On September 27, the senior leadership of both the House and Senate has released the working framework for the first major tax overhaul since the Reagan reform of 1986. While light on exact numbers, the overall plan is a radical departure from the current tax code.
For starters, the plan would condense the current tax brackets to three or four, down from the current seven brackets. Under current law, the lowest tax bracket is set at 10 percent, while the highest is 39.6 percent. While the GOP plan would raise the lowest bracket to 12 percent and lower the highest bracket to 35 percent, it couples that with a doubling of the basic tax deduction that all filers get, potentially lowering the overall tax burden for lower and middle-income Americans. The framework also leaves open the possibility of a fourth tax-bracket for very high-income taxpayers.
Working parents would also get tax relief in the outline with a “significantly” increased Child Tax Credit. The plan also aims to keep deductions for retirement plan contributions and education expenses. However, consumers living in areas with high state and local taxes would see that popular deduction eliminated.
Also included in the plan are significant changes for small business owners and corporations. The proposal caps income tax rates for small businesses at 25 percent and the top corporate rate at 20 percent. Immediate expensing for capital purchases would be allowed, while the manufacturing and interest deductions would be phased out. Additionally, the framework calls for a “territorial” tax system, which could allow American companies to repatriate more of their foreign earnings back into the United States.
Consumers interested in learning more can read the full framework here: https://waysandmeansforms.house.gov/uploadedfiles/tax_framework.pdf