THE TAX CUTS AND JOBS ACT

The Tax Cuts and Jobs Act is designed to get our economy growing and increase take home pay for hardworking families.  It will do just that.  The status quo of the tax code is indefensible, and we have the opportunity of a lifetime to seize this reform.  Our tax code is a self-imposed weight dragging on our economy, and we have the power to change it.
 
The nonpartisan Tax Foundation projects that Illinois will see an estimated additional 37,010 jobs added and an after-tax income gain of $2,333 for middle income families in Illinois as a result of this legislation.  In the Sixth District, the median income family of four will see a tax cut of $5,053.  The Chief of Staff for the nonpartisan Joint Committee on Taxation recently testified before the Ways and Means Committee that on average at every income level there will be a tax cut.

We have not had tax reform since 1986, and in the time since our tax code has been sliced up and carved out with special preferences and loopholes.  We have fallen behind the rest of the world as they have moved to enhance their competitiveness.  The loopholes that have sprouted benefit a narrow class.  The tax code is broken.  It’s worth refreshing on how long it has been and why tax reform is so badly needed.  The last time we saw real tax reform:
  • The Chicago Bears were the defending Super Bowl Champions
  • The Berlin Wall still stood
  • Cell phones were “bricks”
  • The internet had yet to debut commercially 

There have been a lot of misconceptions about this plan.  The Tax Policy Center had to retract its analysis that this plan would raise taxes on 1 out of every 8 taxpayers, and in issuing its updated analysis found that “the legislation would reduce taxes on average for all income groups in 2018 and 2027.”  A number of Senators earned “Four Pinocchios” for falsely claiming that families earning $86,000 would we an average tax increase of $794.

Below are some highlights of the Tax Cuts and Jobs Act so you can learn directly what is in this plan.  At the very bottom, you can find a link to a more comprehensive “What You Need To Know” document produced by the Committee on Ways and Means.  Among the highlights, you’ll find information on:
  • INDIVIDUALS AND FAMILIES
  • JOB GROWTH INITIATIVES
 
INDIVIDUALS AND FAMILIES
Lowers individual tax rates for low- and middle-income Americans to Zero, 12%, 25%, and 35% so people can keep more of the money they earn throughout their lives, and continues to maintain 39.6% for high-income Americans.
  • A note regarding the chart below: Assuming no itemized deductions, a married couple with no children making $400,000 – currently in today’s 33% tax bracket – would pay $8,296 less in taxes under this legislation even though their income would be subject to a top marginal income tax rate of 35%. 
Significantly increases the standard deduction to protect roughly double the amount of what you earn each year from taxes – from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
  • 49% of taxpayers in the Sixth District currently take the standard deduction, so under this new plan, a majority of the district will find the doubled standard deduction a more attractive and simpler way to file their taxes.
Eliminates special-interest deductions that increase rates and complicate Americans’ taxes – so an individual or family can file their taxes on a form as simple as a postcard. 
Continues the deduction for charitable contributions so people can continue to donate to their local church, charity, or community organization.
 
Preserves the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000 – providing tax relief to current and aspiring homeowners.
  • There is no change to the mortgage interest deduction for any mortgage currently in existence.
  • For home purchases executed after implementation of this plan, you can still deduct the portion of those interest payments attributable to the first $500,000 of your home’s mortgage value.  Assuming a homebuyer were to put down 20%, that would mean homes valued under $625,000 would see no change moving forward under this plan.
  • The median home value in the Sixth District is $316,000.
Continues to allow people to write off the cost of state and local property taxes up to $10,000.
  • 48% of taxpayers in the Sixth District take advantage of this deduction currently.
  • The average amount claimed in our district is $8,914, meaning most will see no impact from this change.
  • In fact, the average deduction stays below $10,000 all the way up to the $200,000-$500,000 income bracket.
Repeals the Alternative Minimum Tax so millions of individuals and families will no longer have to worry about calculating their taxes twice each year and pay the higher amount.
  • 30,074 taxpayers in the Sixth District are subjected to the AMT, which prevents them from taking advantage of their itemized deductions. The AMT is repealed under this plan.
Takes action to support more American families by:
Expanding the Child Tax Credit from $1,000 to $1,600 to help parents with the cost of raising children.
  • 44,219 taxpayers in the Sixth District claim the Child Tax Credit.
  • In addition to increasing the amount of the credit, more families will have access to it as the income level at which the credit phases out is more than doubled.
Creating a new Family credit of $300 for each parent and non-child dependent to help all families with their everyday expenses.
 
Preserving the Child and Dependent Care Tax Credit to help families care for their children and older dependents such as a disabled grandparent who may need additional support.
 
Preserving the Adoption Tax Credit so parents can continue to receive additional tax relief as they open their hearts and their homes to an adopted child.
 
Maintaining the Earned Income Tax Credit to provide important tax relief for low-income Americans working to build better lives for themselves.
 
Streamlining higher education benefits to help families save for and better afford college tuition and other education expenses.
 
Retaining popular retirement savings options such as 401(k)s and Individual Retirement Accounts so Americans can continue to save for their future.
 
Provides immediate relief from the Death Tax by doubling the exemption and repealing the Death Tax after seven years. Family-owned farms and businesses will no longer have to worry about double or triple taxation from Washington when they pass down their life’s work to the next generation. 

JOB GROWTH INITIATIVES

The Tax Cuts and Jobs Act has been endorsed by job creators including the National Federation of Independent Business, the National Association of Manufacturers, the Associated Builders and Contractors, the Association of Equipment Manufacturers, and the National Retail Federation.

Reduces the tax rate on the hard-earned business income of Main Street job creators to no more than 25% – the lowest tax rate on small business income since World War II.

  • 53,521 taxpayers in the Sixth District have small business income.

Provides a new, low tax rate of 9% for new businesses earning less than $75,000 in income to help the Main Street startups that fuel innovation and job creation in communities across the country

Lowers the corporate tax rate to 20% – down from 35%, which today is the highest in the industrialized world – the largest reduction in the U.S. corporate tax rate in our nation’s history.

  • This will bring jobs back to the United States and raise wages for hard working Americans.
  • Both the Congressional Budget Office and the Joint Committee on Taxation estimate that 25% of the corporate tax burden is passed onto workers in the form of lower wages: https://www.jct.gov/publications.html?func=startdown&id=4528

Allows businesses to immediately write off the full cost of new equipment to improve operations and enhance the skills of their workers – unleashing the growth of jobs, productivity, and paychecks.

Protects the ability of small businesses to write off the interest on loans that help these Main Street entrepreneurs start or expand a business, hire workers, and increase paychecks.

Modernizes our international tax system for American employers to bring home foreign earnings to invest in growing jobs and paychecks in our local communities.

Prevents American jobs, headquarters, and research from moving overseas by eliminating incentives that now reward companies for shifting jobs, profits, and manufacturing plants abroad.

For a more in depth look at the Tax Cuts and Jobs Act, please take a look at this What You Need to Know document from the Committee on Ways and Means: