- The Senate passed a massive tax reform bill overnight on Saturday.
- The bill would bring huge changes to individual and business taxes.
- Analyses show it would cause the federal deficit to balloon and give a boost to US economic growth.
The Senate passed the Tax Cuts and Jobs Act (TCJA) just after 2 a.m. ET on Saturday, moving the US one step closer to the biggest overhaul of the federal tax code in more than 30 years.
The Senate bill would make sweeping changes to individual and business taxes, while also affecting various industries like healthcare. In all, the cuts total a little less than $US1.5 trillion in revenue over 10 years.
The final bill is roughly 479 pages long. With provisions applying to everything from citrus trees to craft breweries, here’s a quick rundown of the largest changes to the code in the bill:
- Individual tax brackets: The Senate bill would maintain the current seven individual brackets, but lower the rates and change the income levels to which they apply. Those changes end after 2025, when the bill would revert the brackets back to current law. Here’s what it looks like for non-married individual filers (you can see the married brackets here »):
- Obamacare’s individual mandate: The penalty for not having health insurance created by the Affordable Care Act, or Obamacare, would be abolished. The Congressional Budget Office says this would result in 13 million more people without coverage by 2027.
- The corporate tax rate would become 20% in 2019: This would plunge from the current 35% and, unlike the individual provisions, would be permanent.
- Allow businesses to fully deduct business expenses: Firms could fully deduct business expenses as soon as they spend money from 2017 through 2022, an increase from the current 50% cap. From there the expensing rate would decrease by 20 percentage points each year through 2027.
- Increase the child tax credit: The credit would jump to $US2,000 per child from the current $US1,000.
- Increase the threshold for the alternative minimum tax: The bill would raise the income level at which a tax filer would need to use the AMT, a parallel set of tax rules designed to ensure wealthy people don’t take large enough deductions to eliminate their entire tax bill.
- Change the inflation adjustment for individual tax brackets: The bill would switch the rate of growth for tax brackets to the chained consumer price index from the normal consumer price index (CPI). Typically, chained CPI grows as a slower rate.
- Give a deduction for pass-through businesses:Businesses in which the owner takes the profits from the firm as income are known as pass-throughs (like limited liability corporations or S-corporations). These firms would be able to take a 23% deduction on this income. There are guardrails to make sure this does not apply to professional service firms like accounting firms or hedge funds.
- The standard deduction: The Senate TCJA would almost double the standard deduction to $US24,000 for married filers and $US12,000 for single filers.
- The medical expense deduction: Currently, if a person’s annual medical expenses are above 10% of their qualified income, the amount above that threshold can be deducted. The Senate bill would temporarily lower that to 7.5% of income through 2018.
- The estate tax: Currently, if the estate of an individual is greater than $US5.6 million, that person’s heirs must pay taxes above that level. The bill would increase that threshold to $US11 million.
- The state and local tax deduction: Taxpayers will be able to deduct up to $US10,000 in state property taxes, but could no longer deduct state and local income or sales taxes.
- Suspend a slew of itemized deductions and exemptions: Tax breaks for everything from moving to commuting by bike would be eliminated.
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