The big day is finally here for President Trump and GOP House Speaker Paul D. Ryan (Wis.). On Thursday, the House is set to vote on the tax bill, the central piece of the Republican plan to boost the U.S. economy. No Democrats are expected to vote for the bill, meaning Ryan can only lose 22 GOP votes.
It keeps the Affordable Care Act's individual mandate.
The House is voting on a tax bill only. The Senate bill includes a provision to scrap the legal requirement that almost all Americans buy health insurance or pay a penalty. The House isn't touching that, which may lead to a showdown between the two chambers if they have to reconcile their very different versions of the bill.
Big businesses win.
The House bill cuts the top rate that large corporations pay from 35 percent to 20 percent, the biggest one-time drop in the big-business tax rate ever. It is a permanent change that does not expire. On top of that, companies would get some new tax breaks to help lower their bills, such as the ability to deduct all the costs of purchasing new equipment for five years, as well as a special low rate on any money they bring back to the United States from low-tax countries such as Ireland. Many businesses have been holding cash overseas to avoid 35 percent U.S. taxes. Now they would get to bring the money home at a tax rate of 12 percent. The entire business tax system would also change from a worldwide system, in which money anywhere around the globe is taxed, to a territorial system in which it's mostly money made in the United States that is taxed. Businesses have long lobbied for this change.
Small businesses get a mini-win.
The National Federation of Independent Businesses, the largest small business lobby, initially was against the House bill, but Republicans made some changes and now the NFIB is giving its blessing. 95 percent of American businesses are organized as pass through companies (LLCs, S-Corps, partnerships), and they “pass through” the business income to the owner's individual tax rate. The House plan lowers the top rate from 39.6 percent to 25 percent for small businesses (excluding “service companies” like consultants and lawyers) and requires a complex formula where the 25 percent rate only applies to about 30 percent of the business income. But the reality is most small businesses — 85 percent — already pay taxes at rates of 25 percent or less. To help out the small “mom and pops,” the final bill has a 9 percent rate on the first $75,000 in income for business owners making $150,000 or less. But that tax break phases in, meaning it isn't fully available until 2022.
The rich do very well.
The wealthy get a lot of benefits in the bill. The estate tax, which is paid only when property and other assets worth over $5.5 million are passed on to heirs, doubles to about $11 million in 2018 (around $22 million for couples), meaning a lot fewer people have to pay it. And the estate tax goes away entirely in 2024. The mega-wealthy also would get to keep charitable deductions, a popular way that lowers their tax bills, and they no longer would have to pay the alternative minimum tax (AMT), a safeguard against excessive tax dodging that's been in place since 1969. Some wealthy business owners would be able to take advantage of the lower pass-through rate as well. Overall, the Tax Policy Center found that half the benefits of the bill go to the top 1 percent by 2027.
How much does the bill cost (and who pays)?
The price tag for the bill is just over $1.4 trillion, according to JCT, meaning that amount would be added to the debt if spending cuts are not made (or more revenue raised) in the coming years to offset the cost. Economists believe the tax cuts would generate some additional growth, but not nearly enough to cover the costs.
It total, about three-quarters of the benefits go to businesses and the remaining quarter goes to individuals.
It keeps the Affordable Care Act's individual mandate.
The House is voting on a tax bill only. The Senate bill includes a provision to scrap the legal requirement that almost all Americans buy health insurance or pay a penalty. The House isn't touching that, which may lead to a showdown between the two chambers if they have to reconcile their very different versions of the bill.
Big businesses win.
The House bill cuts the top rate that large corporations pay from 35 percent to 20 percent, the biggest one-time drop in the big-business tax rate ever. It is a permanent change that does not expire. On top of that, companies would get some new tax breaks to help lower their bills, such as the ability to deduct all the costs of purchasing new equipment for five years, as well as a special low rate on any money they bring back to the United States from low-tax countries such as Ireland. Many businesses have been holding cash overseas to avoid 35 percent U.S. taxes. Now they would get to bring the money home at a tax rate of 12 percent. The entire business tax system would also change from a worldwide system, in which money anywhere around the globe is taxed, to a territorial system in which it's mostly money made in the United States that is taxed. Businesses have long lobbied for this change.
Small businesses get a mini-win.
The National Federation of Independent Businesses, the largest small business lobby, initially was against the House bill, but Republicans made some changes and now the NFIB is giving its blessing. 95 percent of American businesses are organized as pass through companies (LLCs, S-Corps, partnerships), and they “pass through” the business income to the owner's individual tax rate. The House plan lowers the top rate from 39.6 percent to 25 percent for small businesses (excluding “service companies” like consultants and lawyers) and requires a complex formula where the 25 percent rate only applies to about 30 percent of the business income. But the reality is most small businesses — 85 percent — already pay taxes at rates of 25 percent or less. To help out the small “mom and pops,” the final bill has a 9 percent rate on the first $75,000 in income for business owners making $150,000 or less. But that tax break phases in, meaning it isn't fully available until 2022.
The rich do very well.
The wealthy get a lot of benefits in the bill. The estate tax, which is paid only when property and other assets worth over $5.5 million are passed on to heirs, doubles to about $11 million in 2018 (around $22 million for couples), meaning a lot fewer people have to pay it. And the estate tax goes away entirely in 2024. The mega-wealthy also would get to keep charitable deductions, a popular way that lowers their tax bills, and they no longer would have to pay the alternative minimum tax (AMT), a safeguard against excessive tax dodging that's been in place since 1969. Some wealthy business owners would be able to take advantage of the lower pass-through rate as well. Overall, the Tax Policy Center found that half the benefits of the bill go to the top 1 percent by 2027.
How much does the bill cost (and who pays)?
The price tag for the bill is just over $1.4 trillion, according to JCT, meaning that amount would be added to the debt if spending cuts are not made (or more revenue raised) in the coming years to offset the cost. Economists believe the tax cuts would generate some additional growth, but not nearly enough to cover the costs.
It total, about three-quarters of the benefits go to businesses and the remaining quarter goes to individuals.