House Republicans are out with the Tax Cuts and Jobs Act.
Currently, there are seven tax brackets. The House bill proposes four tax brackets. Let’s begin with the brackets for single filers.
Here are the proposed brackets for married couples filing jointly.
Currently, the brackets update for inflation using the Consumer Price Index (CPI). Under this bill, the brackets would be indexed using the Chained Consumer Price Index (Chained CPI). The Chained CPI grows at a slower rate than does the CPI. Over time, this results in so-called bracket creep, which moves people into higher tax brackets faster.
The standard deduction nearly doubles to $12,000 for a single filer and $24,000 for a married couple filing jointly. The standard deduction, too, would be tied to the Chained CPI, not the CPI.
Many of the deductions those who itemize their deductions currently take are either eliminated or reduced in value. Here are some of the popular deductions that would be eliminated.
- Student loan interest
- State and local income taxes
- Sales taxes
- Costly medical expenses
Property taxes could be deducted up to $10,000. Mortgages on new home purchases could be deducted up to $500,000 (down from $1,000,000). Mortgages on second homes would no longer be deductible.
The exemption (currently $4,050) would be abolished. Most families can take an exemption for each parent and minor child; for example, a family of four could claim four exemptions and reduce their taxable income by $16,200.
The Child Tax Credit
The child tax credit is increasing from $1,000 to $1,600. For married couples filing jointly, the income where the child tax credit begins phasing out would increase from $110,000 to $230,000. On the other hand, undocumented parents who pay taxes will no longer be able to get child tax credits.
The Family Tax Credit
This bill creates a $300 family tax credit. It’s available to a taxpayer, their spouse, and any non-child dependents in the house. If you have a married couple filing jointly, and a grandparent lives with them, the family gets three family tax credits worth a total of $900. The family tax credit will disappear in 2023.
The Death Tax
The so-called death tax is paid by .2% of estates. The bill would immediately double the value of an estate that can be exempted from the tax. By 2024, the death tax would be repealed.
The Alternative Minimum Tax
This bill would repeal the alternative minimum tax (AMT). If your income is less than $200,000, there is very little chance you will pay the AMT. In 2005, the AMT increased Donald Trump’s tax liability by more than 31 million dollars.