Late this week, House Republican leaders proposed new legislation that would overhaul the whole of the US tax code in a way that will slash the corporate and individual tax rates which Americans and American businesses have used for many years to limit their tax bills.
Releasing this proposal, then, has exacerbated an already flurried frantic political climate that impacts nearly every single American household and business. As a matter of fact, there are many cases in which the new tax plan will cut back on tax benefits for families and individuals and, instead, expanding tax benefits for companies/corporations.
What is this proposal?
The Tax Cuts and Jobs Act aims to lower the corporate tax rate from 35 percent to 20 percent. In addition, it will collapse the tax brackets paid by individuals and families from seven to four. Doing this, experts say, will simply expand benefits for the wealthy (by cutting taxes and eliminating the estate tax and putting an end to the alternative minimum tax).
Furthermore, the proposal will cut the very popular mortgage interest deduction in half. This is a tax benefit employed by millions of American homeowners, which will now cap the new mortgage tax deduction at $500,000. Until this proposal Americans have been able deduct mortgage interest of up to $1 million. Also, the bill will allow people to deduct local property taxes from their taxable income, but this benefit will have a $10,000 cap.
Of course, this proposal will not necessarily affect everyone equally. The change will likely have a major impact on high-cost areas of the country. This would include areas like Boston, San Francisco, New York, and of course Washington, DC. As such, we can expect housing groups and lawmakers from these regions will try to defeat the bill.
Looking at it another way, the bill will almost double the amount of money not open to federal income tax. This is the tax break known as the “Standard Deduction” and it will, basically, increase from $12,700 per family to $24,000. Of course, this benefit will be offset, in part, by the personal exemption that many Americans claim, an exemption most commonly taken by families with multiple children.
As a replacement, the bill will provide a measure known as the “Family Credit” which expands the child tax credit most commonly used by working families. However the amount will only increase from $1,000 per child to $1,600 per child.