The House Ways and Means Committee released its long-awaited tax plan on Thursday, called the Tax Cuts and Jobs Act, which adds a fourth tax bracket on high-income earners and leaves retirement plans largely untouched.
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“The Tax Cuts and Jobs Act will deliver real relief for people in the middle [and] people who are also striving to get there,” House Speaker Paul Ryan (R-Wis.) said during a press conference.
The GOP predicts that if its bill is enacted, the average middle-income family of four would receive a tax cut worth $1,182.
While the legislation will be up for amendments before it’s voted on in both chambers of Congress, here are some of the official details set forth in documents released Thursday.
The GOP wants to add in a fourth tax bracket, which had been floated as a possibility throughout the past couple of months, acting as a surtax on the country’s highest earners. The tax brackets will be set at 12%, 25%, 35% and 39.6%. The highest rate is in line with the current top tier tax rate, but kicks in at an income level of $1 million for married couples. Currently the top rate applies to those with incomes in excess of $470,700.
For household income levels, the 0% rate applies to those with incomes up to $24,000, the 12% rate up to $90,000, 25% up to $260,000, 35% up to $1 million and the top rate at more than $1 million.
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For individuals, the 12% rate applies to incomes up to $45,000, the 25% rate up to $200,000, 35% up to $500,000 and the highest rate to incomes in excess of $500,000.
While initially the Trump administration called for a full repeal of the deductions for state and local taxes (SALT), the finalized bill indicates Republicans settled for a modification instead. The GOP plans to allow state and local property tax deductions up to $10,000.
Other state and local deductions, including income and sales tax deductions for individuals, will be eliminated.
Changes to SALT deductions have been a controversial topic across party lines for lawmakers representing high-tax states like New York and New Jersey. Some lawmakers have indicated their elimination would be a deal-breaker.
Despite discussions to reduce the so-called “catch up” contribution for those over the age of 50 from $6,000 to $2,400, the tax plan released on Thursday did not change the retirement savings plans used by more than 50 million Americans.
The president pledged via twitter on Oct. 23 to keep the “popular middle class tax break” intact in its current form.
While President Trump initially called for a complete repeal of the estate tax, also known as the death tax, the details of the finalized version of its plan are a bit softer. The GOP wants to double the exemption on inherited assets in the near-term and completely eliminate it after six years.
Corporate Tax Cut Implementation
As expected, Republicans stuck with their aim of slashing the corporate tax rate by 15 percentage points to 20%, and they want to make it permanent, sources told FOX Business.
It remains to be determined whether a reduction in the corporate tax rate would be gradually phased in over the course of a few years or whether it would be an immediate, one-time cut.
FOX Business has also learned that the GOP aims to tax repatriated overseas profits at a rate of 5% for illiquid assets and 12% for cash, so long as the company brings back those profits within 8 years.
The GOP’s plan calls for a reduction in the “pass-through” rate on business income to 25%.
The GOP's tax reform bill calls for an expansion of the child tax credit, an effort that has been championed by Ivanka Trump, from $1,000 to $1,600. The measure would also provide for a credit worth $300 for each parent and non-child dependent.
Additionally, the home mortgage interest deduction for newly purchased homes would be maintained up to $500,000. This will not affect existing mortgages, but new ones moving forward.
The cap on charitable deductions will increase to up to 60% of total income.