Politics

What the GOP Tax Bill Means for You

tax plan reformIn a press conference Thursday, November 2, House Speaker Paul Ryan unveiled details of the newly-released GOP tax bill. Ryan called the legislation a “middle-class tax cut” that would leave the average American family of four with $1,182 more in their bank accounts.

The Tax Cuts and Jobs Act bill, authored by House Ways and Means Committee chair, Kevin Brady (R-TX), seeks to cut corporate tax, change state and local tax deductions, and create new individual tax brackets.

Key Revisions of the Proposed Tax Bill

The Creation of 3 New Tax Brackets

The current tax brackets of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% will be reduced to four brackets:

The highest tax bracket would stay at 39.6%, but a fourth marginal tax bracket would apply to high-incomes (for married couples making more than $1 million annually).

For individuals, the standard deduction of $6,350 is increased to $12,000, but the personal exemption of $4,050 is eliminated.

For joint filers, the standard deduction of $12,700 is increased from $12,700 to $24,000, but the personal exemption of $4,050 is also eliminated in the new bill.

Corporate Tax Cut

The corporate tax rate will be permanently lowered from 35% to 20%.

State and Local Tax Deductions

The bill allows for an itemized property tax deduction for property taxes, but only up to $10,000.

Deductible Mortgage Interest

The new bill allows existing mortgages to keep their current deduction structure. However, on new mortgages, homeowners can only claim a deduction for interest on mortgages up to $500,000 (down from the current $1M).

Delayed Estate Tax Repeal

The new bill delays a repeal of the estate tax to 2024 for estates with $5.5 million in assets or higher.

401(k) Retains Cap

The cap on pre-tax contributions for 401ks will remain at $18,000.

It is recommended that you visit with your tax advisor to find out how these changes will impact your finances now as well as in the future.

Read the full text of the Tax Cuts and Jobs Act here.

 

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Hank
3 years ago

If you make $42k, your take home after taxes is $36,960. If you get a raise to $46k, your take home after taxes is $34,500. What’s wrong with this picture?

Hank
3 years ago
Reply to  Hank

The blatant flaw in this tax proposal indicates it was either intended for failure (which is sinister), or the authors of the bill don’t know what they’re doing and shouldn’t be in a position of authority. To keep even $3K of your raise, you would have to have a 30% increase to $60K. To take home an extra $1.00/yr, you would have to get more than a $7,281.00 raise. A flat tax makes more sense, or a Fair Tax, or more stepped rates – not fewer.

Hank
3 years ago
Reply to  Hank

(Eamples reflect AGI)

PaulE
3 years ago
Reply to  Hank

It is the latter to answer your question Hank. Both S corps and individual tax rates of this bill were an after thought. Read my response above to HAM from yesterday to understand why.

KakkiL
3 years ago

So disappointed and disillusioned. Expected more. This is not helping our hardworking families and seniors. It will increase tax that they can’t afford.

If it were fair there would be decrease for all. Why keep unearned income? If state tax has to be eliminated why not graduated scale. People should have notice and be able to make decisions to leave the high tax stated

What about the high cost of education? Personal exemption for children? Other dependents?

This is not a decrease or fair to all citizens. Very embarrassing!!! Not at all what most voters expected. We’ve been let down again!!

PaulE
3 years ago
Reply to  KakkiL

The idea was to signifantly lower the rates to one flat rate for everyone. 15 percent was what Trump proposed. In exchange, all but a handful of deductions would be completely eliminated. That way everyone would have skin in the game and we finally would this progressive nonsense once and for all. Lower the rates snd broaden the base of people actually paying for the federal government.

The problem is most members of Congress like the status quo. So we got the Ryan tax plan and it is indeed very messy. The plan actually increases the number of people that pay no federal income tax, so those of us that do pay that much more.

HAM
3 years ago

I’m waiting to see what the Senate Tax Bill will be. The 2 bills Then go to committee also to be negotiated. Not saying the final bill is going to be great. Just FYI.

PaulE
3 years ago
Reply to  HAM

Hi HAM,

Ah yes, the Senate where all bills go to die. Just kidding in this case, as the Republicans have to pass something this year or they lose one or both houses of Congress next year. That would be the knee jerk reaction from just enough on our side to end Republican control of Congress, as pathetic as it may be, and put the Democrats back into some level of power in Washington and effectively kill the rest of the Trump agenda.

