There’s still a good amount of debate over potential tax reform.
The House wants to reduce income tax brackets from seven to just four.
According to CNN Money, the current proposal is:
- 12% (on the first $45,000 of taxable income for individuals; $90,000 for married couples)
- 25% (starts at $45,000 for individuals; $90,000 for married couples)
- 35% (starts at $200,000 for individuals; $260,000 for married couples)
- 6% (starts at $500,000 for individuals; $1 million for married couples)
Their version of the plan also seeks to nearly double standard deductions for singles from $6,350 to $12,000, and for couples filing jointly to $24,000 from $12,700.
They also want to expand the child tax credit to $1,600 from $1,000, phasing out at $115,000 for single parents, and $230,000 for married parents. However, it would also limit deductible mortgage interest. You would only be able to claim a deduction for interest you pay on mortgage debt up to $500,000 instead of $1 million, for example.
And it could also repeal deductions for medical expenses, tax preparation fees, alimony payments, student loan interest and moving expenses.
On the other side, the Senate is now weighing a delay in the implementation of a major corporate tax cut to 2019 instead of 2018, according to The Washington Post. “The move would make it easier to comply with Senate rules that aim to limit any legislation’s impact on the debt.”
They’re also not looking to eliminate state and local tax deductions until 2019, which they argue “would keep tax reform from adding to the national debt,” says CBN News. “Senate rules require the plan not increase the federal deficit by more than $1.5 trillion over 10 years.”
Also, the Senate wants to keep the current seven tax brackets, as is. They’re also looking to double the child tax credit, which is more than the House plan currently offers.
Such issues set up a potential collision course with the White House, which wants signed legislation by year’s end. Remember, the House and Senate must pass identical tax bills before President Trump can sign the legislation into law.
Right now, everything is on the table, but major differences between the House and Senate could delay passage of tax reform until sometime in 2018.
President Trump may not be very happy with that.
We’ll keep you posted on what happens next.
In the meantime, also remember that one of the biggest beneficiaries of the proposed tax plan could be the Russell 2000 and small-cap stocks, especially with the possibility of a corporate tax reduction to 20%. At the moment, small cap companies see a tax rate of 32%, as compared to 26% for S&P 500 companies because they have less exposure to international tax havens.
However, should Congress be successful in reducing the corporate tax rate to 20%, small cap stocks could run much higher.
Stay tuned for more on this interesting situation with The Cheap Investor.