The Republican Party has finally stepped forward with its tax reform plan — the Tax Cuts and Jobs Act.
Rep. Kevin Brady, chairman of the House Ways and Means Committee, said the plan had the “full support” of President Trump, while Speaker of the House Paul Ryan, R-Wisc., characterized this as a big moment for the country.
“With this plan, we are making pro-growth reforms, so that yes, America can compete with the rest of the world,” said Ryan.
Here are some of the stand-out provisions:
1. Fewer tax brackets and bigger standard deduction
Most Americans will have a lower individual income tax rate.
The GOP plan collapses the number of individual income tax brackets from seven to four brackets, at 12, 25, 35, and 39.6 percent.
Income earned up to $24,000 will not be taxed. For married taxpayers filing jointly, earnings up to $90,000 will fall in the 12 percent bracket; income up to $260,000 falls in the 25 percent bracket; the third bracket taxes income up to $1 million at 35 percent; and those making more than $1 million will fall in the top bracket, which remains the same 39.6 percent.
To offset the elimination of several tax credit provisions, the standard deduction for individuals and married couples has nearly been doubled.
2. Closing the Illegal immigrant tax refund loophole
Claiming tax credit refunds has been a source of fraud and abuse due to the lack of any verification protocol by the government for these claims.
With the refundable child tax credit, for example, individuals can claim a tax refund but do not need to provide any authenticating documents as proof. This is a loophole easily exploited by illegal immigrants without a Social Security number.
The GOP tax plan closes this loophole by requiring a Social Security number to claim the refundable portion of the child tax credit or the American Opportunity Tax Credit. This is a common-sense reform that is long overdue.
3. Family-focused tax policy
There are several family-focused provisions in the Republican plan. The child tax credit is expanded to $1,600 per child from $1,000. Additionally, a new $300 family flexibility tax credit is created for each parent and non-child dependent.
These tax credits are non-refundable, but families will be able to keep more of their own money.
4. Slashing corporate and business taxes
The most momentous change to the tax code is the slashing of America’s corporate tax rate from the highest-in-the-industrialized-world 39.1 percent to below the OECD average of 24.1 percent. The Tax Cuts and Jobs Act cuts the corporate tax to 20 percent and lowers the rate for pass-through entities (small businesses that file taxes as individuals) to 25 percent.
The change to how “pass-through” businesses are taxed is a YUGE change for small businesses filing as sole proprietorships, partnerships, limited liability companies, and S corporations. As it stands now, these businesses can be taxed all the way up to the maximum 39.1 percent.
5. Reducing housing market distortions
The Republican plan caps the mortgage interest deduction for newly purchased homes at $500,000 — down from $1 million. This is good policy because it will discourage individuals from purchasing beyond their means for a new home.
But it keeps a tax deduction to help families afford mortgage rates on less expensive homes. That is a compromise that will rightly adjust prices in the housing market toward their true worth and lead to more stability.
The Tax Cuts and Jobs Act is far from transformative, and there is room for improvement. A lingering question is how the elimination of certain tax credits and deductions will impact individual filers. Will lower individual tax rates effectively compensate for the loss of those credit deductions?
But for now, these provisions are a step in the right direction — a pro-growth tax plan.
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Author: Chris Pandolfo
Chris Pandolfo is a staff writer and type-shouter for Conservative Review. He holds a B.A. in politics and economics from Hillsdale College. His interests are conservative political philosophy, the American founding, and progressive rock. Follow him on Twitter for doom-saying and great album recommendations @ChrisCPandolfo.