On November 2, 2017, House Republicans unveiled their widespread rewrite of the U.S. Tax Code. The tax plan called the Tax Cuts and Jobs Act of 2017, is a 429-page bill that provides changes to many aspects of tax law including the corporate tax rate, individual tax rates, the taxes levied on pass-through businesses such as partnerships, and estate taxes. While the bill is unlikely to be signed into law in its present form, certain key provisions of the proposal highlight the direction Republicans hope to take the U.S. Tax Code.
A notable provision is the slashing of the corporate tax rate from its current 35 percent rate to a new 20 percent rate. While earlier proposals considered a temporary rate reduction, the current proposal would make this tax cut permanent. Another much-discussed change is the introduction of a 25 percent tax rate for pass-through businesses such as partnerships and S-corporations. Most items of active income being passed through a business to partners or shareholders would be taxed at a maximum 25 percent rate, rather than the current 39.6 percent minimum rate.
The new tax plan also provides significant changes to how individuals are taxed. Key provisions reduce the seven individual tax brackets to four brackets of 12 percent, 25 percent, 35 percent, and 39.6 percent. The 39.6 percent top bracket will only apply for married couples earning at least $1 million a year or individuals earning at least $500,000 a year. The estate tax exemption would be raised to $11.2 million from its current $5.6 million amount, with the estate tax repealed entirely by 2024.
This is only the beginning of tax reform. The bill must still pass the Senate and be approved by the President, a tall task even if Republicans control each aspect of the legislative process. The reaction of Senators, and more importantly the reaction of voters, will determine whether the tax plan is passed, amended, or rejected entirely.