EDEN PRAIRIE, Minn - House Republicans say their tax reform plan revealed Thursday would simplify the tax code, reducing the number of tax brackets for taxpayers, while also lowering corporate tax rates.
"This plan is for the middle class families in this country who deserve a break," said House Speaker Paul Ryan.
House Republicans say their tax reform plan will be transformational, but Democrats say it still unfairly favors the rich.
"So they can give tax cuts to the high-end and to corporate America," said House Minority Leader Nancy Pelosi.
"Based on the news reports you've seen today, this is either the greatest tax bill you've even seen, or the absolute worst tax bill you've even seen," said CPA Scott Kadrlik, with Meuwissen, Flygare, Kadrlik & Associates.
The GOP tax proposal includes fewer tax brackets; from seven under the 2017 tax code, to essentially four under the GOP plan. The lowest incomes would pay no tax at all (single filers below $12,000, married couples earning less than $24,000). Most others would pay a lower rate, while millionaires would continue to be taxed at the current 39.6% top rate.
The plan also eliminates many exemptions while nearly doubling the standard deduction.
"The standard deduction, the lowering of the tax rates are beneficial to all taxpayers, not just the rich are going to benefit, not just the poor are going to benefit. All taxpayers are going to benefit by the changing of the rates," Kadrlik said. "The increase in the standard deduction gives us an opportunity to simplify the tax return for a lot of people who have to file individual income tax returns."
Also in the GOP plan, child tax credits would increase from $1,000 per child to $1,600. Mortgage interest deductions would be capped at $500,000 mortgages, and property tax deductions would be capped at $10,000. The bill does not include any tax changes for 401(k) retirement plans.
Kadrlik took us through a very basic tax calculation comparison for a family of four making $100,000. Under the current tax code, that family would be able to claim a $12,700 standard deduction and $16,200 in exemptions, bringing their taxable income to $71,100. That would result in a tax of $9,733, reduced to $7,733 after tax credits.
Under the GOP plan, Kadrlik's hypothetical example shows the same family of four would not be able to claim exemptions, but their standard deduction would rise to $24,000, resulting in a taxable income of $76,000. The tax on that income would be $10,420, but after subtracting the higher child tax credit, the final tax would be $7,220, or about $513 in savings over the current tax code.
However, Kadrlik cautions everybody's taxes are different, and this example shouldn't be taken as an average for everyone. Several other factors play into each tax filing, and there are additional elements in the GOP plan that could have an impact-- like a proposal that would eliminate deductions for state taxes.
"They're going to be losing the ability to deduct the state income tax under the current bill," Kadrlik said. "The loss of the MN income tax deduction is a big item, it affects a lot of taxpayers, the governor has already spoken out against that. I can't tell you how it's going to impact everybody's return today, but there will be some impact there, and hopefully the drop in the rates will offset some of that.."
House Republicans hope to have their tax plan passed and signed by President Trump by Christmas.