Our current tax code is more than 30 years old; it is complicated and full of loopholes for special interests. It is estimated that in 2016 Americans spent 8.9 billion hours preparing and filing their taxes. We can do better. Hardworking American families deserve a tax code that is fair and simple while allowing them to keep more of their money to save for the future, educate their children and feel economically secure.
With Thursday’s House passage of the Tax Cuts and Jobs Act (TCJA), I voted to change the status quo by putting in place a bold, pro-growth tax system for the 21st century that helps working-class families and catapults our nation back to a leadership position in an increasingly competitive global economy. Hardworking American families and businesses benefit from a tax code that provides an economic tailwind versus headwinds from the current “swamp” tax code.
The TCJA improves the lives of hardworking Americans by creating five simplified tax brackets. Our plan lowers tax rates for working-class Americans to four simple rates of 0 percent, 12 percent, 25 percent and 35 percent while maintaining the current 39.6 percent for the highest 1 percent of taxpayers. We further simplify tax filing by nearly doubling the standard deduction to $12,000 for individuals and to $24,000 for married couples. This means that millions of families will be able to keep more money by simply claiming the new standard deduction. No longer will most American families have to keep boxes of receipts or try to keep up with changes to the existing complex code to see which purchases and expenses they can use to lower their taxes.
In addition to the greatly increased standard deduction, American workers and families can still take advantage of four tax credits – the Earned Income Tax Credit (EITC), the Child and Dependent Care Tax Credit, the Adoption Tax Credit and a new Family Credit which includes a larger Child Tax Credit.
All of this translates to an overall tax cut of almost $1,200 for the typical middle-income family of four. This cut represents about a 75 percent reduction for this family, which is earning the median household income of $59,000. The TCJA simplifies our complicated tax code so that most Americans will be able to file their taxes on the equivalent of a postcard. Instead of paying more in taxes, families and individuals will spend less time and money doing their taxes. Instead, they get to keep more of their paychecks and spend them the way their family chooses.
Families can also choose to claim the current home mortgage interest deduction for existing mortgages, and for mortgages up to $500,000 for homes purchased after 2017. The TCJA continues the deduction for charitable contributions, recognizing the important benefits that come from generous American support to our communities including churches, charities and educational institutions. In recent years, the Alternative Minimum Tax has hurt middle-income families, so we eliminated it in order to stop the uncertainty for the millions of Americans who are required to calculate their taxes twice each year.
For generations of families who want to pass family farms and family-run businesses on to future generations, the Death Tax has been a huge concern that has forced many families to sell off the results of their hard work. We are providing immediate relief from the Death Tax by doubling the current exemption, then repealing the tax entirely after six years.
While individuals and families are crucial components of a robust economy, so too are American entrepreneurs and businesses. The current “swamp code” has hindered the growth of all American businesses from our smaller, local businesses to large multi-national corporations which have moved American jobs overseas in order to stay competitive. The TCJA reduces the tax burden on businesses and job creators of all sizes — from our Main Street businesses to major American corporations.
Our local Main Street businesses are the backbone of the American economy and historically have created two of every three net new jobs; however, net new business formations have been non-existent for the past few years. To help start-ups and small businesses grow, we reduce the tax rate to no higher than 25 percent for these prolific job creators — the lowest tax rate on small-business income since World War II. These innovative job creators will be permitted to fully expense the full cost of new equipment to improve and expand operations, and they can deduct the interest expense on loans that they borrow to grow their businesses. Additionally, we preserve the important Research & Development Tax Credit, which reinvigorates the development of “Made in America” products and cutting-edge technologies.
By encouraging economic investment and innovation, we spur economic opportunity at home and improve global competitiveness for American companies. One key element to making American companies more competitive is to lower our corporate tax rate from 35 percent — highest in the industrialized world — to a rate of 20 percent. This will eliminate incentives for American companies to shift jobs, manufacturing plants and profits abroad. The potential passage of tax reform has caused companies such as Broadcom to announce that they will move back to the United States and AT&T to announce that it will increase investment in America by at least one billion dollars in the first year that the new tax rates take effect. Competitive corporate tax rates will improve our economy and bring jobs back to America.
While the House-passed TCJA is overwhelmingly positive, there remains one important provision that should be addressed — preserving the way that waived and discounted tuition for graduate students is treated for income-tax purposes. At this time, the Senate’s tax reform bill continues to allow preferable provisions for the treatment of graduate student tuition. Robust graduate education programs are economic engines for America and, as tax reform continues to move through Congress, I am working with my House and Senate colleagues to help protect tax relief for graduate students in the final House-Senate conference tax bill.
Overhauling our tax code is no easy task, but by bringing our tax system into the 21st century we will make American businesses more competitive and help hardworking Americans take home more of their hard-earned paychecks. The bottom line is that the Tax Cuts and Jobs Act will deliver more jobs, better paychecks and fairer taxes for working-class Americans.