But it’s on the verge of being something else.
While Congressional Republicans have been unable to pass Obamacare repeal/replace, they are now moving on to tax reform.
“The American tax code is broken, too complicated and in serious need of reform; coupled with the highest corporate tax rate for industrialized nations, the time for change is now,” said U.S. Rep. Phil Roe, R-Tenn. “Meaningful tax reform last occurred over 30 years ago, and this is a once-in-a-generation opportunity to allow hardworking Americans to keep more of their pay.”
There’s a nine-page summary document with President Trump laying out four principles for tax reform: First, make the tax code simple, fair and easy to understand. Second, give American workers a pay raise by allowing them to keep more of their paychecks. Third, make America the jobs magnet of the world by leveling the playing field for American businesses and workers. Finally, bring back trillions of dollars that are currently kept offshore to reinvest in the American economy.
To put this issue in perspective, consider this thought from House Speaker Paul Ryan, R-Wisc.: “It is estimated that individuals, families, and employers spend over 6 billion hours and over $160 billion a year trying to understand a labyrinth of rules. Over the past decade, more than 4,400 changes have been made to the tax code, which averages to more than one per day.”
The Trump administration, the House Committee on Ways and Means, and the Senate Committee on Finance have developed a tax reform framework. It calls for: Tax relief for middle-class families; the simplicity of so-called “postcard” tax filing for the vast majority of Americans; tax relief for businesses, especially small businesses; ending incentives to ship jobs, capital, and tax revenue overseas; and broadening the tax base and providing greater fairness for all Americans by closing special interest tax breaks and loopholes.
According to the framework, the federal government would roughly double the standard tax deduction to: $24,000 for married taxpayers filing jointly, and $12,000 for single filers. The additional standard deduction and personal exemptions for the taxpayer and spouse would be consolidated into this larger standard deduction. In combination, these changes would effectively create a larger “zero tax bracket” by eliminating taxes on the first $24,000 of income earned by a married couple and $12,000 earned by a single individual.
Under current law, taxable income is subject to seven tax brackets. The framework aims to consolidate the current seven tax brackets into three brackets of 12 percent, 25 percent and 35 percent.
There’s also supposed to be a larger child tax credit.
“The first $1,000 of the credit will be refundable as under current law,” the framework document said. “In addition, the framework will increase the income levels at which the child tax credit begins to phase out. The modified income limits will make the credit available to more middle-income families and eliminate the marriage penalty in the existing credit. The framework also provides a non-refundable credit of $500 for non-child dependents to help defray the cost of caring for other dependents.”
An additional top rate may apply to the highest-income taxpayers to ensure the reformed tax code is at least as progressive as the existing tax code and does not shift the tax burden from high-income to lower- and middle-income taxpayers, according to the framework document.
The framework would repeal the death tax and the generation-skipping transfer tax. It would also limit the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25 percent. The framework also would reduce the corporate tax rate to 20 percent – which the Trump administration claims is below the 22.5 percent average of the industrialized world.
Early reviews of the proposed tax reform framework, as you might expect, have been partisan.
House Democratic Caucus Chairman Joe Crowley, D-N.Y., a member of the Ways and Means Committee, issued the following statement on the framework: “This is not tax reform – it’s a thinly-veiled attempt to slash taxes for the wealthy while leaving the middle class, working families, and small business owners empty handed.”
The National Conference of State Legislatures (NCSL) is taking issue with the framework’s assertion that it will help the middle class.
“As a central tenet of tax reform is to provide tax relief for the middle class, NCSL is dismayed that the released framework will eliminate a deduction that is vital to middle class taxpayers, the State and Local Tax (SALT) deduction,” NCSL said in a prepared statement. “The SALT deduction has existed in the federal tax code since its inception, which coincidentally was also when the federal tax code was at its simplest, because federal tax writers were cognizant to not tax an individual’s income twice.”