Five days before Christmas, the Senate passed the "Tax Cuts and Jobs Act" by a party-line vote of 51 to 48, with Republican Senator McCain absent for medical reasons. No matter your political affiliation, almost everyone agrees that is the most sweeping overhaul of the US tax system in more than 30 years.
While the bill has dominated the news lately and gone back and forth between the House of Representatives and the Senate, let’s explore how the bill is summarized from the Committee on Ways and Means.
In the House of Representatives, there are 20 permanent committees; in the Senate, there are 21 committees and there are four joint committees comprised of members from both the House and the Senate.
The Committee on Ways and Means is the oldest committee of the United States Congress and is the chief tax-writing committee in the House of Representatives, deriving much of its authority from Article 1 of the US Constitution that states, “all bills for raising revenue shall originate in the House of Representatives.”
Summary from the Committee
Here is exactly what the Committee on Ways and Means had to say about the 2017 Tax Cuts and Job Act (see waysandmeans.house.gov for additional information):
“The Tax Cuts and Jobs Act (H.R. 1) overhauls America’s tax code to deliver historic tax relief for workers, families and job creators, and revitalize our nation’s economy. By lowering taxes across the board, eliminating costly special-interest tax breaks, and modernizing our international tax system, the Tax Cuts and Jobs Act will help create more jobs, increase paychecks, and make the tax code simpler and fairer for Americans of all walks of life.
With this bill, the typical family of four earning the median family income of $73,000 will receive a tax cut of $2,059.”
Details from the Committee
The Committee on Ways and Means further went on to say that their bill:
Lowers individual taxes and sets the rates at 0%, 10%, 12%, 22%, 24%, 32%, 35%, and 37% so people can keep more of their hard-earned money.
Significantly increases the standard deduction to protect roughly double the amount of what you earn each year from taxes – from $6,500 and $13,000 under current law to $12,000 and $24,000 for individuals and married couples, respectively.
Continues to allow people to write off the cost of state and local taxes – up to $10,000. Gives individuals and families the ability to deduct property and income taxes – or sales taxes – to best fit their unique circumstances.
Takes action to support more American families Expanding the Child Tax Credit from $1,000 to $2,000 for single filers and married couples to help parents with the cost of raising children, and preserving the Child and Dependent Care Tax Credit and the Adoption Tax Credit.
Preserves the mortgage interest deduction – providing tax relief to current and aspiring homeowners. For all homeowners with existing mortgages that were taken out to buy a home, there will be no change to the current mortgage interest deduction.
Provides relief for Americans with expensive medical bills by expanding the medical expense deduction for 2017 and 2018 for medical expenses exceeding 7.5 percent of adjusted gross income, and rising to 10 percent beginning in 2019.
Eliminates Obamacare’s individual mandate penalty tax – providing families with much-needed relief and flexibility to buy the health care that’s right for them if they choose.
Improves savings vehicles for education by allowing families to use 529 accounts to save for elementary, secondary and higher education.
Final Thoughts from a Financial Advisor
There are a ton of additional changes to Tax Cuts and Jobs Act – in fact it’s now over 500 pages long. The Committee on Ways and Means for sure has an interesting perspective, but it’s only one perspective.
The point is that it’s critically important that you consult your financial advisor to determine how this new tax bill might impact you and your family.