House Republican leaders released the Tax Cuts and Jobs Act (H.R. 1) on Nov. 2, that would make major changes to the federal tax code. Among the highlights, the bill would nearly double the standard deduction, reduce the number of individual tax brackets, slash the corporate income tax rate, create a new pass-through tax rate, and eliminate the estate tax. However, the proposal would also lower the cap on the mortgage interest deduction, which has been a cornerstone of American housing policy for over 100 years.
The House Committee on Ways and Means has scheduled a markup of the legislation for Monday, November 6. That announcement is consistent with NLBMDA‘s understanding that congressional Republicans have an aggressive timetable for passing tax reform.
Congressional Republicans are using the budget reconciliation process as the legislative vehicle for tax reform. That permits the Senate to bypass certain procedural hurdles and allow a simple majority to approve a tax overhaul package in the upper chamber.
A rule in the budget resolution bill (the legislative vehicle for tax reform) also allows for $1.5 trillion in tax cuts over 10 years without corresponding offsets. Using reconciliation requires that at least some of the tax cuts phase-in to comply with the Byrd Rule, a Senate rule that prohibits budget reconciliation provisions from increasing the deficit beyond 10 years.
NLBMDA has not yet taken a position on the Tax Cut and Jobs Act, but remains committed to preserving the mortgage interest deduction and eliminating the estate tax. Below is a summary of plan provisions that are relevant to lumber dealers. Should you have questions please email me at firstname.lastname@example.org.
- Consolidates Personal Income Tax Brackets from Seven to Four – The four income tax brackets are 12%, 25%, 35%, and 39.6%.
- Permanently Repeals the Estate Tax – Phases-in permanent repeal of the estate tax. Immediately doubles the estate tax exemption levels ($11.2 million for individuals, $22.4 million for couples) and indexes for inflation. Repeals the estate tax and generation-skipping transfer tax starting in 2024. Maintains full step-up in basis. Cuts the gift tax to 35% on gifts over $10 million and indexes that amount for inflation. NLBMDA supports full repeal of the estate tax
- Increases the Standard Deduction – Approximately doubles the standard deduction. $12,000 for single filers. $24,000 for married couples filing jointly
- Lowers the Cap on the Mortgage Interest Deduction – Lowers the mortgage debt cap from $1 million to $500,000 on interest payment deductions. The deduction for second homes is eliminated. In addition, the deduction on interest payments associated with home equity loan debt is eliminated. NLBMDA supports the preservation of the mortgage interest deduction.
- Lowers Tax Rate for Small Businesses – Caps the income tax rate for pass-through entities at 25%, which is significantly lower than the top rate that these businesses pay today.
- Full “Expensing” of Capital Investments – Allows businesses to immediately write-off (or “expense”) the cost of new qualified property through 2022.
- Lowers Corporate Income Tax Rate – Reduces the corporate income tax rate to 20%. The average corporate tax rate for the industrialized world is 22.5%.
- Replaces the State and Local Tax (SALT) Deduction with a Property Tax Deduction – Eliminates the itemized deductions for state and local taxes. It is replaced with a deduction up to $10,000 for property taxes.
- Retains the Net Interest Expense Deduction for Small Business – Retains the net interest expense deduction for businesses under $25 million in revenue. The deduction for C corporations is limited to less than 30 percent of its adjustable taxable income.
If you are interested in joining the NLBMDA Legislative Advocacy Committee who will be discussing the tax reform proposal in the coming days, contact Ben Gann at email@example.com.