The Trump tax reform plan

Posted on 27. Nov, 2017 by in 2017 Taxes

dollar_wall_unsplash_webRepublicans in the Senate Finance Committee passed a version of a tax reform bill on November 9 that was revised on November 14. The House passed its version of tax reform on November 16. The two versions have sufficient differences that it is expected that bringing the two versions together will likely not occur by the Trump goal of Christmas.

Some features and differences between the two proposals are as follows:

With regard to personal income tax brackets, the House proposal is to collapse the current seven brackets to four, raising the 10% rate to 12% and keeping the highest rate of 39.6%. The four House rates would be 12% – 25% – 35% – 39.6%. The seven Senate rates proposed are 10-12-22-24-32-35-38.5%.

Both versions eliminate personal exemptions. The Senate version retains additional standard deductions for the blind and elderly. The House version eliminates these deductions. Both versions attempt to compensate for the elimination of personal exemptions by raising the standard deduction.

Individuals and families attempting to evaluate their own situation would have to compare their situation with a chart that lays out the two proposals. The general wisdom remains that the tax cuts will benefit higher income families and individuals disproportionately partially due to the proposed decline in corporate tax rates, which is included in both versions, also because of the proposed elimination of the alternative minimum tax. The proposal is to double the estate tax exemption and to reduce taxes paid on pass-through income.

The Senate version proposes tax cuts go only through 2025. The House version would make the changes permanent. What ultimately results in a combined House and Senate bill remains to be seen and the timeline is very uncertain.

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