Republican’s Plans for Big Tax Overhaul Moves Forward & House Passes Tax Bill
On November 16th, the House passed the Republican’s tax bill with 227 votes in favor and 205 against. The House Bill reduces corporate income tax from 35% to 20% permanently, it reduces individual tax brackets from seven to four and eliminates or scales back many popular deductions and tax breaks, including the state and local tax.
On the other hand, the House Bill also doubles the standard deduction that most taxpayers claim in lieu of the itemized deductions and increases the child tax credit from $1,600 to $2,000 per child. It also lowers the top tax rate from 39.6% to 38.5%.
Republicans, however, face opposition coming from inside the party, especially from representatives of high-income tax states, such as New York, New Jersey and California that are against repealing the state and local tax deduction and sustain that tax reform shall be for everyone, regardless the state.
With attention now turning to the Senate, its Finance Committee has also approved a Senate version of the tax reform which differs substantially from the House Bill. Under the Senate plan, tax cuts for individuals expire at the end of 2025 and the state and local tax deduction, already limited to $10,000 in property taxes in the House Bill, would be entirely eliminated. Tax rate reduction for corporate income tax, nonetheless would be implemented after one year.
According to the analyses realized by a Joint Committee on Taxation, under the Senate plan taxpayers would see their taxes going down in a first moment, but as of 2027 average taxes for all income groups would go up.
This is not good news for Republicans, who have a narrow 52 to 48 majority in the Senate. The speed in which the House Bill passed does not seem likely to be matched in the Senate, although Senate Republicans hope to get legislation to Mr. Trump’s desk by Christmas.