The House Budget Committee recently unveiled a comprehensive proposal featuring 45 potential changes to the nation’s tax laws in line with President Trumps campaign proposals.
These proposed reforms aim to address a wide range of fiscal priorities, from reducing the federal deficit to incentivizing economic growth and ensuring equitable tax burdens across income groups.
Here’s a closer look at what these potential changes entail and how they might impact taxpayers, businesses, and the broader economy.
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Key Highlights of the Proposed Changes
- Individual Income Tax Rates:
- Adjustments to tax brackets to reflect inflation and income distribution.
- Potential introduction of a new top tax bracket of 39.6% for individuals earning over $400,000 annually and households earning over $450,0000
- Elimination of HoH Filing Status. The Head of Household filing status provides a larger standard deduction for unmarried individuals who have children.
- Corporate Taxes:
- Proposed increase in the corporate tax rate from 21% to 28%.
- Tax incentives for businesses investing in renewable energy and infrastructure projects, with specific credits up to $10,000 per project.
- Capital Gains and Dividends:
- Elimination of preferential tax rates for capital gains for individuals earning above $1 million annually.
- Consideration of a minimum tax rate of 20% for large investment portfolios exceeding $10 million in value.
- Deductions and Credits:
- Expansion of the Child Tax Credit (CTC) to $3,600 per child under 6 and $3,000 per child aged 6 to 17.
- Limiting itemized deductions for individuals earning over $400,000 to no more than 28% of their adjusted gross income.
- Changes to the State and Local Tax (SALT) deduction, including a proposal to increase the cap from $10,000 to $15,000 for individual filers and $30,000 for joint filers, providing relief for taxpayers in high-tax states.
- Eliminate the home mortgage interest deduction on primary residences and lower the deductible home mortgage interest limit from $750,000 to $500,000.
- Proposed enhancements to Health Savings Accounts (HSAs), including increasing the annual contribution limits to $5,000 for individuals and $10,000 for families, and allowing funds to be used for over-the-counter medications and wellness programs.
- Introduction of a Universal Savings Account (USA), allowing individuals to contribute up to $5,000 annually with post-tax dollars, with tax-free growth and withdrawals for any purpose. This account would replace Health Savings Accounts (HSA) with a Roth-style account.
- Changes to the American Opportunity Tax Credit (AOTC), increasing the maximum credit to $3,000 per year for the first four years of post-secondary education and expanding eligibility to cover part-time students.
- Modifications to the Lifetime Learning Credit (LLC), increasing the income phase-out threshold to $90,000 for single filers and $180,000 for joint filers, and expanding eligible expenses to include professional certification programs.
- Estate and Gift Taxes:
- Reduction in the estate tax exemption threshold from $12.92 million to $6 million per individual.
- Increased tax rates of up to 45% for large inheritances exceeding $10 million.
- International Taxation:
- Implementation of a global minimum tax of 15% for multinational corporations with revenues exceeding $750 million.
- Measures to curb tax avoidance through offshore accounts and subsidiaries, with penalties up to $1 million per violation.
- Small Business Support:
- Enhanced deductions for small businesses investing in workforce training, capped at $50,000 per year.
- Simplification of tax filing requirements for businesses with revenues under $500,000.
Potential Impacts on Taxpayers and Businesses
While the proposed changes aim to create a more equitable and sustainable tax system, they may have mixed effects across different demographics:
- High-Income Earners: Likely to face higher tax rates, reduced deductions, and increased scrutiny of capital gains.
- Middle-Class Families: Potential beneficiaries of expanded tax credits, though some deductions may be curtailed.
- Small Businesses: Could see benefits from enhanced deductions and simplified tax processes, but may also face challenges if corporate rates rise.
- Corporations: Increased taxes on profits and stricter international tax rules may drive changes in financial strategies.
Next Steps
The proposed changes are still in the early stages of legislative discussion. The House Budget Committee (HBC) will conduct hearings and consultations with stakeholders before finalizing any recommendations.
As the debate unfolds, it’s crucial for individuals and businesses to stay informed and consider how potential changes could affect their taxes and finances in the coming years.