House Republicans announced a tax proposal Thursday that would cut the U.S. corporate tax rate to 20 percent, reduce most of the individual tax brackets, and cap the mortgage-interest deduction on new purchases of homes.
The measure would phase out the estate tax over five years and impose a tax of as much as 12 percent on multinational companies’ accumulated offshore earnings. House Ways and Means Chairman Kevin Brady may revise the bill over the weekend before his committee starts considering it on Monday. The Senate aims to propose its own bill as early as next week.
Here’s a guide to some of the House measure’s major provisions:
The rates would be consolidated from seven to four, while setting a $24,000 standard deduction for joint filers and keeping the current top bracket of 39.6 percent. The personal exemption of $4,050 each would be repealed, and the tax thresholds would be increased annually according to a rule called chained CPI.
- Chained CPI is a formula that would subject more income to higher tax rates than under the regular consumer price index.
Here are the initial brackets for married taxpayers filing jointly:
- 12 percent: $24,000 to $90,000
- 25 percent: $90,000 to $260,000
- 35 percent: $260,000 to $1 million
- 39.6 percent: $1 million and up
The top tax rate for pass-through businesses would be reduced to 25 percent from the current 39.6 percent, while limiting the kinds of income that would qualify.
- Among those who wouldn’t automatically qualify are lawyers, accountants, consultants, engineers, financial services workers, and performance artists.
- Qualified pass-through business owners can choose to count 70 percent of their income as wages — subject to their individual tax rate — and 30 percent as business income, taxable at the 25 percent rate. Or, they can set the ratio of their wage income to business income based on their capital investment.
The measure would keep the carried-interest tax break used by private-equity managers, venture capitalists, hedge-fund managers and certain real-estate investors.
The alternative-minimum tax would be repealed.
The estate tax would end after 2023. Before then, the amount excluded from the tax would be doubled for individuals from the current $5.49 million. The top gift tax rate would be cut to 35 percent from 40 percent.
Deductions and Credits
The overall limit on itemized deductions would be repealed.
The deduction for state and local income taxes would be repealed, while the deduction for state and local property taxes would be capped at $10,000.
The home-mortgage interest deduction would be reduced for new purchases to $500,000 from the current $1 million.
Deductions would be repealed for medical expenses, tax preparation expenses, moving expenses, and most personal casualty losses, unless the loss is related to special disaster-relief legislation.
The child tax credit would be increased to $1,600 from $1,000 for each child under age 17, plus another $300 for each parent as part of a family tax credit.
The corporate tax rate would be cut to a flat 20 percent from the current maximum of 35 percent.
Businesses could immediately expense the cost of new investments instead of depreciating over a matter of years. The immediate expensing would end in January 2023.
The proposed rules would prevent companies from deducting interest expenses that exceed 30 percent of a measure of their income.
Multinational companies’ accumulated offshore earnings would be taxed as high as 12 percent.
The exemption for executive pay linked to results would be eliminated, denying companies the option to write off large equity awards.
Most of the oil and gas industry’s main tax breaks would stay intact, including the last-in-first-out provision that lets companies value crude stockpiles at they price they’re selling for rather than the original purchase cost. Also retained are the deduction for intangible drilling costs and the ability to depreciate reserves.
Two major tax breaks for solar and wind energy would remain, although the wind benefit would be cut by more than a third. The plan adds tax credits for other energy sources, such as geothermal, small-scale wind and fuel cells.
Tax credits of up to $7,500 for people who buy electric cars would be repealed, and a 10 percent tax credit for commercial-scale solar and geothermal projects would end after 2027.
Large private university endowment income would be taxed at 1.4 percent. That measure would apply to schools with assets of more than $100,000 per student.
The sale of municipal bonds for professional sports stadiums and privately run infrastructure projects such as toll roads and airports, would be eliminated.
A tax credit that drug and biotechnology companies can claim for 50 percent of the costs of clinical testing expenses for treatments for rare diseases and conditions would be eliminated.
Churches would be allowed to endorse political candidates and take stands on political issues without risking their tax-exempt status, as long as the speech "is in the ordinary course of the organization’s business" and expenses are minimal, according to a summary of the tax measure.