To your point about the Senate, the way the GOP has boxed itself into such a limited box with many self-inflected constraints, many due to McConnell refusing to modify the Senate rules, what the Senate can change or modify in what the House sends him in this bill is actually quite limited. The Senate Parliamentarian even told McConnell all the way back in late March, that McConnell could change a number of the Senate rules around reconciliation and even general legislation passage to eliminate many of the self-imposed constraints McConnell has been operating the Senate under. However, McConnell is so fixated with maintaining the status quo, out of fear that the next time the Democrats are in charge (a self fulfilling prophesy the way McConnell is running things), that he has left the Senate with little wiggle room. Pretty much whatever the House sends the Senate is what the Senate version has to mirror and pass.

On the House side, since Ryan and Brady didn’t push for a federal budget with significant spending REDUCTIONS (lower budget spending hikes than originally planned for is NOT an actual reduction in spending, since you are still spending more next year than you did this year), the size of this bill is capped at $1.5 trillion over a 10 year window. So this forced the House to make the tax cut bill that is more lopsided than most people expected. Remember, first and foremost primary goal of the GOP leadership in both the House and the Senate was to cut the C corporation tax rate from 35 percent to 20 percent to make U.S. companies more competitive in the global markets. Where the average C corporate tax rate among other OEDC countries already averages 20 percent. So just bring us in-line with everyone else. Everything else in the bill is either of secondary or no importance in terms of what GOP leadership considers “must pass”. So that is why you see the hodge podge that makes up the rest of the legislation. The S corps and the individual stuff is really kind of an after-thought in terms of what they were really focused on. Primary goal: Keep the Chamber of Commerce and the Business roundtable happy and those big campaign donations flowing. Everything else is a nice to have, but if things get problematic for the passage of the C corps rate cut, they can be dumped from the final bill.

Remember, in the Ryan / Brady original draft, all the way up until around May of this year, was always focused on the 20 percent C corp tax rate and the “pay for” was imposing the BAT (Border Adjustment Tax) on top of the income tax to pay for the corporate tax cut and allow for some modest rate cuts for S Corps and individuals. The BAT thankfully got ditched, at least for now, but that also reduced what would be left over to “pay for” (I HATE that term as it implies it is their money and they are giving us a gift by allowing us to keep our own money), since Ryan would NOT consider real federal budget cuts to offset the rate reductions and lower near-term revenues to the Treasury. So that is why you see the convoluted mess in the S corps and individual parts.

The Trump plan would have dropped that rate to 15 percent to act as an economic magnet to attract large companies to set up shop here and ultimately really boost economic expansion and jobs. Just like what Ireland did to transform their economy into a corporate magnet. Which is kind of the reason for tax cuts in the first place. Economic growth. Unfortunately, none of the six people negotiating this bill was actively pushing this. The only real plan on the table was Ryan’s plan. So it is what it is. Like I said: Some winners and some losers.

Bottom line: Whatever the House ends up sending the Senate this week or next is 99 percent of what the Senate version of the bill has to look like. Too many self-imposed restraints have been put on the Republicans by the Republican leadership in both houses of Congress to allow for any sort of radical differences in the two bills. So don’t expect to see some radical changes or improvements being done in the Senate version of the bill. Like the way Congress handled the Obamacare fiasco, what the public is going to be told is “This is a take it or leave it thing. If you want “tax reform”, this is the best that can be done under current rules.” It all boils down to whether McConnell can get 50 Senators (plus Pence to break the tie) to actually vote for it. I don’t have a good sense yet for whether the number of RINO’s who hate Trump and his agenda feel comfortable enough to vote against this as well. Obviously the Senators who have announced they are retiring have no problem giving the people the finger, so the margin is already slim. I don’t expect any Democrats will vote for this in the Senate. Their sole mission is to resist anything Trump related. The country can go to **ll and if they ever get back into the WH and control Congress, that is exactly where they will take us.

Anyway, just don’t expect any radical differences between the two versions of this legislation.

