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Facts about Tax Cut and Job Act

first posted: 2017-12-26 14:48:25.255392

Update Jul 2018: there are now books available on amazon about this!

The tax reform has been passed by both houses and the executive just before Christmas.

This week development has made many of this previous month commentaries obsolete. Noone seems to be publishing factual new content during the holidays, you will find outdated comments on the politics of the bill, or some whining about the regressive aspects of the changes.

Background on federal tax

The enactment of federal tax in 1913 has enabled the growth of federal government beyond regalian duties and funded social policies, granting the federal government much more power than is left to the states. The tax cuts enacted here hark back to the "starve the beast" strategy of the Reagan era and make the federal budget unsustainably imbalanced.


Last Month Bill at the US Congress: a bicameral legislative tax bill

  • initial tax proposal was by the House of representatives
  • a counterproposal was made by the Senate
  • a conference ensued, where the proposals where reconciled

Conference Outcome

The summary of the conference is a large document.

  • cpaital gain tax unchanged
  • corporate tax rate to reduce to 21% from 35%, dividend tax unchanged at 28% top
  • AMT repealed for corporations
  • pass-through business (incl real estate rental) income to be taxed 9% below 37.5k , 25% up to the threshold amount of 75k (doubled for married filing jointly). See page 20-37 for the proposal and complicated counterproposal, with byzantine rules to distinguish between pass-through income and wage and p37-40 for the conference version, and sets forth conditions for a 20% deduction,
  • all real estate related deductions still apply
  • real estate depreciation is maintained at 27.5 years
  • many individual deductions are limited or repealed
  • tax code change are considerable but not as much as the 1986 changes
  • changes are non retroactive, some are phased in from 2018 to 2026

The conference outcome goes for the the most complicated rules for pass-through income.

I also read that corporation would be taxed on US based, not worldwide income, but could not find this in the statement.

After much discussion, the capital gains tax and dividend tax have not been reduced. The great winners are small pass-through entities owner and corporations, which will be able to compound their earnings faster.

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