The U.S. House of Representatives on Thursday (Nov. 16) passed its version of President Donald’s Trump agenda-topping tax reform legislation. The measure garnered the full party support of Arkansas’ congressional delegation.
In a vote largely along party lines, the House approved the president’s attempt to overhaul the U.S. tax code for the first time in 31 years by a tally of 227-205, with 13 GOP representatives joining a block of congressional Democrats to oppose the bill.
The legislation, known as the Tax Cut and Jobs Act, would reduce the number of tax brackets from seven to four, maintaining the top marginal rate at 39.6%, and almost double the standard deduction, the amount that can be removed from one’s income before taxes. Under the bill, the U.S. corporate tax rate would be reduced from 35% to 20%.
After the successful vote, President Trump applauded approval of the measure, saying it was a “big step toward fulfilling our promise to deliver historic tax cuts for the American people by the end of the year.”
“We are working together to allow hardworking, middle-class families to keep more of their money, and to empower our companies and workers to dominate their global competition,” The White House press office said. “A simple, fair, and competitive tax code will be rocket fuel for our economy, and it’s within our reach. Now is the time to deliver.”
The bill was first introduced to House members two weeks ago by U.S. Rep. Kevin Brady, chairman of the House Ways and Means committee. As of Tuesday, the Congressional Budget Office had estimated the effects of the legislation would raise deficits by an estimated $1.5 trillion over the period from 2018 to 2027.
U.S. Reps. Rick Crawford of Jonesboro, French Hill of Little Rock, Steve Womack of Rogers, and Bruce Westerman of Hot Springs, supported the president’s overhaul of the U.S. tax code. Hill, Womack and Westerman called the bill historic, saying it would simplify the tax code and bring tax relief to hard-working Arkansans and American businesses.
Despite the staunch support from the Arkansas’ congressional delegation and most Republicans in Congress, most Democrats and a coalition of progressive groups panned the legislation and is pushing for the legislation to fail in the Senate.
Paul Spencer, a Democratic candidate running against Hill in the 2nd Congressional district, said Hill and other GOP lawmakers “have affirmed their commitment to the status quo of corporate cronyism. If Arkansans wondered who is actually represented in Congress, they can simply look at who will benefit from this effort passed today. By raising the lowest tax bracket from ten to 12%, many Arkansans will actually pay more in taxes.”
The “Not One Penny” coalition, which includes such groups as Alongside Americans for Tax Fairness, Indivisible, MoveOn.org, Organizing for Action and Tax March, said Brady’s legislation will raise taxes on middle-class families give tax breaks to millionaires, billionaires and wealthy corporations.
Support for the House bill is mixed from some pro-business groups and corporations in Arkansas and across the U.S., depending on how it impacts a constituency or bottom line. For example, National Association of Realtors President Elizabeth Mendenhall has called the legislation an all-out assault on home ownership.
“This is about much more than a cap on the mortgage interest deduction. Rather, it is about whether homeowners will have the rug pulled out from under them with a tax system that suddenly favors renting over owning in a big way,” Mendenhall said in a statement. “American homeowners shouldn’t have to pay for corporate tax cuts with their home equity.”
However, Home Depot came out in support of the legislation, saying it would fuel the economy by putting more money in most Americans’ pockets while improving the competitive position of companies so they can create more jobs.
The U.S. Senate has yet to take up their version of tax reform sponsored by U.S. Sen. Finance Committee Chairman Orrin Hatch, R-Utah. On Wednesday, Senate Republicans released a revised bill that will repeal the individual mandate in the Affordable Care Act, which the Congressional Budget Office said would cause more than 13 million people to drop their insurance coverage.
U.S. Sen. Tom Cotton, R-Ark., supports repeal of the mandate.
“Repealing the mandate pays for more tax cuts for working families and protects them from being fined by the IRS for not being able to afford insurance that Obamacare made unaffordable in the first place,” Cotton said.
SUMMARY OF THE LEGISLATION
Following are some of the key elements of the tax bill passed by the U.S. House.
• The legislation lowers individual tax rates for Americans and reduces the number of brackets from seven under the existing code to four. Under the Rules Committee Print, individuals will pay the following rates:
12% up to $45,000
25% up to $200,000
35% up to $500,000
39.6% over $500,000
For married couples filing jointly, the following rates apply:
12% up to $90,000
25% up to $260,000
35% up to $1 million
39.6% over $1 million
• The Rules Committee Print also doubles the standard deduction – from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples. It preserves the current rate of 23.8% for capital gains and dividends.
• The legislation establishes a new Family Tax Credit, which expands the Child Tax Credit from $1,000 to $1,600 and provides a $300 credit for each parent and each non-child dependent. Phase-out thresholds are raised to $115,000 for individuals and $230,000 for married couples. In addition, it requires individuals to have a Social Security number valid for work in order to claim the credit and requires a Social Security number for each child for whom the credit is claimed.
• The bill reduces the corporate tax rate from 35% to 20% and reduces the tax rate on pass through business entities to a maximum of 25%. In addition, the bill provides a 9% tax rate, in lieu of the ordinary 12% tax rate, for the first $75,000 in pass-through business income of an active owner or shareholder earning less than $150,000.
• The corporate tax would shift to a territorial tax system. To avoid creating tax incentives for companies to shift profits or jobs abroad, the bill includes anti base erosion measures that impose taxes on certain income of foreign affiliates. As a transition into the territorial tax system, the bill provides for deemed repatriation of earnings kept offshore at effective tax rates of 7% for earnings held in illiquid assets and 14% for earnings held in liquid assets.
• The bill also repeals and/or eliminates several taxes and deductions. Some of those include: alternative minimum tax; estate tax in 2025 and beyond; deductions for tax preparation expenses; medical expenses; alimony payments; student loan interest, moving expenses; private activity bonds; tax exempt bonds for stadium construction; the $7,500 tax credit for the purchase of electric vehicles; an inflation increase for renewable energy production tax credits; the ability of a large banks to deduct their FDIC premium payments; the business deduction for entertainment expenses; and the ability of small businesses to write off interest on loans.
• Also, the bill would repeal the Johnson Amendment and allow churches and other charities to make statements relating to political campaigns in the ordinary course of their activities.
• The bill preserves the mortgage interest deduction but with new levels, including interest on up to $500,000 in mortgage principal on new homes, and grandfathers existing mortgages. Other deductions preserved include: deductions for charitable contributions; the exclusion for moving expense reimbursement for a member of the Armed Forces; the research and development tax credit; and the low-income housing tax credit.
• The bill would also impose an excise tax of 1.4% on net investment income of private colleges and universities if their endowment assets exceed $250,000 per student.