Facts in Focus: The Republican Tax Plan

Tax reform is at the top of the agenda in Washington today. On September 27, 2017, the President and Republican leaders in Congress released a 9-page “Unified Framework” that proposes a number of tax code changes—some specific, some broad-strokes. In this edition of Facts in Focus, we present the facts and data you need to put these potential tax changes in context.

Note: The italicized descriptions below come directly from the GOP tax framework. As a nonpartisan group, USAFacts takes no position on the merits of the plan or the statements about tax policy therein.

1. Combine the Standard Deduction and Personal Exemption

“The framework simplifies the tax code and provides tax relief by roughly doubling the standard deduction to:”

$24,000 for married taxpayers filing jointly, and
$12,000 for single filers.

To simplify the tax rules, the additional standard deduction and personal exemptions for the taxpayer and spouse are consolidated into this larger standard deduction.”

Currently, if you claim the standard deduction, this is how much you are able to exclude from your taxable income through combining the standard deduction and the personal exemption:

2. Consolidate and lower tax brackets

“Under current law, taxable income is subject to seven tax brackets. The framework aims to consolidate the current seven tax brackets into three brackets of 12%, 25% and 35%.

An additional top rate may apply to the highest-income taxpayers….

NOTE: individual income tax brackets are based on married filing jointly status, and tax rates are for ordinary income (not dividends). The sources are the IRS Statistics of Income Division and Congress.gov.

3. Expand the Child Tax Credit

“…the framework repeals the personal exemptions for dependents and significantly increases the Child Tax Credit. The first $1,000 of the credit will be refundable as under current law.

In addition, the framework will increase the income levels at which the Child Tax Credit begins to phase out. The modified income limits will make the credit available to more middle-income families and eliminate the marriage penalty in the existing credit.

The framework also provides a non-refundable credit of $500 for non-child dependents to help defray the cost of caring for other dependents.”

4. Repeal the Alternative Minimum Tax

“This framework substantially simplifies the tax code by repealing the existing individual AMT, which requires taxpayers to do their taxes twice.”

5. Repeal some itemized deductions

“…the framework eliminates most itemized deductions, but retains tax incentives for home mortgage interest and charitable contributions.”

6. Repeal estate taxes

“The framework repeals the death tax and the generation-skipping transfer tax.”

Explore more estate tax data

7. Lower Tax Rate on “Passthroughs”

“The framework limits the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25%. The framework contemplates that the committees will adopt measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.”

Coming soon - chart showing previous maximum tax rate

8. Lower the Corporate Tax Rate

“The framework reduces the corporate tax rate to 20% - which is below the 22.5% average of the industrialized world. In addition, it aims to eliminate the corporate AMT, as recommended by the non-partisan JCT. The Committees also may consider methods to reduce the double taxation of corporate earnings.”

“The framework explicitly preserves business credits in two areas where tax incentives have proven to be effective in promoting policy goals important in the American economy: research and development (R&D) and low-income housing. While the framework envisions repeal of other business credits, the committees may decide to retain some other business credits to the extent budgetary limitations allow.”

10. Territorial Taxation of Global American Companies

“It will replace the existing, outdated worldwide tax system with a 100% exemption for dividends from foreign subsidiaries (in which the U.S. parent owns at least a 10% stake).”