House Approves Trump Backed GOP Tax Reform Bill, Moves To Senate

by Ike Obudulu Posted on

Washington, DC, USA: The House with a 227-205 vote – almost along party lines – approved a $1.4 trillion tax overhaul, clearing the first major hurdle in Republican attempts to cut taxes and rewrite the tax code.

No Democrats voted in support of the bill with some GOP defections over provisions in the measure that would eliminate important tax deductions taken by constituents in some high tax states.

“It has been 31 years since we last did this, and it is finally time that we get the general interest of this country to prevail over the special interests in Washington,” House Speaker Paul Ryan said on the House floor, pledging that the bill would leader to faster economic growth and bigger paychecks for American workers.

The last major tax overhaul before this ‘Tax Cuts and Jobs Act’ took place in 1986 under President Ronald Reagan, with a Republican-controlled Senate and Democratic-controlled House.

President Trump made a rare appearance at the Capitol to rally GOP lawmakers in advance of the vote. “It was a good meeting. Taxes are going really well,” Trump told reporters.

The 440-page legislation would reduce the corporate tax rate from 35 percent to 20 percent, winning support from outside groups such as the U.S. Chamber of Commerce and the National Federation of Independent Businesses.

But it’s effect on individuals is less dramatic. It reduces from seven to four the number of tax brackets, and doubles the standard deduction, while eliminating many other deductions and credits.

The Senate is considering its own, different tax overhaul, which is still in committee. In recent days, it has been altered so that tax rates for individuals would be reduced only temporarily, while corporate tax rates would be cut permanently. Wisconsin Sen. Ron Johnson said he’s against the bill in its current form because the cuts that would be temporary would also impact small businesses that pay their taxes through individual rates.

The Senate bill would also now include a provision to zero-out the individual mandate penalty, one of the pillars of the Affordable Care Act. Sen. Susan Collins, R-Maine, expressed reservations over this move. She is one of the Republicans who blocked efforts to repeal Obamacare this year.

GOP leaders, prodded by the President, hope to agree on and approve a final tax bill by the end of the year, and show voters a major accomplishment in the first year of their majority since they failed repeatedly on health care.

EARLIER: House Republicans Revise Trump Backed TaxReform Bill – The Republican controlled Ways and Means Committee, of the US House, on Friday, posted a revised version of the Tax Cuts And Jobs Act bill, on it’s website. The revised bill would impose a new, lower-inflation “chained CPI” adjustment for tax brackets immediately instead of in 2023. That means more income would be taxed at higher rates over time — and less generous tax cuts for individuals and families.

Compared with the legislation released with fanfare Thursday, the revised bill reduces the value of the tax cuts for ordinary Americans by $89 billion over 10 years.

As wages rise, middle-class taxpayers would have more of their income taxed at the 25 percent rate instead of at 12 percent, for instance.

“The bill’s like a dead fish: The more it hangs out in the sunlight, the stinkier it gets,” Senate Democratic Leader Chuck Schumer pronounced after word of Brady’s change. “The more people learn about this bill, the less they’re going to like it.”

House Minority Leader Nancy Pelosi blasted the tax bill unveiled by House Republicans as “a terrible assault on opportunity for the middle class” and said her GOP colleagues are “taking American people for suckers.” (Nov. 3)

The change to the plan frees up money for Brady, R-Texas, the committee’s chairman, to use to address concerns by lawmakers when changing the bill further next week. The Ways and Means panel begins work on Monday, a final bill-writing process expected to take four days.

Brady on Friday called it “a challenge of a lifetime legislatively.”

President Donald Trump and the Republicans are driving to push through a major tax-cutting bill this year to secure a legislative accomplishment, following their stinging failure to overturn and replace the Obama health care law. The Republicans, facing increasing pressure to produce a marquee legislative victory before next year’s elections, are promoting their tax plan as a spark for economic growth and a boon to the stressed middle class.

Brady, in a statement releasing the revised bill, stressed “pro-growth tax reform that will deliver more jobs, fairer taxes, and bigger paychecks for people across our country.”

While Trump and House Republican leaders stand united behind the plan, rank-and-file GOP lawmakers are divided and complaining about its potential blow to homeowners and the loss of a prized deduction that especially hits high-tax states.

And Trump is pressuring Republicans to repeal a health-care law penalty in the tax rewrite, a step that Brady indicated is politically problematic. Some of the GOP lawmakers agree.

Brady said Friday the president had spoken to him twice by phone and once in person, imploring him to scrap the so-called individual mandate that requires Americans to obtain health insurance or face a penalty.

“The president feels quite strongly about including this at some step,” Brady said in an interview with Politico.

