Here's what's in the federal tax bill poised to pass

Plan seeks big corporate tax cut, backs off some education measures

FILE PHOTO: Senator Bob Corker (R-TN) departs after a nomination vote on Capitol Hill in Washington, U.S., December 13, 2017.   REUTERS/Joshua Roberts
FILE PHOTO: Senator Bob Corker (R-TN) departs after a nomination vote on Capitol Hill in Washington, U.S., December 13, 2017. REUTERS/Joshua Roberts

WASHINGTON, D.C. — Headed for a final vote this week to be on President Donald Trump’s desk by Christmas, the “Tax Cut and Jobs Act” is the largest one-time reduction in the corporate tax rate in American history and lowers taxes for the vast majority of Americans and small business owners — at least until those cuts expire after eight years.

Last-minute changes to the GOP’s plan give a larger break to the wealthy and preserve certain tax savings for the middle class, including the student loan interest deduction, the deduction for excessive medical expenses and the tax break for graduate students. Another late change gives a more generous child tax credit.

Here’s a rundown of some of the key points in the final bill, which is poised to pass without Democratic votes:

NEW CUT FOR THE RICH

Under current law, the highest rate is 39.6 percent for married couples earning over $470,700. The GOP bill drops that to 37 percent and raises the threshold at which that rate only kicks in.

This amounts to a significant tax break for the very wealthy, a departure from repeated claims by Trump and administration officials that the bill would not cut taxes on the rich.

CUT FOR CORPORATIONS

Starting Jan. 1, big businesses would see their tax rate fall from 35 to 21 percent, the largest one-time rate cut in U.S. history for America’s largest companies.

The House and Senate bills originally had the rate falling to 20 percent, but Republicans were not able to make the math work so they compromised by moving the rate to 21 percent.

ARTICLE CONTINUES BELOW ADVERTISEMENT

It’s still amounts to roughly a $1 trillion tax cut for businesses over the next decade. Republicans argue this will make the economy surge, but most independent economists and Wall Street banks predict a “modest” and short-lived boost to growth.

DEDUCTIONS LIMITED

One of the most controversial parts of the plan is the push to greatly scale back how much state and local taxes Americans can deduct on their federal taxes.

Under current law, the state and local deduction is unlimited. In the final GOP plan, people can deduct up to $10,000.

The House initially restricted the $10,000 deduction to just property taxes, but the final bill allows any state and local taxes to be deducted, whether for property, income or sales taxes.

LESS ITEMIZING

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. That means fewer people will need to itemize deductions to see tax benefits. For those who still do, they may see changes on mortgage interest deductions. For residences bought from Jan. 1, through Dec. 25, 2025, the plan caps the deduction for mortgage interest at $750,000 in loan value. After Dec. 31, 2025, the cap reverts to $1 million in loan value. The plan also suspends the deduction for interest on home equity loans.

BIGGER CHILD CREDIT

Thanks to a late push by GOP Sems. Marco Rubio of Florida and Mike Lee of Utah, the Child Tax Credit becomes more generous for the working class. The current Child Tax Credit is $1,000 per kid. The final bill calls for a $2,000 per child credit — families making up to about $400,000 get take the credit. But it also makes more of the tax credit refundable, meaning families that work but don’t earn enough to owe any federal income taxes will get a large check back from the government.

ESTATE TAX CURTAILED

The estate tax (often called the “death tax” by opponents) remains, but far fewer families will have to pay it. Under current law, Americans can inherit up to $5.5 million tax-free (that threshold is $11 million for married couples). Under a compromise, the first $11 million that people inherit in property, stocks and other assets won’t be taxed (and yes, that means $22 million for married couples).

GRAB BAG FOR SCHOOLS

Republicans backed away from some — but not all — of the most controversial education proposals in the final bill:

ARTICLE CONTINUES BELOW ADVERTISEMENT

Thank you for signing up for our e-newsletter!

You should start receiving the e-newsletters within a couple days.

• It’s good for parents of private school children and a win for school choice. Under current law, tax-free 529 college savings accounts can be used to pay for college only. But the GOP plan allows parents to use that money — up to $10,000 a year per child — to also pay for private K-12 school tuition and home-schooling.

• It’s good for teachers who themselves pay for school supplies. Teachers spend about $500 of their own money on classroom supplies, according to one survey. In 2002, Congress gave educators who shelled out for pencils, art supplies, paper and other school supplies a $250 tax break. The House bill sought to eliminate that. But the final plan leaves it.

• It’s good for graduate students and university employees. Republicans backed away from House proposals to tax the value of college tuition benefits that universities provide graduate students and campus employees. The “grad tax” brought campus protest around the nation.

• It’s good news and bad news for colleges. One one hand, it holds the line on increasing the taxes colleges pay on unrelated business income, such as money a school earns selling coffee mugs at the campus bookstore.

But it gets rid of a form of bond financing that universities rely on to refinance debt at lower interest rates, known as advanced refunding bonds. Iowa’s public universities have saved $63.7 million since 2012 under the current law.

And it includes a 1.4 percent excise tax on the net investment income on endowments at a handful of private colleges and universities. In Iowa, the provision affects Grinnell College.

• Its good news for student loan borrowers: The final bill leaves in place the student loan interest deduction. The benefit lets people repaying student loans reduce their tax burden by as much as $2,500. Because borrowers can claim the deduction even if they choose not to itemize, the benefit is available to anyone paying interest on education debt. But only single people earning less than $80,000 and married couples earning less than $160,000 can take advantage of it.

Reuters contributed to this report.

CONTINUE READING

MORE Nation & World ARTICLES TO READ NEXT ...

NEW YORK/WASHINGTON - Tourists who came to Battery Park in lower Manhattan hoping to catch a ferry to the Statue of Liberty in New York Harbor got an unpleasant surprise on Saturday, learning the must-see destination was closed be ...

Authorities have not yet found a motive for the October 2017 Las Vegas massacre but have concluded there is no evidence of any political or ideological radicalization that would explain why Stephen Paddock opened fire on a country ...

Give us feedback

Have you found an error or omission in our reporting? Tell us here.

Do you have a story idea we should look into? Tell us here.