Policymakers are pushing to pass the Tax Cuts and Jobs Act (HR 1, S1) yet this week. This bill is the most significant change to the federal tax code since 1986.
Here are some key elements of the final bill that may impact your business:
- Top corporate (c corp) rate reduced from 35% to 21%
- Many pass-through entities (s corp, LLC, partnerships, sole proprietorships) will receive a new 20% deduction
- “Qualified business income” in service trades/businesses (accounting, health, law, consulting, athletics, financial, and brokering) are excluded from this deduction with certain incomes
- Immediate expensing for new investments for at least five years
- Corporate alternative minimum tax (AMT) repealed
- Created territorial international tax system with repatriation rates
Here are a few ways the bill may impact individuals:
- Reduced rates of brackets
- Doubled standard deduction
- $2,000 child tax credit
- State and local tax deduction (SALT) capped at $10,000
- Reduced ability for mortgage interest deduction to homes $750,000 and under
- Reduced deduction on charitable giving
- Estate tax exemption doubled ($11 million single, $22 million joint)
While almost all individuals and businesses will see their taxes reduced short term, the impact and amount of savings will vary widely among businesses and individuals, and many of the deductions and credits expire in 2026. According to the Tax Policy Center’s analysis of the bill, 53% of individuals will pay more taxes than they currently do, beginning in 2027. The bill will also increase the national deficit by $1.46 trillion, according to the Congressional Budget Office.
The Chamber aggressively advocated against changes to the federal historic tax credit (FHTC) and New Market Tax Credit (NMTC) programs, which have been the catalyst for hundreds-of-millions of dollars in economic growth in the Quad Cities. Both programs were proposed to be eliminated by the House bill. Fortunately, the NMTC is fully retained. Thanks to an amendment by Sen. Cassidy and co-sponsored by Sen. Grassley, the FHTC was largely restored with some reductions. Reps. Blum, Loebsack, and King signed several letters advocating for the House to restore the FHTC, which Blum helped organize.
The bill also repeals the Affordable Care Act’s mandate that individuals have health insurance or face a fine of $695 or 2.5% of income, whichever is greater. According to the CBO, this repeal will result in 13 million fewer Americans being insured by 2027 and average premiums to increase by 10% in most years.
Also developing this week, Congress is under a critical deadline to reach an agreement on a spending bill by midnight on December 22; if this deadline is not met the federal government will go into shutdown. We will keep you updated as we learn more.