The Congressional Budget Office has estimated that repealing the individual mandate would save $416 billion over a decade. That’s because without it, fewer people would enroll in Medicaid or buy federally subsidized coverage on insurance exchanges. The money represents a tempting revenue source for GOP tax writers whose plan for extensive tax cuts would add an estimated $1.5 trillion to the nation’s debt over 10 years.

An influential conservative lawmaker, Rep. Mark Meadows, R-N.C., said Friday that repealing the health care mandate needs to be part of the tax bill. He said he believes a majority of Republicans in the House share that view.

Trump even tweeted on Wednesday: “Wouldn’t it be great to Repeal the very unfair and unpopular Individual Mandate in ObamaCare and use those savings for further Tax Cuts for the Middle Class.”

But Brady pointed out the Senate has been unable to muster enough votes for any health care legislation. “There are pros and cons to this. Importing health care into a tax reform debate does have consequences,” he said.

And Rep. Tom Cole, R-Okla., said, “I think the attitude is let’s not mix up health care with this.”

Republicans have set an ambitious timetable for the first revamp of the nation’s tax code in three decades, one that would touch virtually all Americans and the economy’s every corner, mingling sharply lower rates for corporations and reduced personal taxes for many with fewer deductions for home-buyers and families with steep medical bills.

Under the plan, the bulk of the tax cuts go to businesses instead of individuals, according to a budget watchdog group. The Washington-based Committee for a Responsible Federal Budget says corporations and other businesses get tax cuts of about $1 trillion, with the rest for individuals and people inheriting multimillion-dollar estates.

Democrats kept up their rhetorical battle against the plan, which was crafted by White House officials and Republican leaders in Congress in closed-door sessions over much of this year.

“Get real. Don’t tell the middle class this is for them,” House Democratic Leader Nancy Pelosi admonished Republicans as she spoke in a press conference. “You’ve set a banquet for the wealthy and corporate America and thrown a few crumbs” to the middle class. “It’s really making suckers of the American people.”

The tax plan also would increase the national debt, a problem for some Republicans.

EARLIER: House Republicans Unveil Trump Backed TaxReform Bill – US House of Representatives Republicans unveiled a draft tax bill on Thursday, calling for deep cuts in both individual and corporate tax rates. The Ways and Means Committee plans to take up the draft tax bill next week, with an eye toward a House vote before Thanksgiving. President Donald Trump is eager to sign a tax overhaul by December.

The 429-page bill, representing what would be the largest overhaul of the US tax system since the 1980s, called for slashing the corporate tax rate to 20 percent from 35 percent, cutting tax rates on individuals and families and ending certain tax breaks for companies and individuals.

Highlights of the draft Tax Cuts And Jobs Act bill include:

Seven individual tax brackets would be reduced to four brackets — 12 percent, 25 percent, 35 percent, and the current top rate of 39.6 percent remaining in place for the very wealthy.

Corporate taxes would drop from 35 percent to 20 percent permanently.

Standard deduction would increase from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples.

Child tax credit would expand from $1,000 to $1,600.

Federal deductions for state and local income and sales taxes would be eliminated, but local property taxes would be deductible up to $10,000.

No changes to limits on 401(k) pretax contributions.

Alternative minimum tax would be repealed.

Estate tax would kick in at $11.2 million, up from $5.49 million, but it would be fully repealed as of 2024.

Corporate profits from overseas would no longer be taxed, but there would be a minimum 10 percent tax on foreign subsidiaries.

The plan leaves intact a top individual tax rate of 39.6 percent to address criticism that the cuts are unduly favorable to the rich. The bill would raise the income threshold at which the top tax rate would apply to $500,000 for singles and $1 million for couples. In a boost for the wealthy, the plan also eliminates the alternative minimum tax and phases out the estate tax over a period of six years.

Broadly speaking, the GOP bill would sharply reduce taxes on both individuals and corporations, potentially draining trillions of dollars from federal coffers over the next decade. The Republican budget, however, makes room for only $1.5 trillion in revenue reduction over that period. And fast-track Senate rules, designed to avoid a Democratic filibuster, say the bill can’t add to the deficit beyond 10 years.

Republicans hope to offset some of the lost revenue from lower tax rates by eliminating tax breaks elsewhere in the code.

“With this plan, we are getting rid of loopholes for special interests and we are leveling the playing field,” said House Speaker Paul Ryan, R-Wis.

The bill nearly doubles the standard deduction, which will make tax filing easier for some people. However, it eliminates personal exemptions, which could adversely affect larger families.

“With this bill, we will grow our economy by delivering more jobs, fairer taxes, and bigger paychecks to Americans of all walks of life,” said Rep. Kevin Brady, R-Texas, chairman of the House Ways and Means Committee.

President Trump suggested the reduced corporate tax rate would help to spur economic growth.

“At 20 percent, we’re very, very competitive with the rest of the world,” Trump said during a White House meeting to celebrate the bill’s release. “You’re going to see growth and you’re going to see jobs and you’re going to see really wages going up.”

