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1 1 (December 19, 2017)

handle is hein.crs/govcgys0001 and id is 1 raw text is: FF.ri E~$~ & December 19, 2017 Tax Cuts and Jobs Act (H.R. 1): Conference Agreement The Tax Cut and Jobs Act (H.R. 1) was released by the conference committee on December 15, 2017. The bill contains some elements of the House tax reform blueprint, the Better Way, released in 2016. ,'k ~ Tax Re-Yvo,,,, The bill would replace the current seven rate brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The rate brackets indicate that the 10% rate will apply to about the same amount of taxable income as in current law and that the income currently taxed at 15% would be taxed at 12%. The current top rate of 39.6% applies to taxable income above $470,700, but the 37% rate in the bill would not apply until $600,000 of taxable income for joint returns of married couples ($500,000 for other returns). The bill would alter some of the elements related to family size and structure by eliminating personal exemptions and allowing a larger standard deduction, $24,000 for joint returns and $12,000 for singles for 2018, adjusted for inflation for the following years. 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, all indexed. The bill would increase the current child credit of $1,000 by $1,000 with up to $1,400 refundable (against up to 15% of income over $2,500). The $1,400 limit, but not other elements, would be indexed for inflation. A nonrefundable credit of $500 for non-child dependents would be allowed. The credits would be phased out at higher income levels of $400,000 for joint filers ($200,000 for others). Exemptions for the alternative minimum tax would be increased by 40% (for example, from $78,750 to $109,400 for joint returns), and indexed. For the individual income tax, the bill would broaden the base by disallowing itemized deductions except for mortgage interest (limited to interest on mortgages of $750,000 and with no deduction for interest on home equity loans); state and local income, property, and sales taxes (up to $10,000); charitable contributions deductions; and medical expense deductions (lowering the floor from 10% to 7.5% of income for 2017 and 2018). The deductions for other state and local taxes, casualty losses (except for certain disasters), and other minor provisions would be eliminated. The moving expense deduction (an above-the- line deduction) would be eliminated (other than for members of the armed forces). The current earned income credit and tax rates on capital gains and dividends are not changed. Some items currently excluded from income would be included-for example, the employer-provided exclusion for moving expenses. 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 that this measure is a better measure of inflation, using it would have the effect of raising taxes compared with using the regular CP. The bill would reduce penalties for not purchasing health insurance to zero. In general, the individual tax revisions would expire after 2025, except for the change in inflation indexing and the reduction in penalties for not having health insurance. Tax Prvnd-Mos Al&kc~Inp'g f&SS The bill would reduce the corporate tax rate from 35% to 21% and allow a 20% deduction for businesses that are taxed under the individual income tax as pass-throughs, including proprietorships, partnerships, or Subchapter S corporations (corporations with a small number of shareholders that elect to be taxed at individual rates). The deduction applies to business income and sunsets after 2025. The deduction does not apply to specified service businesses (such as health or law) except for those under a taxable income ceiling. The deduction is limited to the greater of 50% of wages paid or the sum of 25% of wages paid plus 2.5% of the basis of tangible assets. The service business exclusion and the limits based on wages and assets would apply only after taxable income reached $315,000 for a joint return and $157,500 for others with these amounts phased out (completely at $415,000 and $207,500, respectively). Business losses that can be passed through are limited to $500,000 for joint returns and $250,000 for others, indexed for inflation. 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 $1 million with a phase-out after $2.5 million. The bill allows all equipment to be expensed through 2022 (public utility property would be excluded), with a phase-out of the share expensed over the next four years (80%, 60%, 40%, and 20%). Deductions for excess interest for corporations would be more limited than in present law. Research and experimentation costs would be depreciated over five years rather than expensed, after 2021. The bill would repeal the Section 199 production activity deduction. It would disallow carrybacks of net operating loss deductions, allow unlimited carryforwards, and limit the deduction to 80% of taxable income. It would limit or .O 'T p\w -- , gn'a', goo mppm qq\ M , q 'M I 11LULANJILiM,

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