Proposed Tax Reform of 2017 “Tax Cut & Jobs Act”

President Trump unveiled his party’s tax reform plan last week, “We are giving them a big, beautiful Christmas present in the form of a tremendous tax cut, which will be the biggest cut in the history of our country.” Whether it is the biggest tax cut in history, it is certainly a present for some and a lump of coal for others. At the top of the Good-Little-Children list is corporations with high effective tax rates. The proposal would slash the corporate income tax rate from 35 to 20 percent, costing $1.4 trillion over 10 years. GOP leaders are gambling that this rate cut will spur significant job growth.

How it effects families will depend a lot on where they live and how reliant they are on specific deductions. Personal tax brackets will go from seven to four: 12 percent, 25 percent, 35 percent, and 39.6 percent. Standard deductions double for most taxpayers, but they repeal the personal exemption. On the other hand, they increase the child credit to $1,600 per child and extend the credit to those earning $230,000. The proposal eliminates the Alternative Minimum Tax but repeals most exclusions and itemized deductions. The exceptions are mortgage interest (capped at $500,000 and no second mortgages), state and local property taxes (capped at $10,000), and charitable contributions.

So, what is repealed?

  • Tax preparation
  • State and local income and sales taxes
  • Medical
  • Alimony
  • Moving
  • Casualty losses
  • Medical savings accounts
  • Employee expenses
  • Employer provided housing
  • Employee achievement awards
  • Dependent care
  • Adoption assistance
  • Some education related provisions

Coming down strongly in the pro-complexity column, the proposal creates a special 25 percent rate for pass-through entities, but applies it to either 30 percent of business income or more under a facts-and-circumstance standard.

Looking down the large list of repealed deductions, exclusions and credits, it seems GOP leadership could have a difficult time rounding up the necessary votes. Joining the members of Congress from high income tax states on the No-Vote-Naughty-List are members of Congress from expensive new homes districts. Yet to be determined are members with business interests such as timber, insurance, alternative energy and states using private activity bonds. And, the list goes on. If the Republican caucus stays disciplined, the President could be the one receiving a big, beautiful Christmas present. On the other hand, if this turns into a family Christmas dinner food fight, everyone supporting tax reform could go home empty-handed.

Source:  National Association of Enrolled Agents (NAEA), e@lert, November 3, 2017 edition.

Keep in mind the Tax Reform Act of 1986, which is the largest tax overhaul in history, took over 2 years to pass into law. The Tax Reform Act of 1986 shifted a large part of the tax burden from individuals to corporations; it also exempted millions of low-income households from federal income taxes. President Ronald Reagan called it “a sweeping victory for fairness” where “vanishing loopholes and a minimum tax will mean that everybody and every corporation pay their fair share.”

Another great article if you are so intrigued to gather more information is 2017 Tax Reform: Proposed individual tax changes in the “Tax Cuts & Jobs Act” by Thomson Reuters and can be viewed at 2017 Tax Reform – Thomson Reuters.

Thank you for reading my blog!  If you haven’t already, check out my post from last week of pictures from doggies that sported their Halloween Costumes at our Dog Park Costume Contest.  It was a huge success with over 30 dogs participating.

Tina is an active member of NAEA & WSEA.