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March 31, 2020

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Preview of Tax Cuts and Jobs Act

December 15, 2017

 

The bill that is to become the Tax Cuts and Jobs Act is expected to be released by the joint Senate and House committee formed to reconcile each of their versions into a single piece of legislation. The bill has to be passed by each chamber in its entirety to become law. At least one Senate Republican, Rubio (FL), has threatened to vote against the bill due to a lack of low income taxpayer relief; another Senate Republican, Corker (TN), voted against the Senate version already because of its effect on the budget deficit, and the Democratic Party has already indicated it will vote against it as a block. Whether or not the bill will pass is not expected to be resolved before next week. Nevertheless some relevant details have leaked out of the committee: 

 

1) Corporate tax rate. It would give corporations a slightly less generous tax cut: The corporate rate is expected to be slashed to 21% instead of 20% as in the House and Senate bills. The current federal corporate rate is 35%.

 

2) Child tax credit. It would increase the refundability of the child tax credit: The bill would increase the child tax credit to $2,000 from the current $1,000, similar to the Senate version. But importantly, the level to which the credit would be refundable would be increased to $1,400 from the Senate bill's limit of $1,100. 

 

3) State and local tax deduction. It would allow people to count income or sales tax toward the state and local tax deduction: In the House and Senate bills, people could deduct up to $10,000 in state property taxes from their federal bill. The compromise bill would allow people to deduct up to $10,000 in a combination of state and local property, income, and sales tax. It's unclear if the $10,000 is the same for joint and individual filers.

 

4) Medical expense deduction. It would lower the threshold for the medical expense deduction for two years: The House bill repealed the deduction, which allows people who have medical expenses above 10% of their income deduct the costs above that level. Instead, the compromise bill would allow people to take the deduction if these expenses get above 7.5% of their income. Sen. Susan Collins requested this change.

 

Stay tuned to this blog for further updates.

 

The post was adapted from an article in the Business Insider.

 

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