Republicans released their long-awaited tax overhaul bill late Friday afternoon, drawing months of negotiations to a close and setting up a pair of final votes on Monday and Tuesday.
President Donald Trump has promised to deliver tax relief as a Christmas present. He ran on a pledge of making it happen and the Republican Party is betting that voters flush with newfound money will reward them at the polls.
The Tax Cuts and Jobs Act creates seven new tax brackets, including a 37 per cent rate – down from 39.6 per cent – for top-end wage earners.
The new rates start at 10 per cent and rise to 12, 22, 24, 32, 35 and 37 per cent.
The bill also lowers the top corporate tax rate from 35 per cent to 21 per cent, the largest such reduction in U.S. history.
It makes changes to the income levels where the tax rates would kick in, raising the top tier by about $30,000 so only those earning $500,000 or more would be in the top bracket.
A change to the deductibility of mortgage interest will limit it to the first $750,000 of new home loans.
And Americans who inherit property won’t have to pay estate taxes on the first $11.2 million. That’s double the current exemption.
Some tax breaks that were written out of early versions of the bill are back in.
Those include a deduction for medical expenses and an exemption for graduate school tuition waivers. Americans paying off student loans will still be able to deduct the interest.
A promised $10,000 deduction for income and property taxes paid to states, counties and cities is also included – a compromise that attracted the support of lawmakers from high-tax states like New York and California.
The bill includes an expanded child tax credit, a move calculated to win the support of last-minute holdout Marco Rubio,. a Florida Republican senator.
It also eliminates the tax penalty placed on Americans who don’t buy medical insurance required by Barack Obama’s Affordable Care Act.
The nonpartisan Congressional Budget Office has cautioned that this may lead to more Americans not buying insurance policies, which could then contribute to premium-hikes for those who do.
The White House said in a statement that ‘[b]y lowering tax rates, simplifying the rigged and burdensome tax code, and repealing the failed tax on lower- and middle-income households known as the Obamacare individual mandate, this legislation will grow our economy, raise wages, and promote economic competitiveness.’
Mitch McConnell, the Senate majority leader, said that ‘China is already worried about this tax bill, because they know it will make America more competitive and spur greater investment here in America. This legislation will bring real relief to the middle class by taking money out of Washington’s pocket and putting it into theirs.’
Democrats were predictably sour on the legislation.
California Sen. Dianne Feinstein called the bill ‘awful’ and ‘one of the most irresponsible I’ve seen.’
‘In addition to driving up the deficit, it will increase health care premiums in the individual market by 10 percent each year, leave 13 million more Americans without health insurance and threaten to destroy a pristine section of the Alaskan wilderness.
‘I’m surprised anyone can call this a tax reform bill with a straight face,’ she said. ‘This is nothing more than a huge tax cut for big corporations and the rich, paid for by the middle class.’
Under the plan, however, Americans claiming the standard deduction instead of itemizing will have the benefit of a deduction that’s nearly doubled.
Republicans say that will result in millions of Americans filing a single-page tax return.
The final per-child tax credit will give families making up to $400,000 a year a $2,000 benefit per child.
WHAT’S IN THE FINAL TAX BILL?
- Top income tax bracket has dropped to 37 per cent from 39.6 per cent
- Other brackets are zero, 12, 22, 24, 32 and 35 per cent
- ‘Standard’ deduction for non-itemizers nearly doubles
- Interest is deductible only on the first $750,000 of new home mortgages
- Only individuals making more than $500,000 and couples earning $600,000 are in the top bracket
- Corporate tax rates drop from 35 per cent to 21 per cent
- Deduction for medical expenses and student loan interest and an exemption for graduate school tuition waivers
- Ends Obamacare tax penalty for failing to buy health insurance
- Doubles child tax credit to $2,000 for families earning up to $400,000
- $1,400 of child credit is refundable even for families that don’t pay any income tax
- Doubles estate tax exemption to the first $11.2 million of inheritances
- Opens a portion of the Arctic National Wildlife Refuge to oil and gas drilling
- ‘Pass-through’ corporations can deduct 20 per cent of income
- Elimination of corporate Alternative Minimum Tax
- No repeal of Johnson Amendment barring churches and religious organizations from election activity