It has been more than three decades since the last comprehensive tax reform effort successfully made it to the presidents desk.Times have certainly changed, as the process in 1986 was the result of bipartisan efforts. The bill introduced on November 2, 2017, by House Ways and Means Committee Chairman Kevin Brady (R-Texas), is the product of a hyper-partisan atmosphere, and it runs the risk of being in the same unresolved position as attempts to pass health-care reform just a few months ago. This article will address some of the more notable provisions in the proposal--although as of the writing, the bill remains subject to change.
THE EFFORT BEGINS
While frameworks, outlines, and rumors swirled for more than a year, the release of the much-anticipated tax reform bill, The Tax Cuts and Jobs Act (H.R. 1), has formally kicked off the tax reform effort. The comprehensive draft proposes substantial changes to the federal tax code governing individuals and corporations. As expected, the House bill proposes collapsing the current seven tax brackets into four: 12 percent, 25 percent, 35 percent, and 39.5 percent. It also doubles the standard deduction to $12,000 for individuals and $24,000 for taxpayers who are married and filing jointly.
But the bill repeals the personal exemption and creates a new, temporary family credit of $300 for each person in a taxpayer's family, including the primary taxpayer and non-dependent children. Further, in a somewhat unexpected twist, the bill proposes to cap the mortgage interest deduction on new or refinanced loans up to $500,000. The bill also repeals the deductions for medical expenses, moving expenses, contributions to medical savings accounts, and student loan interest, as well as the alternative minimum tax.
One of the primary issues, given the bill's broad impact on districts of both parties, is the repeal of the state and local tax (SALT) deduction, which GFOA has been actively engaged with in recent months. On the individual side, the bill proposes to eliminate the deduction for state and local income and sales taxes paid, and it would cap the local property tax deduction at $10,000 per itemizing taxpayer. Corporations would retain the ability to deduct those taxes. GFOA will continue opposing this change, especially given the significant impact it would have on the ability of state and local governments to set tax policy. GFOA members can find resources on the impact of eliminating the SALT deduction by...