House Ways & Means Committee Issues Report on Protecting Family, Small Business Tax Cuts Act (Part 2 of 2)
Continues from Part 1 of 2
E. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service Restructuring and Reform Act of 1998 ("
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
Following the analysis of the staff of the
Make permanent modification of tax rates, tax brackets, standard deduction and repeal of personal exemptions (secs. 101, 121, and 141 of the bill)
Summary description of the provisions
The bill makes permanent the structure of the individual income tax as modified in Pub. L. No. 97-115. Under the permanent rate structure, the tax brackets are 10-percent, 12- percent, 22-percent, 24-percent, 32-percent, 35-percent and 37- percent. The bill makes permanent the increase in the size the standard deduction amount (for 2018 the standard deduction is
Number of affected taxpayers
It is estimated that the provision will affect approximately 129 million tax returns in 2026.
Discussion
It is not anticipated that individuals will need to keep additional records due to these provisions. It should not result in an increase in disputes with the
The provision will save the
Taxpayers who, under the provisions of Pub. L. No. 115-97, were able to claim the standard deduction rather than itemizing, will now continue to be able to do so after taxable year 2025. According to estimates by the staff of the
This reduction in complexity and record keeping also may result in a decline in the number of individuals using a tax preparation service, or tax preparation software, or a decline in the cost of such service or software. The provision also should reduce the number of disputes between taxpayers and the
Make permanent the deduction for qualified business income (sec. 111 of the bill)
Summary description of the provisions
The bill makes permanent the provision enacted in Pub. L. No. 115-97 (Code section 199A), as subsequently modified by Pub. L. No. 115-141. Under the provision, an individual taxpayer generally may deduct 20 percent of qualified business income from a partnership, S corporation, or sole proprietorship, as well as 20 percent of aggregate qualified REIT dividends and qualified publicly traded partnership income. Special rules apply to specified agricultural or horticultural cooperatives and their patrons.
A limitation based on the greater of 50 percent of W-2 wages paid, or the sum of 25 percent of W-2 wages paid plus a capital allowance, is phased in above a threshold amount of taxable income. A disallowance of the deduction with respect to specified service trades or businesses is also phased in above the same threshold amount of taxable income. The threshold amount is
Qualified business income for a taxable year generally means the net amount of domestic qualified items of income, gain, deduction, and loss with respect to the taxpayer's qualified businesses. Qualified business income does not include any amount paid by an S corporation that is treated as reasonable compensation of the taxpayer. Similarly, qualified business income does not include any guaranteed payment for services rendered with respect to the trade or business, and to the extent provided in regulations, does not include any amount allocated or distributed by a partnership to a partner who is acting other than in his or her capacity as a partner for services. Qualified business income or loss does not include certain investment-related income, gain, deductions, or loss.
Number of affected taxpayers
It is estimated that the provision will affect over ten percent of small business tax returns.
Discussion
In the absence of making the provision permanent, the period of time with respect to which taxpayers could have to keep additional records, or might engage in disputes with the
Increase in child tax credit made permanent (sec. 122 of the bill)
Summary description of the provisions
The bill makes permanent the provision of Pub. L. No. 115- 97 that increases the value of the child tax credit to
Number of affected taxpayers
It is estimated that the provision will affect approximately 53 million tax returns in 2026.
Discussion
It is not anticipated that individuals will need to keep additional records due to these provisions. It should not result in an increase in disputes with the
The
Make permanent the limitation on deduction for State and local income taxes (sec. 142 of the bill)
Summary description of the provisions
The bill makes permanent the provision contained in Pub. L. No. 115-97 which provides that, the case of an individual, as a general matter, State, local, and foreign property taxes and State and local sales taxes are allowed as a deduction only when paid or accrued in carrying on a trade or business, or an activity described in section 212 (relating to expenses for the production of income).
The bill makes permanent the exception provided by Pub. L. No. 115-97 to the above-stated rule. Under the provision a taxpayer may claim an itemized deduction of up to
Number of affected taxpayers
It is estimated that the provision will affect approximately 19 million tax returns in 2026.
Discussion
It is not anticipated that individuals will need to keep additional records due to this provision.
To the extent the
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff Benefits
With respect to clause 9 of rule XXI of the Rules of the
G. Duplication of Federal Programs
In compliance with Sec. 3(c)(5) of rule XIII of the Rules of the
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
A. Changes in Existing Law Proposed by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the Rules of the
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of the
INTERNAL REVENUE CODE OF 1986
VII. DISSENTING VIEWS
It has been eight months since the
Despite all of this,
After
H.R. 6760 extended the section 199A pass-through deduction, which
At the same time, the
The
Tax Scam 2.0, like Tax Scam 1.0 before it, was jammed through the Committee with no hearings and no input from stakeholders. The rushed and lopsided process late last year resulted in the disastrous tax law. Unsurprisingly, the Democratic staff has identified over 100 mistakes and other problems with the
Democrats on the Committee gave
People living in every congressional district in every state in the country use the SALT deduction, and it benefits taxpayers of all income levels, directly or indirectly. State and local government tax revenues support essential public services and investments, like schools, local law enforcement, fire fighters, road construction and maintenance, and health care. Nearly everyone who itemizes claims the SALT deduction; therefore, repealing SALT would raise the cost of state and local services on a wide swath of taxpayers. Because this provision effectively raises the cost of state and local taxes, state and local governments would be pressured to reduce revenues and cut crucial public investments.
I said it when
Ranking Member.
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