September 27 2017
The GOP has revealed a plan to make fundamental changes in our tax laws.
However, taxpayer reactions to enactment of the proposed changes are
difficult to measure, especially when many details are unclear.
It may help us to visualize these changes as tax architectsâ€™ proposals to redesign a very complex building, with many rooms, byways, trap doors and mazes full of
tunnels, both light and dark.
These 2017 proposed changes are incompletely described, and detailed working
drawings have not yet been provided.
Here are some of the details:
NEW TAX RATE: At present there are 7 tax brackets from 10% to 39.6%. The
proposed tax rate scheme will have 3 tax brackets, from 12% to 35%. The lowest tax bracket is 12% compared to the existing 10%
STANDARD DEDUCTION: The current standard deduction treated as a subtraction
from taxable income ranges from $6,350 to $12,700 depending on one’s filing
class, from Single to Married Filing Joint. The new standard deduction will be
$12,000 for Single Filers, and $24,000 for Married Filing Joint taxpayers.
REDUCTION OF ITEMIZED DEDUCTIONS: Currently individual taxpayers may
subtract Medical Expenses, Real Estate Taxes, Charitable Donations, Interest expense on home mortgages, Casualty Losses, various Job Related Expenses, and State and Local income taxes. Excluding mortgage interest and charitable deductions, the other categories of itemized expenses would be eliminated.
ALTERNATE MINIMUM TAX: Under current tax law, a minimum tax is computed
by adding back to taxable income many tax categories, and most itemized
deductions. The taxpayer pays the higher tax amount, regular or minimum.
The proposals eliminate the Alternate Minimum Tax.
CHILD TAX CREDIT: The current tax credit for a child under 17 years old is $1,000. The new tax credit would be “substantially higher”.
PERSONAL EXEMPTIONS: The current personal exemption, subject to reduction depending on taxable income is $4,050. These would be eliminated under the 2017 tax proposal.
ESTATE TAX: Also known as a death tax, taxpayers who have property greater than $5.5 million may pay this tax from their estate. This tax is eliminated under the 2017 tax proposal.
REDUCE CORPORATE TAX RATES: The current corporate tax is assessed at
rates of 15% to 35%. This would be reduced to a single rate of 20%. For
certain “pass through” entities such as S Corporations, Limited Liability
Companies, and Partnerships the tax rate would be 25%.
CHANGE TAX RULES FOR MULTINATIONAL BUSINESSES: Under current tax
law multinationals pay US taxes when they take foreign profits into the US.
The proposed rules would exclude from U.S. taxes for foreign earnings taxed
by non U.S. locations.
Are these tax proposals fully explained or clear? No, but they involve the
most significant changes to US tax law since 1986. The goals include making
the tax compliance process easier for both taxpayers and the government.