WASHINGTON (AP) — President Donald Trump and congressional Republicans are proposing a far-reaching plan Wednesday that would cut taxes for individuals and corporations, simplify the tax system and nearly double the standard deduction used by most Americans.
"Too many in our country are shut out of the dynamism of the U.S. economy, which has led to the justifiable feeling that the system is rigged against hardworking Americans," says the blueprint, obtained by The Associated Press. "With significant and meaningful tax reform and relief, we will create a fairer system that levels the playing field and extends economic opportunities to American workers, small businesses, and middle-income families."
The public unveiling of the plan was set for later Wednesday.
The plan nearly doubles the standard deduction to $12,000 for individuals and $24,000 for families. This basically increases the amount of personal income that is tax-free.
It collapses the number of personal tax brackets from seven to three. By simplifying the system, most Americans would be able to file their taxes on a postcard, the plan says.
The individual tax rates would be 12 percent, 25 percent and 35 percent — and the plan recommends a surcharge for the very wealthy. But it does not set the income levels at which the rates would apply, so it's unclear just how much of a tax cut would go to a typical family.
The plan would seek to help families by calling for an increased child tax credit and opening it to families with higher incomes. The credit currently is $1,000 per child. The plan also seeks to limit the "marriage penalty" on the joint income of couples who both work.
Also proposed is a new tax credit of $500 to help pay for the care of the elderly and the sick who are claimed as dependents by the taxpayer.
Deductions for mortgage interest and charitable giving would remain, but the plan seeks to end most itemized deductions that can reduce how much affluent families pay. It retains existing tax benefits for college and retirement savings such as 401k contribution plans.
Concern in New York State
Of particular concern among New York taxpayers, however, is the proposed elimination of the current deduction of state and local taxes, sometime referred to as "SALT".
SALT includes state and local income taxes (or sales taxes if the filer so chooses) as well as property taxes on homes.
In a state like New York, where combined income, sales, and property taxes are among the highest in the nation, the loss of such a deduction would be a "big hit" according to U.S. Rep. Brian Higgins, (D-26th District), who has vowed to fight against that portion of the plan.
Rep. Chris Collins (R-27th District) agrees with Higgins to a certain extent.
"I do have some concerns about that," Collins told WGRZ-TV. "We're still negotiating this because there are some folks who could lose out if that deduction were eliminated, but they tend to be higher income people."
However, Collins also believes the loss of that particular deduction would be tempered by the rise in the standard deduction, which he believes would leave fewer taxpayers inclined to itemize.
Under current law, some 30 percent of taxpayers nationally itemize their deductions, and Collins believes the number of those doing so will decrease under the Trump tax plan.
NY Gov. Andrew Cuomo has also criticized the potential loss of the deduction for residents of the state, saying it would amount to a “death blow” to New York, by putting the state at a competitive disadvantage.
Others maintain that it wouldn't be a "death blow" to the state if the taxes in New York weren't so high to begin with.
"The Governor is already driving people and businesses from the state in droves due to the existing high taxes and burdensome regulations," said Collins, suggesting that this would be an opportunity for Cuomo to get the state's financial house in order, starting with reforming New York's high tax climate.
The estate tax — which is levied on millionaires — would be eliminated, a likely boon for wealthy individuals who inherit businesses, investments and real estate.
Companies would find themselves paying substantially lower tax rates, part of an effort to make U.S. businesses more competitive globally.
Corporations would see their top tax rate cut from 35 percent to 20 percent. For a period of five years, companies could further reduce how much they pay by immediately writing off their investments.
New benefits would be given to firms in which the profits double as the owners' personal income. They would pay at a 25 percent rate, down 39.6 percent. This creates a possible loophole for rich investors, lawyers, doctors and others, but administration officials say they will design measures to prevent any abuses.
The administration says say the tax plan is focused on helping middle class families. But — despite six months of talks with congressional leaders — the outline still lacks vital details about how middle class families would fare. There are also signs that the wealthiest sliver of Americans could still reap tremendous benefits from the proposed changes, even though Trump has suggested that rich will not be better off.