House Republicans Release Tax Reform Text

Earlier today, Republicans in the U.S. House of Representatives released the text of their much-anticipated tax reform proposal. The text echoes previous frameworks by the Trump Administration and the Republican Congress.

For the individual side of the tax code, the “Tax Cuts and Jobs Act” would cut the current seven tax brackets down to four brackets of 12%, 25%, 35% and 39.6%, and double the standard deduction.

The tax bill would eliminate most deductions and amend others, while keeping the popular charitable deduction as well as current pre-tax contribution limits for 401(k)s. The bill would eliminate the estate tax after six years and end the alternative minimum tax immediately.

The legislation also seeks to amend the mortgage interest deduction by capping it at home loans of $500,000. However, the legislation would keep the mortgage interest deduction in place at its current level of $1 million for existing mortgages.

The bill would also eliminate the ability to deduct the total amount of state and local real estate, property, sales or income taxes paid over the course of a year, but it would continue to allow people write off the cost of state and local property taxes up to $10,000.

On the business side of the tax code, the bill would change the current tiered corporate tax rate to a 20% flat tax, but apply a 25% rate for personal services corporations.

For small and family-owned businesses organized as sole proprietorships, partnerships and S corporations, a maximum tax rate of 25% on business income would apply to 30% of income, with the remaining 70% taxed at the relevant individual rate. However, in certain cases, an alternative, more stringent facts and circumstances test would apply to determine the appropriate business income tax rate. The legislation does not specifically prescribe in which circumstances the facts and circumstances test would apply, and its application to different industries is unclear in the current draft.

The legislation would, however, continue to allow small businesses to write off interest on certain loan balances, and would expand expensing for tangible assets in some circumstances. It does not appear to alter current expensing rules for intangible assets for small businesses.

Finally, the legislation specifically seeks changes to certain taxation rules for life insurance and property-casualty insurance companies.

While the timeline could slip, the House plans to begin marking up the text in the Ways and Means Committee next week and hopes to pass the legislation out of the full House by Thanksgiving. Republicans in the U.S. Senate also plan to release their tax plan in the coming weeks, with President Trump hoping to sign a tax reform bill into law by the end of the year.

This analysis is based on an initial review of the 429 pages of legislation released hours ago. The Big “I” is working on a more detailed analysis of the tax bill and will continue to keep you updated through News &Views and on the Big “I” government affairs webpage.

Jennifer Webb is Big “I” federal government affairs counsel. Wyatt Stewart is Big “I” senior director of federal government affairs.