Summary: Learn what is in the tax reform bill that passed the House and could soon be affecting your taxes.
The tax bill that passed the House has a lot of people on the edge of their seats. President Donald Trump has long vowed to keep this campaign promises of fewer taxes. The Senate will be voting on their tax bill shortly.
The tax bill that passed with only Republican votes will cut the amount the government collects from taxes by $1.5 trillion over the next ten years. Clearly, there are some that will end up with bigger tax breaks otherwise it would not have been a success, but there are a lot of taxpayers that will find themselves on the losing side. The Joint Committee on Taxation used the example of those making between $50,000 and $75,000 in 2023. Of those, 36 percent will end up with a tax break of $500 or more, 19 percent will get a tax break of $100 to $500, 19 percent would pay the same, 11 percent will pay $100 to $500 more, and 15 percent will have an extra $500 on the taxes.
Those getting extra tax breaks include heirs and heiresses, corporations, retirement savers, retailers, shareholders, and more. The proposed bill raises the exemption in estate tax from $5.5 million to $10 million next year. That means that estates worth less than $10 million next year will not be taxed. The tax is repealed completely in six years. The change in the exemption value level will be a 10 percent loss of revenue.
Corporations will get a tax rate break from 35 percent to 20 percent starting January 1. New equipment will be able to be written off immediately instead of amortized over several years plus companies can continue to deduct state and local taxes.
Retailers were going to get a “border adjustment tax” but were able to show that an increase on their taxes would be a price increase on consumer goods so the House kept the tax off the bill.
The House was also going to cut the tax benefits of those saving in 401(k) and IRA accounts but changed their minds. Those making low- to moderate-incomes with children and no deductions will get an increase in standard deductions and child tax credits.
Shareholders will benefit from the bill since their corporations are getting tax breaks. While those supporting the bill believe corporations will use the tax breaks to buy equipment and expand their businesses, economists see the saved money ending up as dividends that will make stockholders pockets deeper.
One group drastically affected by the bill is college and graduate students. Erin Rousseau, an MIT graduate student, explains in an opinion article for The New York Times that their total income will be taxed even though a vast majority of their salary never actually ends in their pockets. Graduate schools provide tuition waivers for those that work as teachers and laboratory researchers. For example, Rousseau explains that she receives about a $50,000 tuition waiver for her $80,000 salary for being a teacher and researcher. She only ends up making $33,000 a year but will now be taxed for the entire $80,000. Student loan interest will no longer be a deduction.
Others losing out on the tax breaks include the sick, disaster or fire victims, vacation communities, and those living in high-tax areas.
Currently, there are seven income tax brackets, taxes at 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent. The new bill puts everyone into four tax brackets. Those four brackets will be taxed 12 percent, 25 percent, 35 percent and 39.6 percent. Standard deductions will also double under the new bill but personal deductions will be eliminated.
What do you think of the proposed tax bill? Share your thoughts with us in the comments below.
To learn more about tax breaks, read these articles:
- Council of CEOs Asks for Tax Breaks and Cuts to Poor
- Proposed 2015 Budget Would Increase Taxes by $1.4 Trillion over the Next Decade
- Marijuana Shops Will Pay Up to 70 Percent Tax
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