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The Financial Express

Factbox: What's in the final Republican tax bill

Reuters | Published: December 20, 2017 15:03:42


US President Donald Trump claps after delivering remarks regarding the Administration's National Security Strategy in Washington DC, December 18, 2017. Reuters US President Donald Trump claps after delivering remarks regarding the Administration's National Security Strategy in Washington DC, December 18, 2017. Reuters

The US House of Representatives was expected to vote on Tuesday on a sweeping, debt-financed tax bill, with approval likely. House passage would send the bill on to the Senate, which could vote as soon as Tuesday evening.

Here are the key parts of the bill, which would be the biggest overhaul of the US tax code in more than 30 years.

Business

Corporate tax rate: Cuts corporate income tax rate to 21 per cent from 35 per cent, beginning January 1, 2018.

Pass-throughs: Creates a 20 per cent 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, producing an effective marginal tax rate of no more than 29.6 per cent.

Corporate minimum tax: Repeals the 20 per cent corporate alternative minimum tax, set up to ensure profitable corporations pay at least some tax.

Territorial system: Exempts US corporations from US taxes on most future foreign profits, ending the present worldwide system of taxing profits of all US-based corporations, no matter where they are earned. This would align the US tax code with most other industrialised nations, undercut many offshore tax-dodging strategies and deliver to multinationals a goal they have pursued for years.

Repatriation: Sets a one-time mandatory tax of 8 per cent on illiquid assets and 15.5 per cent on cash and cash equivalents for about $2.6 trillion in US business profits now held overseas. This foreign cash pile was created by a rule making foreign profits tax-deferred if they are not brought into the United States, or repatriated. That rule would be rendered obsolete by the territorial system.

Anti-base erosion measures: Prevents companies from shifting profits out of the United States to lower-tax jurisdictions abroad. Sets an alternative minimum tax on payments between US corporations and foreign affiliates, and limits on shifting corporate income through transfers of intangible property, including patents. In combination, these measures with the repatriation and territorial system provisions, represent a dramatic overhaul of the US tax system for multinationals.

Capital expensing: Allows businesses to immediately write off, or expense, the full value of investments in new plant and equipment for five years, then gradually eliminates this 100 per cent expensing over five years beginning in year six.

Interest deduction limit: Caps business deductions for debt interest payments at 30 per cent of taxable income, regardless of deductions for depreciation, amortization or depletion.

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

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

Individual

Brackets: Maintains the current seven tax brackets, but temporarily changes most of the income levels and rates.

For married couples filing jointly, effective January 1, 2018 and ending in 2026, income tax would be:

10 per cent up to $19,050, versus 10 per cent up to $18,650 under existing law;

12 per cent on $19,051 to $77,400, versus 15 per cent on$18,651 to $75,900;

22 per cent on $77,401 to $165,000, versus 25 per cent on $75,901 to $153,100;

24 per cent on $165,001 to $315,000, versus 28 per cent on $153,101 to $233,350;

32 per cent on $315,001 to $400,000, versus 33 per cent on $233,351 to $416,700;

35 per cent on $400,001 to $600,000, versus 35 per cent on $416,701 to $470,700

 37 per cent above $600,000, versus 39.6 per cent above$470,700.

For single individuals, effective January 1, 2018 and ending in 2026, income tax would be:

10 per cent up to $9,525, versus 10 per cent up to $9,325 under existing law;

12 per cent from $9,526 to $38,700, versus 15 per cent on $9,326 to $37,950;

22 per cent on $38,701 to $82,500, versus 25 per cent on $37,951 to $91,900;

24 per cent on $82,501 to $157,500, versus 28 per cent on $91,901 to $191,650;

32 per cent on $157,501 to $200,000, versus 33 per cent on $191,651 to $416,700;

35 per cent on $200,001 to $500,000, versus 35 per cent on $416,701 to $418,400;

37 per cent above $500,000, versus 39.6 per cent above $418,400.

These brackets would expire after 2025.

Standard deduction: In a change expected to end itemising of deductions for millions of Americans, the bill for eight years beginning on January 1, 2018, would increase the standard deduction - a fixed amount that can be subtracted from adjusted gross income to lower taxable income - to $12,000 from $6,350 for individuals, and to $24,000 from $12,700 for married couples.

Child tax credit: Doubles the child tax credit to $2,000 per dependent child under age 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: Temporarily eliminates the $4,050 individual personal exemption. Under present law, taxpayers who earn below certain income caps can subtract this fixed dollar amount from their adjusted gross incomes to lower their taxable incomes. Generally, one exemption has been allowed per individual, spouse and child or other dependent. This would take effect January 1, 2018, but then the personal exemption would return in 2026.

Inheritances: Raises 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 January 1, 2018, through December 31, 2025, the bill caps the deduction for mortgage interest at $750,000 in home loan value. After December 31, 2025, the cap would revert to $1 million in loan value. Suspends the deduction for interest on home equity loans from January 1, 2018 until 2026.

Other provisions

Obamacare mandate: Repeals a federal fine imposed on Americans under Obamacare for not obtaining health insurance coverage, a change expected to undermine the 2010 healthcare law.

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

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