After months of immobility, the Senate passed its tax reform bill last week in a flurry of final edits and revisions. The bill is by no means perfect, but it does preserve the 20% corporate tax rate that was previously passed by the House of Representatives. Both houses’ bills will now head to conference to be reconciled with one another, and the final bill will come back to be voted on once more by each house. Richard Rubin and Siobhan Hughes write of the bill’s passage:
The bill would overhaul much of the U.S. tax system in ways that tax experts are only beginning to understand.
Mr. Trump and some Republicans set the 20% corporate tax rate as an immovable objective and despite some occasional doubts, the GOP stuck with it. That is a win for domestic retailers and manufacturers who have spent years building the political case for a lower tax rate.
Pass-through firms, which pay their business taxes through individual returns rather than corporate returns, won major concessions. They would get a 23% deduction from individual rates. More than half of U.S. business income goes to pass-throughs, and more than half of that goes to the top 1% of households.
Tax analysts said this deduction opens new and unprecedented avenues for tax avoidance, with individuals likely seeking to declare as much of their income as possible as lower-taxed business profits.
Even in a bill that provides sizable tax cuts to many, some taxpayers are set to lose. The bill would prevent individuals from deducting state and local income taxes. That is likely to raise federal taxes on upper-middle-class wage earners in high-tax states, such as California, Connecticut, Maryland, New Jersey and New York. They are all represented by Democrats in the Senate.
The standard deduction would be nearly doubled and the child tax credit would rise, while personal exemptions would be repealed. For many households, that combination would modestly increase the amount of earnings that aren’t subject to income tax.
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