Details of the long-awaited GOP tax plan have finally been released in a framework document that summarizes the major changes that the new administration is hoping to achieve. The document emphasizes the primary goals of simplifying the tax code for both individuals and small businesses while also reducing the tax burden at both levels.
While this document does not represent a final piece of legislation, it does provide a starting point for members of Congress to begin negotiating, potentially leading to a comprehensive tax reform bill. This article is the first in a series of articles that will examine the progress of these negotiations, as well as the impact that proposed tax reform could have on both individual and small business clients.
Framework for Individual Taxpayers
The framework document both proposes consolidating the current seven-bracket tax rate system into three brackets (12%, 25% and 35%) and nearly doubling the standard deduction to $24,000 for married taxpayers filing jointly and $12,000 for single taxpayers. It leaves open the possibility that an additional, higher tax rate for wealthy taxpayers could be included in order to ensure that the tax system remains progressive (the current top tax rate is 39.6% for the highest income taxpayers).
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The personal exemption for dependents would be eliminated, but the child tax credit would be expanded by increasing the income levels at which the credit begins to phase out with the goal of making the credit available for more taxpayers.
Under the framework, most itemized deductions would be eliminated (details have not been provided, but the mortgage interest and charitable contributions deductions were mentioned as deductions that would not be eliminated). The currently existing alternative minimum tax (AMT) would be repealed entirely.
Both the estate tax and the generation skipping transfer (GST) tax would be repealed under the framework.
While no details are provided, the framework directs the various committees that will be involved in negotiating a comprehensive bill to retain benefits that encourage work, higher education and retirement security in a more simplified manner.
Framework for Small Businesses