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GOP tax plan: What's in, what's out


December 16. 2017 10:31PM
With guests identified as "middle class families" looking on, U.S. President Donald Trump delivers a speech on tax reform legislation at the White House in Washington, D.C., Dec. 13, 2017. (REUTERS/Kevin Lamarque)

WASHINGTON - Congressional Republicans have unveiled the final version of their dramatic tax overhaul - debt-financed cuts for businesses, the wealthy and some middle-class Americans - ahead of planned votes by lawmakers early this week.

Passage of the biggest U.S. tax rewrite since 1986 would provide Republican lawmakers and President Donald Trump their first major legislative victory since he took office in January.

Three Republican senators, enough to defeat the measure in a Senate that Trump's party controls with a slim 52-48 majority, remained uncommitted: Susan Collins, Jeff Flake and Mike Lee.

The final version hammered out Friday between Senate and House of Representatives Republicans after each chamber previously passed competing versions contained no surprises.

It would cut the corporate income tax rate to 21 percent from 35 percent, according to a summary distributed to reporters by congressional tax writers. Corporate tax lobbyists have been seeking a tax cut of this magnitude for many years.

The bill, the summary showed, would create a 20-percent business income tax deduction for owners of "pass-through" businesses, such as partnerships and sole proprietorships; allow for immediate write-off by corporations of new equipment costs; and eliminate the corporate alternative minimum tax.

Under a new territorial system, the bill would exempt U.S. corporations from taxes on most of their future foreign profits. It also sets a one-time tax for companies to repatriate more than $2.6 trillion now held overseas, at rates of 15.5 percent for cash and cash-equivalents and 8 percent for illiquid assets.

If passed by Congress, the changes would be in effect for 2018 taxes, with tax returns for 2017 unaffected.

Democrats have been unified against the measure, calling it a giveaway to corporations and the rich that would drive up the federal deficit.

Here are major parts of the final bill, estimated to add about $1.5 trillion to the national debt over the next decade, or roughly $1 trillion after accounting for economic growth:


Corporate tax rate: Cuts corporate income tax rate to 21 percent from 35 percent, beginning Jan. 1, 2018.

Pass-throughs: Creates a 20 percent deduction for the first $315,000 of qualified business income for joint filers of pass-through businesses such as partnerships and sole proprietorships. For income above that threshold, the legislation phases in limits that produce an effective marginal tax rate of no more than 29.6 percent.

Corporate minimum tax: Repeals the 20 percent federal corporate alternative minimum tax, which was set up to ensure that profitable corporations pay at least some tax.

Territorial system: Exempts U.S. corporations from U.S. taxes on most of their future foreign profits, ending the present worldwide system of taxing profits of all U.S.-based businesses, no matter where the profits are earned.

Repatriation: Sets a one-time mandatory tax of 8 percent for illiquid assets and 15.5 percent for cash and cash equivalents on $2.6 trillion in U.S. business profits currently held overseas. That foreign cash pile was created by a rule that allowed foreign profits to be tax-deferred if they were not brought into the United States, or repatriated, a tax rule that would be rendered obsolete by the territorial system.

Capital expensing: Allows businesses to immediately write off, or expense, the full value of equipment for five years, then gradually eliminates 100 percent expensing over a three-year period beginning in year six.

Clean energy: Leaves in place tax credits for producing electricity from wind, biomass, geothermal, solar, municipal waste and hydropower.

Carried interest: Largely leaves in place the "carried interest" loophole that benefits private equity fund managers and some hedge fund managers, despite pledges by Republicans including Trump to close it. These financiers can now claim a lower capital gains rate on much of their income from investments held more than a year. The new legislation would extend that holding period to three years, putting the loophole out of reach for some fund managers, but preserving its availability for many.


Tax brackets: The tax plan sets seven tax brackets, which will expire after 2025.

For married couples filing jointly:

. 10 percent up to $19,050

. 12 percent up to $77,400

. 22 percent up to $165,000

. 24 percent up to $315,000

. 32 percent up to $400,000

. 35 percent up to $600,000

. 37 percent over $600,000

For unmarried individuals and married couples filing separately:

. 10 percent up to $9,525

. 12 percent up to $38,700

. 22 percent up to $82,500

. 24 percent up to $157,500

. 32 percent up to $200,000

. 35 percent up to $500,000

. 37 percent over $500,000

Standard deduction: Gives taxpayers a tax break without having to claim itemized deductions. For eight years beginning in 2018, the standard deduction increases to $12,700 from $6,350 for individuals and to $24,000 from $12,000 for married couples under the legislation.

Child tax credit: Doubles the child tax credit to $2,000 per dependent child under the age of 17, with a refundable portion of $1,400. The refundable portion allows families to lower their tax bills to zero and receive a refund for the remaining value.

Personal exemption: Ends $4,050 individual personal exemption.

Inheritances: Increases the exemption for estate and gift taxes to $10 million from $5 million per person and indexes the new exemption level for inflation after 2011. That means even fewer Americans would pay the estate tax, but it would stay on the books.

Mortgages: For residences bought from Jan. 1, 2018, through Dec. 25, 2025, caps the deduction for mortgage interest at $750,000 in home loan value. After Dec. 31, 2025, the cap will revert to $1 million in loan value. Suspends the deduction for interest on home equity loans.

Other provisions

Obamacare mandate: Repeals a federal fine imposed on Americans under Obamacare for not obtaining health insurance coverage.

ANWR drilling: Allows oil drilling in Alaska's Arctic National Wildlife Refuge.

The House is expected to vote on the bill Tuesday. Republicans have a large majority there, and passage was expected despite Democratic opposition. The bill would then go to the Senate. Republicans can afford to lose only two votes from within their own ranks and still win Senate passage.

The tax bill is expected to add at least $1 trillion to the $20 trillion U.S. national debt over 10 years, making it an unusual example of deficit spending on stimulative tax cuts at a time when the economy is already expanding.

For months, Trump has touted the bill as a middle-class tax cut. Studies from independent analysts and nonpartisan congressional researchers have projected that corporations and the rich would benefit disproportionately.

Maine's Sen. Collins has remained non-committal, in part out of concern about a provision that would repeal the fine imposed under the Affordable Care Act on Americans who do not obtain health insurance.

Arizona's Flake has said he needs to see all the details before supporting the measure.

The Senate vote outlook has been complicated by Republican Sen. John McCain's hospitalization for treatment for side effects of cancer therapy. His office said he "looks forward to returning to work as soon as possible."

Vice President Mike Pence has delayed a trip to the Middle East in case his vote is needed to break a Senate tie.

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