The Trump administration on Wednesday released a broad outline of a plan to make major changes to the tax code. Many important details were left for Congress to hash out, including how to pay for the tax cuts and which deductions to eliminate. Here are some key elements of the proposal:
-Tax relief for middle-class families.
-Single page or “postcard” tax filing for many Americans.
-Tax relief for businesses, especially small businesses.
-Ending incentives to ship jobs, capital, and tax revenue overseas.
-Broadening the tax base and providing greater fairness for all Americans by closing loopholes.
The new framework reduces the tax code and provides tax relief by roughly doubling the standard deduction to:
-$24,000 for married taxpayers filing jointly, and
-$12,000 for single filers.
These changes effectively create a larger “zero tax bracket” by eliminating taxes on the first $24,000 of income earned by a married couple and $12,000 earned by a single individual.
Under current law, taxable income is subject to seven tax brackets. The framework aims to consolidate the current seven tax brackets into three brackets of 12%, 25% and 35%.
To provide further tax relief for middle-income families, the framework repeals the personal exemptions for dependents and significantly increases the Child Tax Credit. The first $1,000 of the credit will be refundable as under current law.
The framework also provides a non-refundable credit of $500 for non-child dependents to help defray the cost of caring for other dependents.
The nonpartisan Joint Committee on Taxation (JCT) and the Internal Revenue Service Taxpayer Advocate have both recommended repealing the AMT because it no longer serves its intended purpose. This framework repeals the existing individual AMT.
The framework eliminates most itemized deductions, but retains tax incentives for home mortgage interest and charitable contributions. The framework limits the maximum tax rate applied to business income of small and family owned businesses conducted as sole proprietorship, partnerships and S corporations to 25%.
The framework reduces the corporate tax rate to 20%, which is below the 22.5% average of the industrialized world. In addition, it aims to eliminate the corporate AMT, as recommended by the nonpartisan JCT. The framework allows businesses to immediately write off, or “expense” the cost of new investments in depreciable assets other than structures made after September 27, 2017, for at least five years.