The new Tax Cuts and Jobs Act seeks the biggest transformation of the tax code in over 30 years; leaving top individual tax rates at 39.6%, while providing deep cuts in business-tax rates.
The plan proposes reducing the corporate tax rate to 20% from the current 35%. To partly offset that lost revenue, the plan suggests repealing personal exemptions, limiting individual deduction for state and local tax payments and mortgage interest, and the ones businesses receive for the interest they pay on debt.
While the top individual tax rate will remain at 39.6%, the income threshold is to be pushed up to $1 million dollars, as opposed the current $480,000.00. The plan proposes to collapse the current seven individual tax brackets into four: 12%, 25%, 35%, and 39.6%. The new bottom tax rate is intended to cover more income than the current 10% and 15% brackets do, lowering taxes for many middle-income households. However, many upper-income households would likely have a higher marginal tax rate, pushing the current 33% to 35%. The House Ways and Means Committee plans to consider the bill next week, with the aim of turning it into law by Christmas, and having most of it take effect in 2018, and be reflected on tax returns filed in 2019.
Although the plan will likely accomplish many goals, including nearly doubling the standard deductions, lowering business tax rates, repealing the alternative minimum tax, and eliminating many tax credits, deductions, and exclusions, such as breaks for moving expenses and employee achievement awards, it does in fact stop short of other popular tax breaks that were being considered for a change; such as the ability of individuals to put up to $18,000.00 a year in pretax funds into a 401k savings account, or moving up the tax rates on capital gains and dividends.
U.S. multinational corporations would no longer be paying taxes on their active foreign income; a move intended to stay competitive with companies from lower tax countries. To prevent companies from shifting profits abroad, the bill also creates a new 10% tax on U.S. companies’ high profits foreign subsidiaries, calculated on a global basis.
Furthermore, the estate tax exemption, set for $5.6 million per person ($11.2 million per married couple) would double immediately. The tax would get repealed starting in 2024.