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1 1 (November 17, 2017)

handle is hein.crs/govcgxp0001 and id is 1 raw text is: FF.r mppm qq\ p\w -- , gn'a', go I aS 11LULANJILiN, Updated November 17, 2017 Tax Reform: H.R. 1, Tax Cuts and Jobs Act The proposed tax reform, Tax Cuts and Jobs Act, H.R. 1, was referred to the House Ways and Means Committee on November 2, 2017, and, following a mark-up, was ordered reported on November 9, 2017. H.R. 1 passed the House on November 16, 2017. The bill contains some elements of the 2016 House tax reform blueprint, the Better Way. The bill would replace the current seven rate brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with four brackets, with tax rates of 12%, 25%, 35%, and 39.6%. The rate brackets indicate that income currently taxed at the first two rates would be taxed at 12%. Most taxable income in the 25% and 28% brackets would be taxed at 25%. The current top rate of 39.6% applies to taxable income above $470,700 but would not apply until $1 million of taxable income in the bill. The benefit of the 12% bracket, compared to the 39.6% rate, will be phased out for incomes over $1.2 million. The bill would alter some of the elements related to family size and structure by eliminating personal exemptions, allowing a larger standard deduction ($24,000 for joint returns and $12,000 for singles for 2017, adjusted to $24,400 for joint returns and $12,200 for single returns in 2018), and increasing the current child credit of $1,000 by $600 (although the addition credit would be nonrefundable). A nonrefundable credit of $300 for nonchild dependents and the taxpayers (two credits for a joint return) would be allowed, although the taxpayer credit expires after 2022. (The current personal exemption is $4,050 per person for 2017, and the current standard deductions are $12,700 for joint returns and $6,350 for single returns.) The credits, including the current $1,000 child credit, would be phased out at higher income levels of $115,000. The alternative minimum tax would be repealed. For the individual income tax, the bill would broaden the base by disallowing most itemized deductions except for mortgage interest (limited to interest on mortgages of $500,000 rather than $1 million), charitable contributions deductions, and state and local taxes on real property (up to $10,000). The deductions for state and local income taxes, medical expenses, employee business expenses, casualty losses (except for specified national disasters), and other minor provisions would be eliminated. Some above-the-line deductions are eliminated, including moving expense deductions (other than for members of the armed forces) and alimony (although alimony will be taxed to the recipient, and current divorce decrees will not necessarily be covered). The current earned income credit and tax rates on capital gains and dividends are not changed, although capital gains rates would be available for carried interest only if held for three years. The credit for the elderly and disabled and for electric vehicles would be repealed, although the former would be restored after 2020. Education benefits would be modified and reduced in size by eliminating deductions for interest on student loans and modifying and combining other provisions (such as tax credits and education savings accounts). Some items currently excluded from income would be included; for example, some employer fringe benefits and gain from sale of a home for those who have lived in their homes less than five years. The gain on home sales exclusion would be phased out dollar-for-dollar for individuals with earnings over $500,000 ($250,000 for single returns). Some minor changes would be made in the treatment of pensions and individual retirement accounts. The bill also uses the chained Consumer Price Index (CPI) measure of inflation to index rate brackets and other parameters, such as the standard deduction. Although many economists believe this measure is a better measure of inflation, using it would have the effect of raising taxes compared with using the regular CPI. The bill would reduce the corporate tax rate from 35% to 20% and provide for a maximum 25% tax rate for small and family-owned businesses that are taxed under the individual income tax as pass-throughs. It would also phase in a lower 9% rate in lieu of the 12% rate, which would be phased out with income. Pass-throughs are organized as proprietorships, partnerships, or Subchapter S corporations (corporations with a small number of shareholders that elect to be taxed at individual rates). For active investors the lower rate would apply only to capital income, designated as 30% of earnings. However, an alternative measuring of capital income as 7% plus the federal short-term rate times assets could be used for capital-intensive firms. Passive investment would be considered capital income. Under current law, up to $500,000 in equipment can be expensed, phased out after $2 million in spending. The bill would increase the limit to $5 million with a phase out after $20 million. The bill allows all equipment to be expensed through 2022. Deductions for excess interest for corporations would be more limited than in present law. The bill would require research and experimental expenditures to be deducted over five years rather than expensed (deducted immediately). It would repeal the production activity deduction. It disallows carrybacks of net operating loss deductions, pays interest on unlimited carryforwards, but limits the deduction to 90% of taxable income. It would limit or repeal a variety of other deductions and credits (e.g., the orphan drug credit, certain K~:>

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