If I had to bet, I would bet that the proposed Republican tax reform bill does not get passed, that it never actually makes it into law. However, I also know I am not very good at predicting the political future, so let me put in my two cents' worth about the tax reform proposal ... what it proposes, and whether it's fair or not. My information about the proposal comes from U.S. News, which I assume is accurate but not necessarily comprehensive.
First of all I agree that the tax code ought to be simplified. Does this proposal accomplish that? Well, it reduces the tax brackets from seven to four; it raises the standard deduction so more people will be able to file without having to itemize deductions. Perhaps it's a small step in the right direction. But it FALLS SHORT in accomplishing a true simplification that would allow the majority of people to understand the code and do their own taxes.
The most-advertised change is the lowering of the business tax from 35% to 20%. People will argue all day long about whether or not this is a good thing. Proponents say it will spur investment, jobs and income. Opponents argue that it will add to the federal deficit and that most of the benefits will go to the rich. The truth is, NOBODY KNOWS what the effects will be. So it's hard to say whether this is fair or not.
The current seven tax brackets will be reduced to four, ranging from 12% to 39.6%. The highest rate has not been reduced. So ... FAIR.
Certain deductions are capped. The mortgage deduction is currently capped at $1 million. In other words, mortgage interest is tax deductible up to the interest paid on a $1 million loan. The proposal calls for lowering the cap to $500,000. Despite howls of protest from the real-estate industry, this only seems FAIR to me. I think it's a good idea for the federal government to encourage home ownership, because it is generally considered a social good. But come on. There should be a reasonable limit on how much the rest of us subsidize people buying million-dollar-plus McMansions, don't you think?.
The other cap is for state and local property tax. Currently, all real-estate tax is exempt from federal income tax. The proposal calls for a cap at $10,000. In effect, this increases taxes on people living in wealthy areas, who benefit from the extra services their $10,000-plus property taxes pay for. Again, I think we should subsidize local governments, particularly local school systems. But there's no reason why regular people should subsidize other people's $10,000-plus luxuries. So ... FAIR.
The Republican tax plan would eliminate the tax credit for buying electric vehicles. FAIR, BUT NOT SMART. It would eliminate deductions for state and local income taxes, casualty losses, medical expenses (currently deductible at over 10% of income); alimony payments and moving expenses necessary for a job. To compensate the Republican bill would almost double the standard deduction from $12,700 to $24,000 for a married couple and from $6,350 to $12,000 for single filers. It would also increase the child deduction from $1000 to $1600, but eliminate the personal exemption. On balance this would benefit families and punish single people, but the effects would be minimal. So all this pretty much comes out in the wash, and simplifies the tax code. FAIR.
The plan would also eliminate the alternative minimum tax -- originally designed to make sure the very highest-income individuals pay at least some tax, even if they pile on the deductions and other tax dodges available to those with high incomes and high-priced accountants. But the AMT has morphed into a complicated add-on that now affects not just the super-rich, but also significant numbers of upper-middle-income filers. FAIR.
The plan would not eliminate the so-called carried interest clause, which offers select financial executives a huge tax break by classifying their income as capital gains instead of regular income, thus taxing it at a lower rate. Donald Trump railed against this tax break during the campaign -- as did Hillary Clinton and Bernie Sanders and virtually every other candidate. But despite the protests, this particular tax break for the favored few has not been eliminated. NOT FAIR.
The plan would also phase out the inheritance tax (or the death tax, in Republican parlance). Currently, estates worth over $5.5 million are subject to estate tax. Under this plan no estate tax would be levied on even the wealthiest of the wealthy. NOT FAIR.
One last thing. There was talk of putting more severe caps on the amounts people could put into their 401K accounts. This element was dropped. So workers will still be able to deposit up to $18,000 in a 401K account. Yet people who do not work for a big corporation, who do not have a 401K, and instead rely on an IRA, are limited to a $5,500 contribution (or $6,500 if you're over 50). In my opinion, everyone should have the same caps on their contributions. Everyone should be treated equally. So ... UNFAIR.
As I said, I do not know if this is a comprehensive look at the new tax plan, but it covers the basics. Some good things; some bad things. But is it progress? The beat goes on.