James E. McDonald Jr.
3 years ago

I will not vote again for any incumbent of Congress if they don’t pass a tax bill which does away with annual filing of tax reports and the keeping tax records.

MR. A. B. JAMES
3 years ago

real tax reform would be a flat 15% federal tax no deductions period!

Barbara Weeks
3 years ago

Gain, gain I am so happy!

ONTIME
3 years ago

This may be a start for tax reform for some but it is crumbs to me and many like me…Upper middle class gets hosed, the same non tax paying category still exist and 50% of the nations tax payers will carry the load for those who pay no taxes and get a refund(free Money) as a bonus for existing……Real reform would be a widening of the tax base, repeal of the progressive income tax and a use of a ballot driven consumption tax….no tax anxiety, not tax discrimination and no class warfare..the IRS would be under the rule of law again and all would be equal under the rule of law…..Voters and Tax payers would have real say in the nations budget…..that is really scary to the special interest and the elite politicians….I want a real tax overhaul not crumbs from some C- electee…

Wayne
3 years ago

The article creates more questions than answers. I feel it’s been poorly researched and vague. Generally speaking it looks as if the new tax bill will not only be a tax increase for seniors but also the working lower middle class.

Wanda Harrington
3 years ago

Since personal exemptions are being eliminated and my tax bracket will now be 12% instead of 10%. I estimate I will have to pay $300-$500 more a year. We are considered middle income and retired. This tax plan will help people with children under age sixteen, but will penalize middle income senior citizens, who are paying high health insurance premiums, doctor bills and high drug prices.

Paula
3 years ago

The GOP tax plan will increase our tax by about $4000 dollars a year. Almost half of our Social Security will be taxed as well as some dividends. Under our current law, we would pay no taxes for the first time ever. Tell me again why Social Security income is double taxed. Also my mother-in-law pays $6000/month at a skilled nursing facility. Her taxes will also go up significantly.

ChuckS
3 years ago

Has everyone forgotten about eliminating the income tax on our social security benefits? I for one hate being taxed twice by the feds!

Terry Rushing
3 years ago

I am NOT thrilled by this so called “new” tax plan from the Ryan led house. I remain opposed to a “progressive” tax plan with some paying none and therefore without a vested interest in tax expenditures. I am puzzled by the idea of punishing success or good fortune by higher tax rates. I am annoyed by the idea of “paying for tax cuts” by other revenue raising schemes. The “new” plan puts money in one pocket pinched between the politicians thumb and forefinger while the other hand is deep in my other pocket grabbing more money. Taking away deductions will likely cost me rather than “help” me and with less than $80k annual income I am far from rich. Not one word has been mentioned about removing unconstitutional spending as a means of cutting taxes. I am far from impressed with weasel Ryan’s “shuck and jive” about all the “good” things the house is doing. In my mindset Ryan and company is simply peeing on my shoe while telling me to be thankful for the rain.

Karen
3 years ago
Reply to  Terry Rushing

Unfortunately, progressive taxation has worked its way into the national DNA so that even conservative politicians and organizations (like AMAC and Heritage) think it is just standard operating procedure now.

PaulE
3 years ago
Reply to  Karen

To Terry and Karen,

Yes to both of your posts. This was my concern over a year ago, when Ryan first floated his idea of tax reform. Sadly what was just “delivered” by the Ryan and Brady this week is at least 90 percent identical to what Ryan was proposing back then under his Better Way proposal. The notion that we have to maintain “progressivity” in our income tax system immediate throws away any real hope for true tax reform. As it perpetuates the myth that somehow we must, as a society, punish the successful, innovative and entrepreneurial amongst us. Under the Ryan plan, the number of people actually paying NO FEDERAL INCOME TAXES actually increases. Thus shifting the federal income tax burden to an even smaller percentage of the overall population. How does this conform to the conservative approach of “lowering the rates and broadening the tax base”? It of course doesn’t, because it is not a conservative income tax plan. It is a continuation of the existing progressive tax code, with merely some changes to whom amongst the narrower range of people who pay federal income tax, get stuck with the bill. I expected nothing less from Ryan, as he has always been a consistent progressive masquerading as a moderate conservative.

