Plan elements
The Act as of early November 2017 includes the following elements, among others, as reported by The New York Times:
Individual income tax rates
Reduces the number of marginal income tax rate brackets from seven to four. This has the effect of reducing taxes for most income levels. The income thresholds below apply to married couples filing jointly:
The top 39.6% bracket would be elevated to income greater than $1 million, rather than above $480,050 under current law.
The 35% bracket would apply to income from $260,000 to $1 million; the 33% bracket would be eliminated. This also has the effect of increasing the marginal rate applied to income between $260,000 and $424,950.
The 25% bracket would apply to income from $90,000 to $260,000; the 28% bracket would be eliminated.
A new 12% bracket would apply to income from $0 to $89,999; the 15% bracket would be eliminated.
Standard deduction and personal exemption
Changes to deductions and credits will impact families differently depending on the their particular circumstances.
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Nearly double the standard deduction, from $6,350 to $12,700. About 70% of families choose the standard deduction rather than itemized deductions; this could rise to over 84% if doubled.
Eliminate the personal exemption, a deduction based on the number of taxpayers and dependents on a return.
Increase child tax credit from $1,000 to $1,600.
Property tax deductions
Mortgage interest deduction for newly purchased homes would be capped at $500,000, while the property tax deduction would be capped at $10,000. This would have more impact on taxpayers with more expensive property, generally those who live in higher-income areas.
State and local taxes[edit]
The deduction for state and local income tax and sales tax will be completely eliminated. Eliminating these deductions would increase taxes relatively more in states with higher taxes.
Other individual provisions
Repeal the Alternative minimum tax (AMT). The AMT primarily causes households earning between $200,000 to $1 million to pay more in taxes, so repealing it is a tax cut for higher-income persons.
Repeal the estate tax after six years. In the interim, the inherited wealth exempt from tax would be increased from $5.5 million to $11 million.
Pass-through businesses
Reduce the pass-through tax rate to 25% regardless of income level. Many businesses are incorporated as pass-through entities (e.g., sole proprietorships, partnerships, and S-corporations) meaning the owners pay taxes at individual rates. These represent 95% of businesses and most of corporate tax revenues, so this is a large tax cut for owners (i.e., capital as opposed to labor). Approximately the largest 2% of of pass-through businesses represent 40% of pass-through income and today are taxed at 39.6%, the top individual rate.
Corporate rates
The corporate tax rate would fall from 35% to 20% while eliminating most business deductions and credits. This change will bring the United States just below the average for advanced and larger economies.
Miscellaneous tax provisions
The Senate version of the bill contains a variety of miscellaneous tax provisions, many advantaging particular special interests. Miscellaneous provisions include:
A tax break for citrus growers, allowing them to deduct the cost of replanting “citrus plants lost or damaged due to causes like freezing, natural disaster or disease.”
The extension of “full expensing,” a favorable tax treatment provision for film and television production companies, to 2022. The provision allows such companies “to write-off the full cost of their investments in the first year.” The Joint Committee on Taxation estimates that the extension will lead to the loss of about $1 billion in federal revenue per year.
A provision ending a corporate tax exemption for certain international airlines with commercial flights to the United States (specifically, in cases where “the country where the foreign airline is headquartered doesn’t have a tax treaty with the U.S., and if major U.S. airliners make fewer than two weekly trips to that foreign country”). This provision is seen as likely to disadvantage Gulf airlines (such as Etihad, Emirates and Qatar Airways); major U.S. airlines have complained that the Gulf states provide unfair subsidies to those carriers.
Reductions in excise taxes on alcohol for a two-year period. The Senate bill would reduce the tax on “the first 60,000 barrels of beer produced domestically by small brewers” from $7 to $3.50 and would reduce the tax on the first 6 million barrels produced from $18 to $16 per barrel. The Senate bill would also extend a tax credit on wine production to all wineries and would extend the credit to the producers and importers of sparkling wine as well. These provisions were supported by the alcohol lobby, specifically the Beer Institute, Wine Institute, and Distilled Spirits Council.
The bill passed by the House eliminates a tax deduction for teacher expenses. The Senate bill, by contrast, would double the reduction, from $250 to $500.
Arctic National Wildlife Refuge drilling
In November 2017, the Senate Committee on Energy and Natural Resources passed legislation introduced by Republican Senator Lisa Murkowski that would require the Interior Department to lease 800,000 acres of land within the coastal plain area of the Arctic National Wildlife Refuge (ANWR) for oil and gas drilling. Republicans plan to fold this measure into the tax bill. The move is part of the long-running Arctic Refuge drilling controversy; Republicans have attempted to allow drilling in ANWR almost 50 times, but thus far without success. The move was criticized by Democrats and environmentalist groups such as the Wilderness Society.
Repeal of Johnson Amendment
Included in the tax bill passed by the House is a provision that would repeal the Johnson Amendment, a 1954 law that disallows churches and other nonprofit groups from endorsing political candidates or engaging in other partisan political activities, enforceable by loss of nonprofit status. The repeal has long been a key goal of the religious right, represented by groups such as the Family Research Council, Christian Coalition, Traditional Values Coalition, and Alliance Defending Freedom. Repeal is opposed by other religious leaders and organizations such as the United Methodist Church, National Council of Churches, and Baptist Joint Committee for Religious Liberty, which oppose blurring the distinction between charitable and political activities.
The nonpartisan Joint Committee on Taxation estimated that repeal of the Johnson Amendment could result in the diversion of up to “$1.7 billion each year from traditional political committees to churches and other nonprofit groups that could legally engage in partisan politics for the first time.”
Unlike the House bill, the Senate version of the bill does not currently include any modification to the Johnson Amendment.
