House Tax Reform Plan Details

The Tax Cuts and Jobs Act (TCJA), signed into law by President Donald Trump in December 2017, brought about the most significant changes to the U.S. tax code in decades. The law, often referred to as the Republican tax plan or GOP tax bill, aimed to reduce taxes for businesses and individuals, simplify the tax code, and boost economic growth.

Key Changes to Individual Income Taxes:

Individual Tax Rates:

The TCJA reduced individual income tax rates across all brackets. The top marginal tax rate dropped from 39.6% to 37%, while the lowest rate remained at 10%. -

Standard Deduction:

The standard deduction, the amount of income that can be deducted before taxes are calculated, was increased significantly. For the 2018 tax year, the standard deduction was set at $12,000 for single filers and $24,000 for married couples filing jointly, up from $6,350 and $12,700, respectively. -

Personal Exemptions:

Personal exemptions, which allowed taxpayers to deduct a certain amount for themselves and their dependents, were eliminated. This change was intended to simplify the tax code, although it also raised taxes for some low- and middle-income families. -

Child Tax Credit:

The child tax credit was increased from $1,000 to $2,000 per eligible child. The credit was also made refundable, meaning that families with no tax liability could still receive the full amount of the credit.

Key Changes to Business Taxes:

Corporate Tax Rate:

The corporate tax rate was slashed from 35% to 21%. This was a significant reduction that made the U.S. corporate tax rate more competitive with other developed countries. -

Pass-Through Deduction:

Pass-through businesses, such as sole proprietorships, partnerships, and S corporations, were allowed to deduct 20% of their qualified business income. This deduction aimed to provide tax relief to small business owners and reduce the tax gap between corporations and pass-through entities. -

Net Operating Loss (NOL) Rules:

The TCJA modified the rules for NOLs, allowing businesses to carry back NOLs for up to five years and carry them forward indefinitely. This change was intended to provide more flexibility for businesses experiencing losses.

Impact of the Tax Reform:

The TCJA had a significant impact on the U.S. economy and taxpayers. According to the Tax Foundation, the law reduced federal tax revenue by $1.9 trillion over the decade following its enactment. The reduction in taxes led to an increase in disposable income for many individuals and families, which stimulated consumer spending. The law also led to increased investment by businesses, contributing to economic growth. The TCJA also had distributional effects, with some groups benefiting more than others. Higher-income taxpayers and corporations generally saw the largest tax savings, while the benefits for low- and middle-income taxpayers were more modest. The TCJA has been a subject of debate since its passage, with supporters arguing that it has boosted the economy and given Americans more money in their pockets, while critics contend that it has primarily benefited wealthy individuals and corporations at the expense of middle-class and low-income Americans.