What we just got was not true tax reform, but merely some targeted tax cuts. So we should stop calling this tax reform and simply refer to it as what it is. If you are a C corp or the owner of a C corp, you win. After all, this was always the goal and primary target of Ryan’s plan. If nothing else passes Congress this year, this portion of the tax cuts definitely will.

If you are a S corp or the owner of an S corp, you got something but not on par with what the C corps received, which again, is fundamentally wrong given the nature of where most job creation, a supposed goal of all this, occurs. There is no legitimate reason why a small business should be penalized simply because of size of scale. All other aspects are nearly identical in terms of how a business is run.

The individual side is, as I already pointed out in my post above, is stuck with the leftovers. Which is why it is such a overly complicated hodge podge of seemingly conflicting tax incentives. Some will win, some will lose. Given the GOP seems wedded to the progressive notion of “pay fors” and they are equally hostile to any sort of federal budget spending cuts to accomplish that task, what we have is the convoluted mess described in the 400 pages just released. It is an interesting read to be sure and a view into the collective mindset of what the establishment GOP really think.

Carol
3 years ago

It feels like AMAC is asleep at the wheel on one of the tax “reforms.” What about those of us who have high medical bills? The medical deduction has been eliminated. The increase in the personal deduction does not begin to offset the cost of our medical expenses. My husband is now in long term memory care which costs $5200 monthly. The owner of the facility will raise the monthly rate by 3% – 5% in January. Our monthly income is $6,334. That leaves me with $1,134 in monthly income to cover all the other expenses for my husband and my living expenses. We are middle class people, but we have been responsible stewards of our income so that we do not have to depend on the government to take care of us in our declining years. We saved and invested so that we have funds that can cover the shortfall between income and expenses for a period of time. I feel slapped in the face and punched in the stomach by this “reform.” Since a large number of seniors who self-pay for long-term care are affected by this “reform”, I am very disappointed that AMAC doesn’t even seem to be aware of it. I thought you were looking out for the interest of seniors. You should be storming the doors of Congress on our behalf.

PaulE
3 years ago
Reply to  Carol

Hi Carol,

AMAC isn’t so much asleep at the wheel as you say, but rather has a different set of priorities than what you might believe.

nan
3 years ago
Reply to  Carol

In thought AMAC was fighting for us! Seniors need the tax on Social Security payments to be eliminated!!! We too have saved our entire lives for our ‘golden years’. The only winner here is the government. The income brackets need to be higher. When you have to take your RMD and pay full tax on that, you are really screwed. We all saved believing that our taxes would be less when retired and it just isn’t true.

Karen
3 years ago
Reply to  nan

Nan, you nailed it. 401Ks were pushed when we were younger because of tax benefits at the time. The theory was that taxes and expenses would be lower in retirement. Not true. By the time SS benefits and RMDs get added into AGI, we get hammered on taxes. It also results in Medicare surtaxes. Plus, years of capital gains in the accounts end up being taxed as ordinary income.

Chuckm
3 years ago

I am missimg something here. Looking at my situation as somewhat typical for seniors. Currently our standard deduction is 15,100. We also get two personal exemptions of 4050 each for a total of 23,200. With a new standard of 24,000 that is a 800 reduction times 12% equals a savings of 96 dollars. Obviously my taxes will go down but this certainly would not be a significant change that would cause me to go out and BUY.

HAM
3 years ago
Reply to  Chuckm

The standard deduction was 12,600 for married filing jointly. The 15,100 you used is 2,500 higher so I don’t know where that came from.

Anyway, try working your figures using your adjusted gross income instead of the the reduction. I figured one based on 45,000 gross income. After applying appropriate deductions, using adjusted income, figure current 15% & proposed 12%. I think you will find it’s higher than $96.

G Toops
3 years ago
Reply to  HAM

The truth is that this tax bill hammers middle class people who are generous with their churches and other charities and/or have a mortgage such that they will still itemize. The increase in standard deduction does nothing for them but they lose the personal exemption, state tax deduction and several other smaller deductions (not to mention those who have high medical expenses!). For me it results in over $15000 in additional taxed income. At the 12% rate that is an additional $1800 in taxes. Currently the effective rate on $75000 of taxable income is 13.75% (combining the 10% and 15% brackets) so the reduction to 12% saves me $1312 on the first $75000. So my tax on $75000 of taxable income was $10452. With the loss of deductions/exemptions that now becomes $90000 of taxable income with a tax of $10907, an increase of $455 or a 4.4% increase. No matter how you cut it, middle class taxpayers who still itemize get the brunt of this.

nan
3 years ago
Reply to  G Toops

You are exactly correct! Giving and mortgage interest sould be in addition to the standard deduction of $24K for joint.

