Details of the House GOP Tax Plan

June 24, 2016

This morning, the office of House Speaker Paul Ryan released a blueprint for tax reform that would overhaul major components of the U.S. tax code and lower taxes for households and businesses. The key details of the plan are listed below:

Individual Income Tax Changes

  • Consolidates the current seven tax brackets into three, with rates of 12 percent, 25 percent, and 33 percent (see table below).
  • Provides a 50 percent deduction of capital gains, dividends, and interest income. This is equivalent to taxing capital gains, dividends, and interest income at half the marginal rates of ordinary income: with three brackets of 6 percent, 12.5 percent, and 16.5 percent.
  • Increases the standard deduction from $6,300 to $12,000 for singles, from $12,600 to $24,000 for married couples filing jointly, and from $9,300 to $18,000 for heads of household.
  • Eliminates the personal exemption.
  • Creates a $500 non-refundable credit for dependents who are not children.
  • Increases the child tax credit to $1,500 per child, the first $1,000 of which is refundable, as under current law.
  • Raises the phaseout threshold for the child tax credit for married households from $110,000 to $150,000.
  • Eliminates all itemized deductions besides the mortgage interest deduction and the charitable contribution deduction.
  • Eliminates the individual alternative minimum tax.
Tax Brackets Under the House GOP Tax Plan, 2016
Note: Dollar thresholds refer to dollars of taxable income. This table assumes that the 12% bracket replaces the existing 10% and 15% brackets, the 25% bracket replaces the 25% and 28% brackets, and the 33% bracket replaces the 33%, 35%, and 39.6% brackets.
Ordinary income Capital gains, dividends, and interest Single filers Married joint filers

12%

6%

$0 to $37,650

$0 to $75,300

25%

12.5%

$37,650 to $190,150

$75,300 to $231,450

33%

16.5%

$190,150+

$231,450+

Business Income Tax Changes

  • Reduces the corporate income tax rate from 35 percent to 20 percent.
  • Eliminates the corporate alternative minimum tax.
  • Taxes income derived from pass-through businesses at a maximum rate of 25 percent.
  • Allows the cost of capital investment to be fully and immediately deductible.
  • Eliminates the deductibility of net interest expenses.
  • Allows net operating losses to be carried forward indefinitely, and increased by a factor reflecting inflation and the real return to capital.
  • Does not allow net operating losses to be carried back.
  • Restricts the deduction for net operating losses to 90 percent of net taxable income.
  • Preserves the last-in, first-out method of accounting.
  • Eliminates the domestic production activities deduction (section 199).
  • Creates a fully territorial tax system, exempting 100 percent of dividends from foreign subsidiaries from U.S. tax.
  • Enacts a deemed repatriation of currently deferred foreign profits, at a tax rate of 8.75 percent for cash and cash-equivalent profits and 3.5 percent on other profits.
  • Modifies all business income taxes to be border-adjustable. This means that businesses are taxed on their imports but are not subject to tax on their exports.

Other

  • Eliminates the estate tax.
  • Reorganizes the Internal Revenue Service and alters certain tax administration rules.

The full House GOP tax reform plan can be found here.

(Edited to reflect that capital gains, dividends, and interest would be taxed at half the marginal rates of ordinary incone, not necessarily the effective rates, under the GOP plan.)

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