House Republicans on Thursday released their highly anticipated plan to reform the U.S. tax code – which aims to cut the corporate rate and reduce the number of tax brackets.
It is the first tax code revamp since 1986.
The bill would cut the corporate tax rate from 35 to 20 percent, double the standard deduction, increase the child tax credit to $1,600 and eliminate the estate tax. It does not, however, change the rates for 401(k) and Individual Retirement Accounts.
Also, the cap on the mortgage deduction would drop from $1 million to $500,000 – and it would cap the state and local tax deduction at $10,000. Republicans in high-tax states, including New York and California, had been opposed to SALT (state and local tax) changes.
The plan retains the top individual income tax rate of 39.6 percent but cuts the number of brackets from seven to four. The highest bracket's plan is for individual income of more than $500,000 compared with the current rate of $418,000. For those married filing jointly, the cutoff is more than $1 million from the current $470,000.
The other new brackets are 12 percent, 25 percent and 35 percent.
The lowest individual bracket is $45,000 from the current lower rates of 10 percent up to $9,325 and 15 percent up to $37,950. For married filing jointly, the lowest bracket proposal is up to $90,000 from the 10 percent of up to $18,650 and 15 percent up to $75,900.
The other brackets are 25 percent (up to $200,000 for individuals and $260,000 for married) and 35 percent ($500,000 for individuals and $1 million for married).
The standard deduction increases from $6,350 to $12,200 for single filers, $12,700 to $24,400 for married couples and $9,250 to $18,300 for head of household.
For an average family of four making $60,000, The Wall Street Journal estimates their tax bill will drop from $1,608 to just $472.
House Republicans delayed revealing the plans from Wednesday to Thursday as they worked on parts of the plan.
Republicans in the House hope to get the legislation passed before Thanksgiving and advance it to the Senate before the end of the year. President Donald Trump said he wants to sign the bill before Christmas.
The House of Representatives narrowly passed the 2018 $4 trillion budget resolution last week in preparation of moving toward tax reform. The budget allows Republicans to pass a tax overhaul that adds up to $1.5 trillion to the deficit.