Republican lawmakers in the House and Senate this week began hashing out differences between their versions of the sweeping tax reform plan, raising hopes that a final bill will land on President Donald Trump’s desk before Christmas.
Speculation about what the final bill will look like has dominated headlines as reporters and economists spin their wheels trying to figure out how new tax policy might affect millions of Americans.
The truth is we won’t know until House and Senate negotiators finish reconciling versions of the plan and emerge from their conference committee with a cohesive bill. But while we’re waiting, it’s worth taking a look at four key provisions of the Senate and House bills that have received a barrage of press and break down the differences and similarities between them.
1) Mortgage interest deduction
What is it: The mortgage interest deduction allows homeowners to reduce their taxable income by the amount of interest paid on their mortgage. It’s only available to taxpayers who itemize, and historically has been used as an incentive for homeownership.
House plan: Places a $500,000 cap on how much interest new homeowners can deduct from their mortgage if they itemize (current homeowners will still be able to deduct $1 million). This version of the plan has infuriated leaders in housing who feel the limit will discourage homeownership.
As I’ve discussed in the past I think any changes to the deduction will have a minimal effect on housing. If you’re interested in my thoughts on the matter, you can read them in this blog from a few weeks ago.
Senate plan: Keeps the mortgage interest deduction untouched with the limit remaining at $1 million for new and current homeowners.
2) Standard deduction
What is it: The standard deduction reduces how much a taxpayer’s income is taxed depending on their filing status. Taxpayers who itemize cannot use the standard deduction. The amount taxpayers can deduct adjusts each year to keep in line with inflation. Although both chambers propose doubling the deduction, they do vary a bit by how much they’ll increase.
House: For singles, the deduction would go up to $12,200 from $6,350. For married couples filing jointly, the deduction increases to $24,400 from $12,700.
Senate: Singles would deduct up to $12,000 while married couples filing jointly can deduct $24,000.
3) Tax brackets
What is it: Federal tax brackets are the divisions in which individuals are taxed based on their income.
House: Permanently cuts down the number of tax brackets from seven to four. Currently, the brackets are 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent. Under the House plan, the new rates would be 12 percent, 25 percent, 35 percent and 39.6 percent.
Senate: Keeps the seven federal tax brackets intact but changes the rate at which taxpayers’ income is taxed. In the Senate’s bill, the new rates would be 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 38.5 percent.
4) Property taxes
What is it: A tax assessed on real estate and levied against property owners each year. It’s based on the value of property an individual owns — including the land — and is assessed by local municipalities or governments.
House and Senate: Currently, taxpayers who itemize can deduct local and state taxes. Both chambers are proposing to eliminate those deductions but keep the property tax deduction untouched. The hitch: Property owners would only be able to deduct up to $10,000 on their property taxes.
Job gains build economic muscle
The U.S. economy added 228,000 new jobs to the workforce in November, sending strong signals that the labor market is growing stronger as the economy recovers from devastating hurricanes earlier this fall, according to jobs numbers released Friday.
The unemployment rate was unchanged at 4.1 percent, and average earnings rose by 5 cents an hour, a 2.5-percent increase over the past year.
Friday’s report exceeded the 200,000-job bump economists forecast for last month. It comes on the heels of another robust report in October, which saw the creation of a whopping 261,000 jobs.
The New York Times reports that this latest batch of hiring means the U.S. has added jobs for 86 consecutive months, making the job market the strongest it’s been in a decade, and maybe since 2000. Sentiment among businesses is strong, and managers have boosted hiring to take advantage of favorable economic conditions.
This comes just a week before the Federal Reserve is expected to raise interest rates for the final time this year. The jobs report is critical to informing the Fed’s decision to raise rates or not. Because this latest report demonstrates that hiring is steady — meaning more people are getting steady incomes — we should prepare ourselves for another rate hike very soon.