Tax Relief That's Good For All Americans
- The Senate is on the cusp of providing historic tax relief to the American people – the last major reform was in 1986.
- The Senate plan will promote jobs, lower tax rates, simplify the system, kill Obamacare’s individual mandate, and encourage investment in America.
- Studies show that this bill will raise average household incomes by $4,000, raise wages by 4 to 7 percent, and make the economy 3 to 5 percent larger.
This week the Senate will debate the first major tax reform bill in 31 years. The bill is good for taxpayers, good for American families, good for jobs, and good for investment in our economy.
GOOD FOR TAXPAYERS
The bill cuts individual tax rates, creating new rates of 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 38.5 percent. It nearly doubles the standard deduction, to $24,000 for married filers and $12,000 for single filers. This will simplify taxes for the vast majority of filers – it is estimated that the portion of taxpayers taking the standard deduction will rise from nearly 70 percent currently to 95 percent. The bill also effectively repeals Obamacare’s individual mandate.
The bill does all of this while maintaining the tax breaks important to most Americans: mortgages up to $1 million; the treatment of charitable contributions; the child and dependent care tax credit; the adoption tax credit; the earned income tax credit; treatment of 401(k) and individual retirement accounts; and the medical expense deduction.
GOOD FOR FAMILIES
Important family tax provisions are protected and expanded in the Senate bill as well. The child tax credit doubles, going from $1,000 to $2,000. More family-owned small businesses and family farms will be protected from the death tax because the exemption amount will double, from $5 million to $10 million. To help save for college, expectant parents will now be able to open a 529 savings account. Businesses will be encouraged to provide paid family and medical leave by giving them a tax credit to partially offset an employee’s pay as he tends to his family.
GOOD FOR JOBS AND INVESTMENT
Small businesses will see a tax cut. The bill effectively provides a lower rate on Main Street business income by allowing 17.4 percent of this income to be deducted on a business owner’s tax return. This is important because the Main Street business rate and the corporate income rate must be similar to avoid giving a tax advantage to one type of business organization over another.
The corporate rate will decrease from 35 percent to 20 percent. The U.S. currently has the highest corporate tax rate in the developed world. This bill takes our rate below the average for the nations in the Organization for Economic Cooperation and Development. This is expected to increase wages, since workers bear most of the burden of corporate taxes. Prices will be lower than they otherwise would have been, because some of the corporate tax is passed on to consumers via higher prices.
The bill encourages investment in the U.S. by allowing businesses to write off more of their investment in the year they make it. This is probably the best single change Congress could make to spur economic growth, according to the Tax Foundation.
The bill also encourages investment here at home by ending the lock-out that occurs now when money cannot be brought back to the U.S. without paying a second layer of tax. By moving to a territorial tax system, the tax bill encourages U.S. companies to bring cash back home to invest, and it ends the advantage that foreign firms have over U.S. firms.
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