Guide to current GOP tax overhaul proposal

House Republicans on Wednesday released their long-anticipated $1.5 trillion tax reform bill which would cut taxes steeply for corporations and more modestly for most American households.

Senate Republicans are working on their own plan, and much will change before any bill is passed. But here’s a quick guide to what the bill would do in its current form.

Fewer tax brackets for individuals

The Republican plan would consolidate the existing seven tax brackets into just four at 12 percent, 25 percent, 35 percent, and 39.6 percent.

The top tax rate is the same as the one currently paid by the wealthiest Americans, but the House bill increases the threshold to $1 million for married couples, rather than the $480,050 limit under current law, and $500,000 for singles.

Income under $90,000 for married couples and $45,000 for singles would be taxed at the bottom 12 percent rate.

That’s a slight increase from the current 10 percent bottom rate, but the difference would be largely offset for most lower-income families with higher standard deductions and increases in the child tax credit.

Larger standard deductions, with fewer things to itemize

The plan would get rid of personal exemptions, currently $4,050 per family member, and nearly double standard deductions, which are mostly taken by low- and middle-income taxpayers. Married couples could deduct $24,000, singles could deduct $12,000 and heads of household $18,000.

It’s likely many more filers would take a standard deduction rather than itemizing under the new plan.

Many filers who take a standard deduction would have less taxable income under the plan, but most families with multiple children would have more taxable income. The plan increases the child tax credits and adds other credits intended to offset the difference, and those families may also have a lower tax rate which would reduce their tax bill.

Most itemized deductions would be eliminated, with two large exceptions. Mortgage interest could still be deducted by taxpayers who itemize, though the plan would cap the amount at the first $500,000 of debt on a home, rather than the $1 million allowed under current law.

Charitable contributions can also be deducted, and the eligible amount would increase.

A number of “off-the-top” deductions, so-called because they can be taken even by taxpayers who don’t itemize, would also be eliminated. Those include deductions for tuition expenses, currently capped at $4,000, and student loan interest, currently capped at $2,000.

Itemized deductions for medical expenses over 10 percent of income would also be eliminated, potentially hurting Americans with high medical bills.

Deductions for state and local tax would only apply to property taxes, with a cap of $10,000.

Contributions to 401(k) and other retirement accounts would not change.

Family tax credits

Many tax credits would be eliminated, but the Republican bill would increase the child tax credit from $1,000 to $1,600 and leave $1,000 refundable under current law. The refundable amount will be indexed to inflation so it would eventually reach the full $1,600 amount.

More families would be eligible for the child tax credit under the new plan. The bill would start phasing the credit out once a family earns $230,000 a year. The current credit starts to phase out at $110,000.

An additional “family flexibility credit” would allow filers to claim a $300 credit for any parents and nonchild dependents in the household. That means a married couple with two dependent children and a disabled parent living with them would be eligible for both the child tax credit, and an additional $900 in credits.

The family flexibility credit would phase out after five years.

The Earned Income Tax Credit, which gives low-income working adults and parents a break on taxes, would be kept the same. The credit has historically enjoyed bipartisan support.

Capital gains and dividends

The bill doesn’t directly change the tax rules for capital gains and dividends. Currently, assets sold after less than a year, called short-term capital gains, and dividends, are taxed as regular income. The bill leaves that in place, but because the tax rates are changing, the amount of taxes paid on capital gains will change as a result.

Long-term capital gains are taxed at fixed rates that will not change.

Estate tax

The estate tax, which applies to estates worth over $5.49 million, would be phased out by 2023. Until then, the tax would kick in for those worth about $11 million or more, and that number would be indexed to inflation.

The amount of the tax, which is up to 40 percent of the value of the estate, would not change.

That change is expected to cost $172.2 billion over the next decade, according to a summary of the bill prepared by Republican staff on the House Ways and Means Committee.

Corporate taxes

The corporate tax rate would fall from 35 to 20 percent immediately, benefiting some companies and hurting others.

A 2012 Congressional Budget Office analysis found corporations pay an average effective tax rate of 18.6 percent thanks to a variety of tax breaks and loopholes. The bill would eliminate some of those, including deductions for interest and executive compensation over $1 million a year.

Multinational companies would have a global minimum tax of 10 percent on income earned by subsidiaries anywhere in the world. Currently, companies pay no taxes on that profit unless it’s returned to the U.S., creating an incentive to hold money overseas. The hope is this provision, in combination with a lower corporate tax rate, would incentivize companies to move money back to the U.S.