Lower taxes for most Americans — until 2026: The bill keeps seven tax brackets, but it cuts the rates at every level and it raises many of the income thresholds to qualify for the higher bracket. (For example, the new top rate of 38.5 percent would apply only to married couples making over $1 million. The top tax rate currently applies to married couples making over $470,700.) The lower tax rates mean that most Americans — 62 percent — end up getting a tax cut in the coming years, but not everyone does, because the bill also does away with some popular tax credits and savings (see list below).
Elimination of MOST of the state and local tax deduction (SALT): About a third of Americans itemize their tax deductions, and almost all of those people take the state and local tax deduction. The Senate’s original plan was to scrap SALT entirely, a big knock to people in high-tax states such as California, New York, Connecticut and New Jersey. But in the end, there was a compromise to allow people to deduct up to $10,000 in property taxes.
A bigger standard deduction and child tax credit, but the personal exemption goes away: At the moment, Americans are able to deduct $4,050 as a “personal exemption” for themselves, their spouse and each dependent. The Senate bill gets rid of the personal exemption entirely. To make up for this, the bill expands the standard deduction so the first $24,000 in income for a married couple ($12,000 for an individual) won’t get taxed. The bill also bumps up the child tax credit from $1,000 now to $2,000. The overall effect is that most people are better off, but not all. AARP has come out against the bill, claiming it would raise taxes on over a million seniors by 2019, largely because of the various changes to credits and deductions.
Many small businesses get a win, but there’s a giant exception: Most businesses in the United States are organized as “pass through” companies (sole proprietorships, partnerships, LLCs and S corporations) where the income from the business is “passed through” to the owners and taxed at their individual tax rate. Under this bill, most pass-through businesses wouldn’t have to pay tax on 23 percent of their income. The idea is to give mom-and-pop shops a sizable tax break. But there are limitations. Law firms, doctor’s offices and other “service businesses” that earn over $250,000 wouldn’t be eligible for the deduction. Other really large pass-through businesses would have a limit on how much they can deduct. The idea is to prevent millionaires from getting a really big tax break.