

GOP releases its tax plan

The stage is being set for a major debate in Congress on proposed legislation that rewrites this country's incredibly complex tax code.

Although they released a skeleton version of their tax plan months ago, Republicans on Thursday unveiled the details of what they tout as a simplification of the federal tax code that they hope will super-charge the economy.

President Donald Trump is hoping that Congress will pass the legislation by the end of the year. But that's a tall order. Democrats are unalterably opposed to the measure, and some Republicans remain to be convinced about some key provisions.

So much remains subject to negotiation, and Republican success is hardly guaranteed.

But the details included in the bill are eye-opening, although not to the extent of the landmark 1986 bipartisan tax-reform law signed by former President Ronald Reagan.

The legislation reduces the number of tax brackets from seven to four, eliminates the deduction for state income and sales taxes, reduces the maximum annual deduction for property taxes to $10,000 and leaves untouched current rules for 401(k) retirement programs.

The legislation sends mixed messages. Democrats complain, with some justification, that the plan would benefit upper-income earners through reductions in tax brackets. At the same time, it would dramatically modify itemized deductions that mostly favor upper-income earners.

If this legislation passes, itemized deductions for medical-care and long-term-care expenses, student-loan interest and teacher classroom expenses would be eliminated.

One of the most important provisions in the legislation is the proposed reduction of the corporate income tax from 35 to 20 percent. Critics say that is a sop to wealthy businesses while proponents say a reduction is necessary to compete with foreign countries that have much lower corporate rates than the U.S. has now.

Republican House Speaker Paul Ryan said the tax-reform/tax-cut legislation will save the average family more than $1,000 a year — not a huge sum, but not inconsequential either.

But what is the average family? Who is the average taxpayer?

So many individuals and families face so many different tax circumstances that it's difficult to generalize.

That's why it's hard to predict how this legislation will fare in the public arena once people have had a chance to study it and see how it would affect them.

Tax brackets, of course, affect everyone, and they would be going down, mostly.

Household income ranging from $24,000 to $90,000 would be taxed at 12 percent, income from $90,000 to $260,000 would be taxed at 25 percent, income from $260,000 to $1 million at 35 percent and income above $1 million at 39.6 percent.

It's a certainty that legislators will squabble about the changes to itemized deductions because they are substantial. But an estimated 70 percent of tax filers take the standard deduction and even more would do so under this legislation, which doubles the standard deduction for individuals and married couples. At the same time, it would create a new child-care tax credit that starts at $1,000 annually and increases to $1,600 over time.

Another important provision would increase the estate-tax exemption and then phase it out in 2024.

There is, of course, much more in this bill, and people will be hearing about it in its various incarnations until it is either passed or defeated.

One thing people should do as they listen to the pros and cons: Forget about tax simplification. In today's world, that's impossible. This legislation may simplify the hugely complex tax code, but there will be nothing simple about whatever follows.

Another certainty is that one person's tax deduction — 401(k), itemized deductions, tax credits — is another's indefensible loophole that must be repealed. Remember the famous tax motto, "Don't tax you, don't tax me, tax that fellow behind that tree."

Most people embrace that perspective in one form or another, and it's through that prism that this issue will be viewed by the public at large.

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bmwest wrote on November 03, 2017 at 11:11 am
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The increase in the standard deduction is a long time coming. Its value has fallen dramatically over time (see this chart).

Citizen1 wrote on November 03, 2017 at 11:11 am

Yes.  And leveling the corporate tax rate can encourage American companies to invest in the US instead of leaving money abroad.  We need jobs here not everywhere else