Fairly early in the Thursday trade, the GOP released the details of its tax plans. The initial reaction was very bearish for the market, and therefore great for everyone who was short, or simply likes to short the market. The slide in the markets didn’t last very long, however, as they all reversed course enough to be positive at the close. The Dow actually rallied so much that it was able to notch ANOTHER record high. I guess the initial knee-jerk reaction lower was way off base.
Here are many of the Bill’s highlights…
- Lowers individual tax rates for low- and middle-income Americans to Zero, 12%, 25%, and 35%
- Trying to appease Democrats, the tax rate for those making over $1 million stays at 39.6%
- Increases the standard deduction from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
- Establishing a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600
- Preserving the Child and Dependent Care Tax Credit
- Preserves the Earned Income Tax Credit
- Preserves the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000, half the current $1,000,000
- Continues to allow people to write off the cost of state and local property taxes up to $10,000
- Retains popular retirement savings options such as 401(k)s and Individual Retirement Accounts
- Repeals the Alternative Minimum Tax
- Lowers the corporate tax rate to 20% – down from 35%
- Reduces the tax rate on business income to no more than 25%
- Establishes strong safeguards to distinguish between individual wage income and “pass-through” business income
- Allows businesses to immediately write off the full cost of new equipment
- Retains the low-income housing tax credit
Of course, not everyone will be happy with what’s outlined above, and of course other details. There will be a huge fight between the two parties, and surely between the House and the Senate. There is so much wrangling that will need to be done that the current Bill as proposed won’t have a chance as being the final bill. Moreover, there is so much discord in D.C. —- they may not pass a tax cut at all.