Tax Reform Summary and Docs

Tax Reform Summary and Docs

CRS:  The 2017 Tax Act – Comparison to Prior Law (Feb 2018)

CONFERENCE AGREEMENT – Key Docs:  JCT Distributional Analysis • TPC Distributional Analysis • Updated Revenue Estimates •  Conference Report including Joint Statement of Managers •  Text • CBO Cost Estimate • CQ Comparison of Conference Report, House, and Senate Bills  TPC side-by-side 

Analysis: In general, the Tax Agreement: 

  • provides a deep and expensive corporate rate cut, despite corporations sitting on a record amount of cash reserves;
  • borrows $1.5 trillion for tax cuts, instead of urgently needed investment in crumbling roads & bridges, water systems, airports and other infrastructure;
  • will leave millions more Americans without health insurance and will raise health premiums by 10% for millions more;
  • gives large tax cuts to heirs of wealthy estates and wealthy individuals;
  • provides tax relief to owners of pass-through businesses, although whether this is effectively focused on small business owners is unclear due to lack of hearings on the changes (see recent reports on special interest provisions for real estate investors);
  • provides relatively small, uneven and temporary income tax cuts for most other taxpayers including a temporary, modest increase in the child credit;
  • doubles the standard deduction, although the benefits are largely offset by repealing personal exemptions and eliminating other deductions;
  • makes far-reaching changes to international tax provisions and business tax deductions with no hearings, little scrutiny and uncertain economic effects that could encourage companies to move jobs abroad; and
  • pushes the public debt close to 100% of GDP, imperiling U.S. economic stability.

Major Provisions in the Bill that Cut Taxes:

  • Note: individual and pass-through cuts expire in 2025, but the corporate cut is permanent;
  • Cuts corporate rate from 35% to 21% at a cost of $1.35 trillion;
  • Creates seven new tax brackets — generating temporary and uneven tax cuts — and reduces the top rate for wealthy taxpayers to 37%, at a total cost of $1.2 trillion;
  • Doubles the standard deduction, cutting taxes $720 billion [but this is offset by repeal of personal exemptions and deductions – see below];
  • Raises the exemption threshold from the Alternative Minimum Tax (AMT) to $500k (single) and $1m (joint), at a cost of $637 billion;
  • Expands the child credit from $1000 to $2000 (refundable up to $1400), cutting taxes $573 billion;
  • Cuts taxes for “pass-through” businesses, establishing an effective top rate of 29.6%, at a cost of $414 billion;
  • Switches to a territorial tax system that shields offshore corporate income from U.S. taxation, at a cost of $224 billion;
  • Expands immediate deduction of business expenses (through bonus depreciation and sec. 179), at a cost of $112 billion;
  • Doubles the estate tax exemption for wealthy Americans at cost of $83 billion [Fact: 99.8% of estates already pay no tax]; and
  • Repeals the corporate AMT at a cost of $40 billion.

Major Provisions in the Bill that Raise Taxes:

  • Repeals personal exemptions: +$1.2 trillion;
  • Repeals many individual itemized deductions: +$668 billion;
  • New tax rates on offshore repatriated income of 15.5% for cash and 8% for non-cash assets): +$339 billion;
    • (Note: although this is scored as raising revenues, it favors corporations that have held profits offshore to avoid taxation, and allows them to repatriate those profits at significantly reduced tax rates–in effect, another corporate tax cut.)
  • Limits net interest deduction: +$253 billion;
  • Limits NOL deduction: +201 billion;
  • New base erosion and anti-abuse tax: +$150 billion;
  • Limits inflation adjustment of brackets: +$130 billion (allowing inflation to push Americans more quickly into higher brackets);
  • Requires amortization of R&D expenses: +$120 billion (a disincentive to business R&D);
  • Repeals deduction for domestic production: +$98 billion; and
  • Repeals various insurance provisions: +$40 billion.

Other Major Provisions:

  • Caps the state and local tax deduction at $10,000, which can be split between property, income, and sales tax (a big hit on people in high cost-of-living and high-tax States);
  • Caps the mortgage interest deduction at $750,000 (current law is $1 million);
  • Retains the current law student loan deduction;
  • Retains current law exclusion for grad student tuition waivers (i.e., no new tax);
  • Retains deduction for major medical expenses and expands it for 2017-18 by temporarily reducing the threshold from 10 percent down to 7.5 percent;
  • Bonds: Retains private activity bonds (PABs) but repeals advance refunding and tax credit bonds;
  • Retains child and dependent care tax credit and adoption credit;
  • Retains current law prohibition on churches and nonprofits endorsing political candidates (i.e. Johnson amendment remains in place).
  • Opens ANWR to oil and gas drilling.
  • Repeals the Affordable Care Act (Obamacare) individual mandate.  Background on individual mandate.

Total Cost:

  • $1.46 trillion over 10 years (deficit-financed), pushing the public debt close to 100% of GDP within a decade — and significantly higher if the temporary tax cuts are assumed to be extended.