Tax Reform Nears Its Final Leg After Concessions and Controversy

Speaker of the House Paul Ryan on the House Budget Committee in July 2014. (Public domain Department of Defense photo by Mass Communications Specialist 2nd Class Sean Hurt.)

On Friday, the House and the Senate compromised on the final version of the most significant tax reform legislation in decades details ahead of next week’s all but certain vote and signature by President Trump.

The bill which narrowly passed the senate in a 51-49 vote last month with only Sen. Bob Corker, R-Tenn., breaking party ranks saw opposition in the dual chamber conference committee by Corker and Sen. Marco Rubio.

Rubio’s objections came over the size of the child tax credit, a provision which currently allows families to reduce their federal income tax by $1,000 per eligible child under 17.

Under the original senate proposal, the income tax credit would be doubled to $2,000 per eligible child but would have capped low-to-moderate income families – whose credit would have been larger than their tax contribution – at $1,100.

Rubio, who attempted to insert an amendment expanding the low-income credit in the senate vote last month, said he could not support the compromise measure if the $1,100 credit remained. Late Friday, the GOP agreed to increase the measure to $1,400.

One of the aspects businesses were watching was the corporate tax rate which the house and senate both agreed should be reduced by about 15 percent from the current 35 percent rate. In a move blessed by the president, a tax rate of 21 percent was reached.

The tax bill kept the equivalent amount of tax brackets and lowered most of the rates, as seen below, but included an expiration date of 2025 for the cuts.

The Final Tax Plan

Income Tax Rate Income Levels for Those Filing As:
Current Tax Bill Single Married-Joint
10% 10% $0-$9,525 $0-$19,050
15% 12% $9,525-$38,700 $19,050-$77,400
25% 22% $38,700-$82,500 $77,400-$165,000
28% 24% $82,500-$157,000 $165,000-$315,000
33% 32% $157,000- $200,000 $315,000-$400,000
33% – 35% 35% $200,000-$500,000 $400,000- $600,000
39.6% 38.5% $500,000+ $600,000+

 

Statistics provided by The Balance

Additionally, the compromise keeps intact the senate-proposed repeal of the Affordable Care Act’s individual mandate, the hotly contested aspect of Barack Obama’s crowning achievement which forced people into purchasing healthcare or face a fine.

The mandate, according to experts, is thought to be a key part of the legislation because it brings healthy people into the marketplace creating a stronger resource pool for the sick.

The Senate bill also controversially limits state and local income tax deductions to no more than $10,000 worth of property taxes and either sales or income taxes, according to Bloomberg.

Additional changes include the elimination of the corporate alternative minimum tax, a decrease in the number of estates which fall under the estate tax, and an increase in deduction values for single and married taxpayers.

Despite Republicans’ hopes that the bill would pay for itself, the Joint Committee on Taxation reported that the bill would add $1.4 trillion to the deficit.

The only dissenting Republican senator during the November vote, Bob Corker, for months had argued against going forward with legislation which would add to the deficit but said he would support the proposal after a clause was included which allows real-estate corporations to deduct a portion of their income taxes.

According to the International Business Times, Corker owns a commercial real estate company but in an interview said he had no knowledge of the provision and that he has not read the entire bill.

Along with supporting the corporate tax rate, President Trump said the reform would be a gift to middle-income families and touted the bill as a benefit to companies and job growth, according to CNN.

The passage of the bill would mark the first substantial piece legislation passed by the Republican-dominated 115th Congress, and with the inclusion of the ObamaCare mandate repeal, both parties may be primed to begin their 2018 midterm elections campaigns with new vigor.

Additional contributions by John Lievonen.

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