The bill also aims to encourage business investment by allowing companies to deduct those costs immediately, rather than spreading the deduction over a period of years. However, this provision is scheduled to sunset after five years.

In addition, a lower tax rate of 25 percent would be established for so-called pass-through businesses, such as partnerships that currently pay taxes at their owners’ individual rate.

Multinational corporations would no longer be taxed on profits earned overseas, although the plan would establish a minimum tax rate of 10 percent on foreign subsidiaries.

A number of provisions would hit taxpayers in Democratic-leaning states hardest, like rolling back deductions for state and local taxes and cutting in half the popular mortgage interest deduction.

It stirred anger at US universities, which said its proposals to tax endowments of private institutions and repeal a deduction for student-loan interest payments would hurt institutions and students.

How Proposed Tax Code Changes Affect People who take the standard deduction

Under Current Law: In 2018, single taxpayers will deduct $6,500, and married couples will deduct $13,000. Then, taxpayers can add in exemptions — $4,150 for each qualifying person, including oneself. For a single person, this comes out to $10,650. For a hypothetical two-parent home with two kids, it would come out to $13,000 plus four times $4,150, or $29,600.

Under the House – Tax Cuts And Jobs Act: A single taxpayer would deduct $12,000, and a married couple would deduct $24,000. However, none will tack on any additional exemptions. So that single person would deduct $12,000 and not $10,650. Meanwhile, the two-parent home with two kids would get a $24,000 deduction now, not $29,600. However, they could also get a bigger child tax credit In other words, the total of the standard deduction plus exemptions would be smaller for some families with multiple children than it was before. A nearly doubled standard deduction would also mean fewer taxpayers itemizing their deductions, which Republicans argue would make it easier to do their taxes.

How Proposed Tax Code Changes Affects Parents

Under Current Law: Taxpayers deduct a set amount — $4,150 per qualifying child — from their taxable income. Then, they apply the child tax credit by subtracting up to $1,000 per child from the final tax bill. (The total amount depends on a tax filer’s income; the credit phases out as income gets higher.)

Under the House – Tax Cuts And Jobs Act: Taxpayers would not apply exemptions for their children. They would, however, apply a larger child tax credit, of up to $1,600 per child. This could help families make up for the loss of exemptions (as explained above). There is also an additional $300 credit for each parent and nonchild dependent.

How Proposed Tax Code Changes Affects People with 401(k) accounts

Under Current Law: Taxpayers can contribute up to $18,500 in pretax income to tax-preferred retirement accounts like 401(k)s for tax year 2018.

Under the House – Tax Cuts And Jobs Act: No change.

How Proposed Tax Code Changes Affects People who deduct state and local taxes

Under Current Law: Tax filers who itemize deductions can deduct different types of state and local taxes from their taxable income on their federal tax returns.

Under the House – Tax Cuts And Jobs Act: Itemizers could still deduct property taxes, but not other types of state and local taxes, like income or sales tax. Additionally, they would only be able to deduct up to $10,000 in property taxes.

How Proposed Tax Code Changes Affects the estate tax exemption

Under Current Law: Taxes must be paid on any estate with assets worth more than $5.6 million for tax year 2018 (or $11.2 million per married couple). The tax rate on those assets ranges from 18 percent to 40 percent, depending on the size of the estate. Right now, only a tiny sliver of the very wealthiest estates are subject to this tax.

Under the House – Tax Cuts And Jobs Act: The estate tax exemption would immediately double, meaning individual estates would only be taxed on assets of more than $11.2 million for tax year 2018. Additionally, after six years, the estate tax would be eliminated entirely.

How Proposed Tax Code Changes Affects Small-business owners

Under Current Law: Sole proprietorships, as well as a few other types of businesses (not all of them small), are taxed through the individual income tax code and at individual income tax rates. (For this reason, they are often called “pass through” businesses, as their income gets passed on to the owner, who files the taxes with her income tax returns.)

Under the House – Tax Cuts And Jobs Act: Pass-through income would be taxed at a lower rate — 25 percent. However, the GOP has added in measures to discourage higher-income workers, who would pay a rate up to 39.6 percent, from trying to take advantage of the 25 percent rate for their wage income.

For example, the 25 percent rate would not apply to all types of pass-through income. The bill would tax income from a labor-intensive business, such as an accountant or a performer, at individual rates.

How Proposed Tax Code Changes Affects Homeowners

Under Current Law: Homeowners who itemize their deductions can deduct the interest paid on up to $1 million of their mortgage principal.

Under the House – Tax Cuts And Jobs Act: The deduction would be limited to up to $500,000 of new mortgages, not $1 million. Also, mortgages on second homes would no longer be deductible.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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