House of Representatives' Tax Plan
The House of Representatives has passed its plan for changing the tax code that lowers marginal rates with incentives for domestic investment and simpler tax filings. It is all about economic growth and simplicity.
The corporate tax rate would be lowered from 35% to 20% and individual rates would change to three tax brackets of zero-12 percent; 25 percent and 33 percent, instead of the current seven brackets with some special rules. The estate tax would be repealed. The tax on capital gains, interest income and dividends would be lowered to 50% of the taxpayer's regular tax rate. The top tax rate on business income would be 25%, so that sole proprietors and pass-through entities (S corporations, LLCs, and partnerships) business income would have a maximum tax rate on income of 25 percent. Net interest expense would no longer be deductible. This change, while probably a good idea in general, has caused concern from many business groups. Capital costs could be expensed, instead of depreciated over a period of years. The corporate tax would be imposed on imports and not exports-focusing on the location of the customer and not the business.
Itemized Deductions now taken on Schedule A would vanish, except for home mortgage interest and charitable deductions. The standard deduction, however, is increased to $12,000 for single taxpayers and $24,000 for taxpayers who file joint returns. The alternative minimum tax on form 6251 would be repealed. The child tax credit would remain and the marriage penalty would be eliminated.
Plenty to admire about the House's tax plan, but little chance of it becoming law in 2017, unless a Republican wins the White House and Republicans retain control of the House and Senate. The House tax plan doesn't follow Trump's massive proposed tax cut, but it has similar aims: a) a simpler tax code; b) lower taxes; c) economic growth.
Bowman Law Firm,
Gene Bowman, Tax Attorney