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Mixed reviews for a tax bill

3/6/2018

Taxation has always been a contentious issue, and the contention seems to be rising with the release of the Tax Cuts and Jobs Act (H.R.1) on Thursday.


The National Association of Home Builders was an early opponent of the Republican tax plan, with an opposition based on the absence of meaningful home ownership incentive. More recently the Window and Door Manufacturers Association expressed “serious concerns.”


And while the editorial board of the USA Today denounced the plan and its impact on the deficit, the Wall Street Journal called it “Half a Tax Reform,” with drawbacks as well as a “much-needed and pro-growth reform of business taxes.”


The National Lumber and Building Material Dealers Association issued a statement yesterday in which it restated its commitment to preserving the mortgage interest deduction and eliminating the estate tax.


While the NLBMDA has not taken a position on the tax bill, the association broke down some of its salient points. NLBMDA Vice President of Legislative and Political Affairs Ben Gann also shared some “inside baseball” analysis of how the reform might come into being:


“Congressional Republicans are using the budget reconciliation process as the legislative vehicle for tax reform. That permits the Senate to bypass certain procedural hurdles and allow a simple majority to approve a tax overhaul package in the upper chamber,” he wrote.



“A rule in the budget resolution bill (the legislative vehicle for tax reform) also allows for $1.5 trillion in tax cuts over 10 years without corresponding offsets. Using reconciliation requires that at least some of the tax cuts phase-in to comply with the Byrd Rule, a Senate rule that prohibits budget reconciliation provisions from increasing the deficit beyond 10 years.”



From the NLBMDA’s recent legislative alert, here are some of the early version key components of the bill:




  • Permanently Repeals the Estate Tax - Phases-in permanent repeal of the estate tax. Immediately doubles the estate tax exemption levels ($11.2 million for individuals, $22.4 million for couples) and indexes for inflation. Repeals the estate tax and generation-skipping transfer tax starting in 2024. Maintains full step-up in basis. Cuts the gift tax to 35% on gifts over $10 million and indexes that amount for inflation. NLBMDA supports full repeal of the estate tax


  • Increases the Standard Deduction - Approximately doubles the standard deduction. $12,000 for single filers. $24,000 for married couples filing jointly


  • Lowers the Cap on the Mortgage Interest Deduction - Lowers the mortgage debt cap from $1 million to $500,000 on interest payment deductions. The deduction for second homes is eliminated. In addition, the deduction on interest payments associated with home equity loan debt is eliminated. NLBMDA supports the preservation of the mortgage interest deduction.


  • Lowers Tax Rate for Small Businesses - Caps the income tax rate for pass-through entities at 25%, which is significantly lower than the top rate that these businesses pay today.


  • Full "Expensing" of Capital Investments - Allows businesses to immediately write-off (or "expense") the cost of new qualified property through 2022.


  • Lowers Corporate Income Tax Rate - Reduces the corporate income tax rate to 20%. The average corporate tax rate for the industrialized world is 22.5%.


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