How the New GOP Tax Plan Would Impact Your Bottom Line

Congressional Republicans' latest plan for tax reform could become the first major overhaul of federal income tax laws in 31 years. Here's how it would affect the average American.

How the New GOP Tax Plan Would Impact Your Bottom Line Photo by Jim Barber / Shutterstock.com

Republicans unveiled what they’re calling a “framework” for tax reform Wednesday. It may raise more questions than it answers, however.

Titled “Uniform Framework for Fixing Our Broken Tax Code,” the nine-page document is essentially an outline of what GOP leaders envision for the tax code.

It was crafted by members of the Trump administration, the U.S. House of Representatives’ Ways and Means Committee and the U.S. Senate’s Finance Committee, according to a House announcement.

As pundits, reporters and others have publicly noted, the tax reform plan is shy on details.

Scott Greenberg, senior analyst for the nonprofit Tax Foundation, writes:

“Today’s framework contains only the broad outlines of a potential tax bill, leaving a number of details to be determined by the tax-writing committees in Congress.”

To be clear, the information released by Republicans Wednesday is not tax reform itself. It is not even a draft of proposed legislation that would update America’s tax laws. It’s more of a to-do list, or even a wish list.

But the GOP document provides the most informative glance yet into what Republicans have in mind for tax reform — even if it’s remarkably similar to the plan announced by the White House five months ago.

Furthermore, if the GOP successfully navigates the long legislative road ahead to tax reform, it will be the first time in three decades the U.S. tax code was overhauled.

Stuart E. Eizenstat, ambassador for the Brookings Institution, explains:

“The 1986 Tax Reform Act, signed by President Reagan almost exactly 31 years ago, was the first across-the-board tax reduction for everyone since the Kennedy tax cuts, and there have been none since. … The essence of the Reagan plan, embraced by the Democratic leadership that controlled the Congress, was to create a fairer, simpler tax system, with lower rates and fewer tax breaks for the wealthy and corporations, that did not inflate the budget deficit.”

We’ve plucked from the latest GOP tax plan the proposed changes that will affect individual taxpayers’ pocketbooks if the plan becomes reality along the lines being suggested now.

What would change for individual taxpayers

The GOP’s framework for tax reform would reduce the number of individual income tax brackets from seven to three, though it doesn’t specify income cutoffs for the new brackets. The three brackets would be:

  • 12 percent
  • 25 percent
  • 35 percent

The plan also calls for doubling of the standard deduction, along with eliminating “most” itemized deductions.

The document does not specify which deductions would be red-lined, but pledges typical middle-class families would see less of their income subject to federal taxes.

It continues:

“In combination, these changes simplify tax filing and 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.”

Other proposed changes that would affect some individuals include:

  • Increasing the income limits for the Child Tax Credit, thereby making it available to more people.
  • Providing a $500 nonrefundable tax credit for nonchild dependents.
  • Repealing the alternative minimum tax, or AMT.
  • Repealing the estate tax, which the plan refers to as “the death tax.”

To learn more about which taxpayers would most benefit from eliminating the estate tax — among other GOP tax proposals — check out Money Talks News founder Stacy Johnson’s recent article “The Single Biggest Lie of Trump’s Tax Plan.”

What would remain the same for individual taxpayers

Two big-ticket tax breaks would be retained under the tax proposal:

  • Home mortgage interest deduction
  • Deductions for donations to charity

According to the plan, “These tax benefits help accomplish important goals that strengthen civil society, as opposed to dependence on government: homeownership and charitable giving.”

What’s your take on Republicans’ plans for what could be the first overhaul of the tax code in 30 years? Sound off below or over on our Facebook page.

Trending Stories

Comments

1,151 Active Deals

More Deals