How does the final tax bill compare with what Trump requested this spring?
CLOSE
Wall Street hit record closing highs on Monday as optimism increased about the likelihood of lower corporate tax rates as the Republican tax bill moved closer to passage. Elly Park reports.
Video provided by Reuters
Newslook
President Trump has a right to be all smiles when he signs the massive tax overhaul that Congress was voting Tuesday to send to him.
The tax package is a significant milestone that will serve as the capstone to a turbulent year. As recently as last week, passage was still in doubt, despite the all-Republican control of Washington that voters installed in 2016.Â
But Republicans banded together Tuesday to deliver a $1.5 trillion dollar tax cut with a dramatic transformation of corporate tax rates and deductions for individual taxpayers.
Nevertheless, a look back at Trump’s first tax announcement in April shows how goalposts for the bill moved as the year went on.Â
Trump released a one-page list of “guidelines” for tax reform in April with great fanfare.Â
Some of Trump’s central proposals made it in the final bill, including a doubling and expansion of the child tax credit; a change in the corporate tax system to one focused on domestic income rather than worldwide operations; and a one-time low tax on assets held by U.S. corporations’ foreign subsidiaries. This is intended to encourage companies to bring billions of dollars held overseas back to the U.S. for new investments.
But other changes Trump sought were modified or abandoned during negotiations to secure votes from wavering members or to reduce the political fallout from changes.
Here’s a look at the major points of that plan and how they compare with the final bill.
Jobs
The administration’s top bullet point in April was a demand that the tax overhaul should “grow the economy and create millions of jobs.” A study of the final bill released Monday by the Tax Foundation, a nonpartisan think tank often quoted by Republicans this year, estimated it will create 339,000 additional jobs nationwide over the next 10 years. On a state-by-state basis, the foundation’s estimates range from 658 extra jobs in Wyoming to 38,631 in California.
By comparison, the current economy is creating about 200,000 jobs a month. The unemployment rate is 4.1%.
Brackets
The original plan called for shrinking the seven brackets to three: 10%, 25% and 35%. The final plan has seven brackets that range from 10% to 37%. But with the increased standard deduction, many people who paid tax at 10% this year would owe no tax next year. And after the increased deduction, brackets have been adjusted to allow many people to pay less on the same income. For example, the current law charges a married couple 15% on taxable income (meaning after deductions are subtracted) of $18,650 to $75,900. The final bill will charge 12% on taxable income between $19,050 and $77,400.
The massive TAX CUTS/REFORM that I have submitted is moving along in the process very well, actually ahead of schedule. Big benefits to all!
— Donald J. Trump (@realDonaldTrump) May 29, 2017
Standard deduction
Trump’s April plan said the standard deduction should be doubled, and this bill comes close to that. The standard deduction for married couples filing jointly this year is $12,700, and that would rise to $13,000 next year if no changes to tax law were made. The bill increases the deduction to $24,000 next year, $2,000 shy of “doubling” the deduction under current law.
The increased standard deduction also means that another Trump principle, protecting “the home ownership and charitable gift deductions,” comes with an asterisk. The bill continues to allow people who itemize to deduct gifts to charity, and interest on mortgages under $750,000 will remain deductible. But the number of itemizers would drop because of the higher standard deduction. Advocates for nonprofits warn that fewer people will donate because they will lose the need for deductions, and realtors say home values will drop because the tax benefits of home ownership would be reduced.
Middle class
The plan would “provide tax relief to American families — especially middle-income families,” the administration’s April guidelines said. Many middle income families, but not all, will benefit in the next few years under the package Congressional Republicans produced, but because many tax breaks for individuals are temporary, some could end up paying more a decade from now, according to an analysis by the Joint Committee on Taxation, Congress’ official scorekeeper on taxes.Â
A JCT report released Monday said that people making $50,000 to $75,000, for example would pay a combined $4 billion more in taxes in 2027 and those making $40,000 to $50,000 would pay $4.3 billion more that year. Those making $1 million or more, however, would pay a combined $8.5 billion less in taxes in 2027, the report said.
Supporters of the plan say they expect Congress to extend those tax cuts before they expire, making the out-year projections moot. The reason the bill includes expiration dates is to reduce, on paper, the estimated impact on the national debt over the next 10 years.
Corporate rate
Trump’s original plan called for reducing the top corporate rate from 35% to 15%, which would have met his goal of being one of the lowest in the world. The final bill sets it at 21%, a change that will reduce federal tax revenue by $1.3 trillion over the next 10 years, according to the JCT.
Special taxes
Trump’s outline called for the repeal of:
- the Alternative Minimum Tax, a parallel system originally intended to prevent the wealthy from using shelters to avoid taxes;
- the “death tax,” the tax on estates worth more than $5.5 million; and
- the “Obamacare tax” of 3.8% on investment income earned by single people making more than $200,000 and couples making more than $250,000. This tax was created under the Affordable Care Act to offset the government’s rising health care costs.
All three taxes remain in the final bill, but the exemption thresholds for the AMT and the estate tax are increased so fewer families and estates will end up paying them.
Simplification
The original plan was to simplify the tax code and “eliminate targeted tax breaks that mainly benefit the wealthiest taxpayers.” White House officials had cited the deduction for state and local income, property and sales taxes as an example, and a bill first proposed by the House would have eliminated these and many other breaks, including those for medical expenses, disaster losses, and moving expenses.
But the final bill made many deductions and credits even more complicated. The state and local tax deduction, for example, was retained, but with a new cap of $10,000. And the deduction for moving expenses was retained for members of the armed forces only.Â
Posted!
House Ways and Means Committee Chairman Kevin Brady, R-Texas, is joined by Speaker of the House Paul Ryan, R-W.I., Rep. Cathy McMorris Rodgers, R-W.A., Majority Whip Steve Scalise, R-L.A., and Majority Leader Kevin McCarthy, R- Calif., as they talk to reporters following passage of the Tax Cuts and Jobs Act in the Will Rogers Corridor at the Capitol Dec. 19, 2017, in Washington, DC. The House passed the tax cut legislation 227-203.Â
Speaker of the House Paul Ryan, center, R-W.I., pats House Ways and Means Committee Chairman Rep. Kevin Brady, left, R-Texas, on the back after the House passed tax reform legislation, Tuesday. Cathy McMorris Rodgers, R-Wash., right, looks on.
Celebration will have to wait, however. The bill hit a late-afternoon glitch in the Senate when the parliamentarian ruled that three minor provisions in the GOP bill did not comply with strict budget rules and would have to be stripped out.Â
1 of 14
2 of 14
3 of 14
4 of 14
5 of 14
6 of 14
7 of 14
8 of 14
9 of 14
10 of 14
11 of 14
12 of 14
13 of 14
14 of 14
Â