The House Tax Cut: Who Gets What
Two-thirds of the $1.5 trillion in tax cuts proposed by House Republicans would go to business, one-third to individuals. Hedge funds would keep a key tax break. Homebuyers would lose one. But it’s just a bill. Even if the current plan passes the House, it can’t survive intact in the Senate, which has stricter rules against adding to long-term deficits. Here’s a list of winners and losers.
Business total tax reductions: $1 trillion
Proposal: Cuts the corporate tax rate to 20 percent from 35 percent and eliminates the corporate alternative minimum tax.
Effect: The bill’s most costly tax break brings the U.S. rate in line with or lower than those of peer nations, reducing the incentive for companies to move abroad.
Federal revenue change over 10 years: –$1.5 trillion
Proposal: Companies can continue to shelter profits from one deal by investing the proceeds in another.
Effect: Developers like the Trump Organization would benefit from the preservation of these “1031 exchanges.” They’ll also keep a tax break on carried interest.
Federal revenue change over 10 years: No change
Proposal: Requires companies to pay a tax on foreign profit of 12 percent if held abroad as cash or 5 percent if it’s been reinvested.
Effect: Backers say companies that repatriate would invest and hire more. Critics call it a giveaway to big business that produces a one-shot revenue gain.
Federal revenue change over 10 years: +$223 billion
Proposal: Ends taxation of companies’ foreign profits, but slaps a 20 percent tax on payments to foreign affiliates to stop them from shifting profits abroad.
Effect: The government would lose $205 billion in taxes on dividends from foreign units but gain $266 billion from three measures to stop erosion of the tax base.
Federal revenue change over 10 years: +$61 billion
Proposal: Limits the use of past net operating losses to reduce taxable profits.
Effect: Profitable companies sometimes acquire money-losing ones and use the target’s past losses to lower their taxes. That would be harder under this bill.
Federal revenue change over 10 years: +$156 billion
Proposal: The Joint Committee on Taxation doesn’t break out revenue gains from reducing the mortgage interest deduction (see below).
Effect: It’s not just buyers who are upset about the reduction in mortgage interest deductibility. Builders are lobbying to remove the provision from the House bill.
Federal revenue change over 10 years: ???
Proposal: Limits the deductibility of net interest expense to 30 percent of Ebitda. For future borrowing only.
Effect: This provision is understandably unpopular with businesses such as car dealerships that borrow to buy inventory and have low margins.
Federal revenue change over 10 years: +$172 billion
Proposal: Eliminates the 50 percent tax credit for the cost of clinical trials of drugs for rare diseases.
Effect: Proponents say pharmaceutical companies make plenty of money from so-called orphan drugs without the added inducement of a tax credit.
Federal revenue change over 10 years: +$54 billion
Proposal: Allows companies, through 2022, to deduct the full cost of equipment from taxes in the year of purchase.
Effect: The full tax break is upfront instead of spread over the useful life of the equipment, giving customers a big incentive to buy over the next five years.
Federal revenue change over 10 years: –$25 billion
Proposal: Puts a 1.4 percent tax on the endowment income of wealthy private colleges and universities.
Effect: House Ways & Means committee tax writers say “parity requires” that well-off schools get treated the same as private foundations.
Federal revenue change over 10 years: +$3 billion
Personal total tax reductions: $0.5 trillion
All told, the top 1 percent of households would get the biggest percentage gain in after-tax income.
Top rates for most would fall, costing $1.1 trillion in revenue over 10 years. The rate for the highest incomes stays at 39.6 percent—except, oddly, it’s 45.6 percent for dollars earned between $1 million and $1.2 million.
The standard deduction roughly doubles, to $24,000 in the case of a married couple. But personal exemptions of $4,050 per person would go away—bad news for big families.
The bill kills the deduction for interest on student loans, repeals two tuition tax credits, and ends the tax-free status of employer tuition reimbursements.
There’s a new 25 percent rate for people who report business income on their personal returns. They currently pay the personal rate on this so-called pass-through business income. (Only part of their business income gets the new break.)
State and local
The bill eliminates the deduction for state and local taxes, except for $10,000 a year in property taxes. Bad for high-tax blue states such as New York, New Jersey, and California.
The proposal to eliminate the tax credit for adoption expenses saves just $4 billion over a decade and has raised a furor among the religious right.
Taxpayers would be able to deduct interest on up to $500,000 in new mortgage debt, vs. $1 million now. And no more deductions for new home-equity debt or loans on second homes.
Alternative minimum tax
The AMT was designed to make sure the rich don’t use loopholes to avoid taxes. Without it, Trump would have paid $31 million less in 2005. It dies in the new plan.
The bill doubles, to $11 million, the size of an estate that can be distributed to heirs tax-free. After five years, what Republicans call the death tax would go away entirely.