Robby
3 years ago
Reply to  HAM

Is this CW5 Hammy?

Dan W.
3 years ago
Reply to  HAM

The $15,100 is the standard deduction for married people filing jointly who were both over 65 in 2016.

Under the current law, your standard deduction is increased if you are over 65 and is also increased if you are blind. What I don’t know is whether the new tax package retains these increases to the future standard deduction for people who are over 65 and for people who are blind.

Note that the credits for being over 65 or for being blind applied to the standard deduction and not to the personal exemption.

Karen
3 years ago
Reply to  Chuckm

Don’t forget there was an additional personal exemption for seniors. Elimination of the personal and senior exemptions pretty well cancels out the increase in standard deduction for seniors.

PaulE
3 years ago

Well the GOP leadership delivered on their primary goal of a tax cut for large, multi-national C corps from 35 percent down to 20 percent. So the Chamber of Commerce and the Business Roundtable must be very happy today. This would now bring us back into the average range of the other OECD countries, which is a very good thing for keeping the United States competitive on the world stage. So a big plus there. It could have been a lower rate, but as I explain below, Congress kind of tied their own hands. Not mentioned in this article is the fact that there is now a path to repatriation, at a one-time 5 percent rate, of the trillions of dollars these C corps have off shore. That’s anywhere from $2.5 to $4 trillion dollars, so the U.S. Treasury stands to rake hundreds of billions of dollars in from additional tax revenue just from that one aspect of this bill. That repatriation of off-shore capital should also bolster economic activity here in the United States and eventually lead to greater job creation. Another plus.

Small business S corps also seem to have faired pretty well too. Although they should have honestly received the same tax rate of 20 percent as the larger C corps, the reduction to 25 percent, along with the end of the AMT on businesses, should be very beneficial as for economic growth and potential job creation as well.

Probably the weakest aspect of the whole plan is in the area related to the tax treatment related to the average person. While some will no doubt benefit, others will obviously not. Rather than simply apply one low flat rate, as Trump campaigned on (15 percent), to everyone across the board and eliminate the morass of deductions, exemptions and various tax credits, what we still have is the Progressive tax code. Which is why our tax code is now over 70,000 pages in length and still growing. It seems the establishment GOP leadership is unable to purge the progressive mentality from our tax code when given a chance. Which is what I expected given who the major players are in Congress who drafted this plan.

The biggest piece missing from this so-called reform legislation is of course on the federal budget spending side. There is NO significant spending reductions in the just passed budget resolution. So one of the reasons the individual side of the this tax reform plan is so weak, aside from the GOP leadership not having the guts to do away with the notion of “progressivity”, is that Congress has proven, yet again, that it is incapable of actually reducing what they spend on pretty much anything. The best we seem to get is to them agreeing to, in wha they call budget cuts, are 2 or 3 percent annual budget INCREASES instead of the normal 7 percent they normally just rubber stamp. That reduced the size and amount of potential tax cut total from $5 trillion over 10 years down to $1.5 trillion over 10 years.

So overall, the GOP leadership seems to have accomplished their mission of a significant tax cut for the large C corps. S corps got a few things, but should have been on parity with the C corps. The rest of us got whatever was left over in terms of what could be trimmed given the federal budget restraints and the lack of will on the part of members of Congress. So some winners and some losers, but overall the plan is beneficial for the country as a whole. Not a ringing endorsement simply because we could have accomplished so much more with little extra effort. However, it is certainly better than the likely across the board tax hikes we all would have received if Hillary had won and she had started to roll out the continuation of the last phase of the Obama agenda.

Ivan Berry
3 years ago
Reply to  PaulE

No kidding about Hillary, PaulE. My enthusiasm is about luke cool, but one good note for social conservatives the repeal of the Johnson Amendment, should the Senate concur.

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