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House Republicans released a blueprint for tax reform on Friday.
If Congress follows the architecture the blueprint lays out, it will create a strongly pro-growth tax system that will create jobs, raise wages, and increase opportunity for American families at all income levels.
On the individual side, the blueprint calls for lower tax rates for all families and consolidates the current seven tax brackets to three. The brackets in the blueprint are 12 percent, 25 percent, and 33 percent. The blueprint does not specify what income levels they kick in at.
The standard deduction is substantially increased to $12,000 for single filers and $24,000 for families. This will greatly simplify filing for many taxpayers.
There are no personal exemptions, but the blueprint increases the Child Tax Credit to $1,500 per child. It also keeps the the Earned Income Tax Credit, educational credits, the exclusion for employer-provided health insurance, the mortgage interest deduction, and some form of allowance for charitable contributions. It eliminates most other deductions and credits.
By reducing the penalty on savings, the blueprint moves the tax code toward a tax on consumption as opposed to the current hybrid income-consumption model. This is important because the income tax taxes saving and investment multiple times, whereas a consumption tax only taxes them once. It keeps individual retirement accounts like 401(k)s and it lowers tax rates on capital gains and dividends from the current 23.8 percent rate to 16.5 percent. Interest income is taxed at 16.5 percent. It also repeals the estate tax, also known as the death tax, which is another tax on saving and investment.
These reforms will boost the economy because they will increase the incentives for families to work and save. Although it would be better to eliminate capital gains and dividends taxes altogether, the lower rates will reduce the double taxation of business investment and therefore be beneficial. The elimination of many credits, deductions, and exemptions will increase economic efficiency and also help economic growth.
If Congress follows the architecture the blueprint lays out, it will create a strongly pro-growth tax system that will create jobs, raise wages, and increase opportunity for American families at all income levels.
On the individual side, the blueprint calls for lower tax rates for all families and consolidates the current seven tax brackets to three. The brackets in the blueprint are 12 percent, 25 percent, and 33 percent. The blueprint does not specify what income levels they kick in at.
The standard deduction is substantially increased to $12,000 for single filers and $24,000 for families. This will greatly simplify filing for many taxpayers.
There are no personal exemptions, but the blueprint increases the Child Tax Credit to $1,500 per child. It also keeps the the Earned Income Tax Credit, educational credits, the exclusion for employer-provided health insurance, the mortgage interest deduction, and some form of allowance for charitable contributions. It eliminates most other deductions and credits.
By reducing the penalty on savings, the blueprint moves the tax code toward a tax on consumption as opposed to the current hybrid income-consumption model. This is important because the income tax taxes saving and investment multiple times, whereas a consumption tax only taxes them once. It keeps individual retirement accounts like 401(k)s and it lowers tax rates on capital gains and dividends from the current 23.8 percent rate to 16.5 percent. Interest income is taxed at 16.5 percent. It also repeals the estate tax, also known as the death tax, which is another tax on saving and investment.
These reforms will boost the economy because they will increase the incentives for families to work and save. Although it would be better to eliminate capital gains and dividends taxes altogether, the lower rates will reduce the double taxation of business investment and therefore be beneficial. The elimination of many credits, deductions, and exemptions will increase economic efficiency and also help economic growth.
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