Yet it offered few clues about how they would pay for it all.
In addition to calling for a reduction in the rates that corporations and small businesses pay, the framework would double the standard deduction for individual taxpayers, repeal the alternative minimum tax and estate tax, increase the child tax credit, and collapse the current seven personal tax brackets to three, among other provisions.
The cost of all this? An estimated $2.2 trillion over 10 years, according to the Committee for a Responsible Federal Budget. The group says $5.8 trillion would be lost to lower rates and other modifications, and would be offset by $3.6 trillion coming from eliminated tax breaks. Supporters of the plan, meanwhile, say higher economic growth would cover that $2.2 trillion gap.
So what tax benefits for individuals are potentially on the chopping block to help fund these cuts?
The nine-page plan, a joint product of the Trump administration and Republican leadership, offers few specifics. It says lawmakers will protect the breaks for mortgage interest and charitable giving, along with retaining tax benefits that “encourage work, higher education and retirement security.”
While there’s no guarantee, the wording suggests that the intent is to retain the pretax status of contributions to retirement plans such as 401(k) plans, along with keeping the deduction for higher education. Beyond that, the assumption is that everything else is on the table.
While a higher standard deduction would offset the loss of tax breaks for some people, remember that personal exemptions would disappear under the GOP plan, meaning the “doubling” of the standard deduction as it’s been pitched is a bit misleading.
For instance, an individual filer who takes the current standard deduction of $6,350, along with a personal exemption worth $4,050, saves $10,400. Under the Republican plan, their standard deduction would be $12,000. That’s a difference of $1,600. Of course, that same taxpayer could save additionally through a proposed expansion of the child tax credit (if they have children) and a potentially lower marginal rate.
Here are some popular benefits that could be on the chopping block to help pay for tax reform. Keep in mind that these are only a few of the bigger ones in terms of revenue lost by the government; dozens of others that apply to smaller numbers of taxpayers also could be under consideration.
Workplace Health Insurance Premiums
You might not realize this, but your employer’s contribution to your health insurance premiums are considered compensation to you. Yet, they are not taxed (nor in most cases are employees’ share of those premiums). Uncle Sam views this as a tax benefit to individuals, not corporations. And last year, it cost the U.S. Treasury $155.3 billion in lost revenue to cut you that break. While no one is claiming this would be targeted, limiting or killing it altogether has been floated on Capitol Hill in the past as a way to offset other tax breaks.
For people with major medical bills, this deduction has come in handy if your qualified expenses exceed 10 percent of adjusted gross income. The break also lets you include the cost of premiums for long-term-care insurance, with limitations. Last year, taxpayers saved an aggregate $10 billion on their taxes by taking this deduction. This deduction already was changed in 2013, raising the floor to 10 percent from 7.5 percent for most people. As of this year, the higher floor applies to everyone. From 2016 through 2020, the deduction will cost the government an estimated $56.6 billion.
Real Estate Taxes
While some experts include the cost of this tax break when they’re talking about the deduction for state and local taxes, the government views this as a separate expenditure. And last year, this break — which lets taxpayers write off the taxes they pay on real estate — cost the government $31.2 billion via taxpayer savings. For 2016 through 2020, it will reduce federal revenue by an estimated $180 billion.
State And Local Taxes
This one lets taxpayers write off, on their federal returns, the amount they paid in state and local income taxes (or state sales tax, typically used by those in non-income-tax states), and personal property taxes. Last year, taxpayers saved $65.4 billion collectively, according to the Joint Committee on Taxation. In high-tax states such as New York and California, the benefit is particularly valuable to taxpayers.
However, some taxpayers — especially higher earners — are restricted from using it due to being subject to the alternative minimum tax (which itself is marked for elimination under the plan), which disallows the deduction, or to the so-called Pease limitation, which basically places caps on the value of itemized deductions. The cost to the government is estimated to be $368.8 billion from 2016 through 2020.