The 429 page tax reform bill unveiled by House Republicans on Thursday would make a series major changes to the tax code, reducing the number of tax brackets from seven to four, eliminating and limiting a number of major deductions, and cutting the corporate tax rate from 35 to 20 percent. But past those headlines were a number of smaller provisions, which may be small in financial impact, but could still be felt by individuals around the nation.
Here's some of the more interesting items tucked away in the GOP tax reform bill:
1. Even some small tax deductions get knocked out. Most of the headlines are about limits on deductions for mortgage interest, property taxes, and ending the write off for state and local taxes. Those are big provisions, with a big impact. But other tax breaks are also getting tossed out by House Republicans, like a deduction for larger medical expenses, and unreimbursed business expenses. Teachers are a good example of taxpayers who might benefit from that business expenses deduction, but under this plan, that would go away. The argument is this - now that the overall standard deduction would be increased, then these deductions aren't needed, as the GOP tries to simplify the tax code, and make it possible to file your taxes on a postcard.
2. New rules on capital gains from a home sale. Under current law, you can make up to $250,000 tax free on the sale of a home ($500,000 for a married couple) if you have lived in the home for two of the last five years. This proposed tax change would keep those profit figures tax free, but the length of time that owners would have to live in the house would be expanded from two to five years (out of the previous eight years). One stated reason for the change is to tamp down on home sale speculation: "Meanwhile, speculators and so-called “flippers” in the housing market would not be rewarded for their activity with tax-exempt income," an explanation states. So, the tax break would remain the same value, but the time involved would change. One can imagine a provision like this might spur a rush to sell a house before the end of the year, especially if you haven't lived in it for five years yet.
3. Tax break related to college football/basketball tickets. One of the many rules in the current tax code allows people to deduct 80 percent of a charitable contribution to a college or university, when that contribution is used stake a claim for tickets at a college football or basketball game. How did this come about? Congress added the break in 1988 - two years after the last major tax reform law - as lawmakers have added in all sorts of write offs and breaks along the way, like this tax break related to a collegiate personal seat license. This change would be made along with a number of other reforms in the area of charitable contributions. The effort is not new; the Obama Administration made the same proposal, but it was never acted upon by Congress.
4. No tax breaks related to pro sports stadiums. Speaking of sports, the GOP tax plan would do away with one tax break that could benefit major sports leagues. In this case, state and local governments could no longer sell bonds to help finance construction of a stadium in which those bonds were allowed to provide investors with interest that was not taxable by Uncle Sam. It's not a huge provision in terms of money - it would save the feds an estimated $200 million over ten years.
5. Start saving for college before you kid is born. Yes, tucked into the bill is a provision that would allow parents to start a 529 college savings account even before your son or daughter has arrived. Just in case there was any issue about the intent of those who wrote this provision, it was spelled out in the committee explanation like this: "An unborn child means a child in utero. A child in utero means a member of the species homo sapiens, at any stage of development, who is carried in the womb."
6. Some handy facts and figures about the GOP tax reform bill. It's sort of hard to get your head around a big bill like this, so here are some bullet points about the financial figures:
+ Ending a series of personal deductions brings in the most money for Uncle Sam, just over $1.5 trillion over 10 years.
+ Going from seven to four tax brackets with different rates means almost $1.1 trillion less in revenue coming in to the feds.
+ Changing the standard deduction gives taxpayers $913 billion.
+ Repealing the Alternative Minimum tax for individuals saves taxpayers almost $700 billion over 10 years.
+ Overall, according to the Committee for a Responsible Federal Budget, the GOP tax plan costs $1.51 trillion over ten years. There are $5.7 trillion in tax cuts, and $4.2 trillion in tax increases, leaving a plan that would increase the deficit by $1.5 trillion.
You can find out more of the financial information about the GOP tax bill, with this background from the Joint Committee on Taxation.
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