(Reuters) - The U.S. Congress is expected to vote this week on sweeping, debt-financed tax legislation. Here are key parts of the bill.
CORPORATE TAX RATE: Cuts corporate income tax rate to 21 percent from 35 percent, beginning Jan. 1, 2018.
PASS-THROUGHS: Creates a 20 percent deduction for the first $315,000 of qualified business income for joint filers of pass-through businesses such as partnerships and sole proprietorships. For income above that threshold, the legislation phases in limits, producing an effective marginal tax rate of no more than 29.6 percent.
CORPORATE MINIMUM TAX: Repeals the 20 percent corporate alternative minimum tax, set up to ensure profitable corporations pay at least some tax.
TERRITORIAL SYSTEM: Exempts U.S. corporations from U.S. taxes on most future foreign profits, ending the present worldwide system of taxing profits of all U.S.-based corporations, no matter where they are earned. This would align the U.S. tax code with most other industrialized nations, undercut many offshore tax-dodging strategies and deliver to multinationals a goal they have pursued for years.
REPATRIATION: Sets a one-time mandatory tax of 8 percent on illiquid assets and 15.5 percent on cash and cash equivalents for about $2.6 trillion in U.S. business profits now held overseas. This foreign cash pile was created by a rule making foreign profits tax-deferred if they are not brought into the United States, or repatriated. That rule would be rendered obsolete by the territorial system.
ANTI-BASE EROSION MEASURES: Prevents companies from shifting profits out of the United States to lower-tax jurisdictions abroad. Sets an alternative minimum tax on payments between U.S. corporations and foreign affiliates, and limits on shifting corporate income through transfers of intangible property, including patents. In combination, these measures with the repatriation and territorial system provisions, represent a dramatic overhaul of the U.S. tax system for multinationals.
CAPITAL EXPENSING: Allows businesses to immediately write off, or expense, the full value of investments in new plant and equipment for five years, then gradually eliminates this 100 percent expensing over five years beginning in year six.
INTEREST DEDUCTION LIMIT: Caps business deductions for debt interest payments at 30 percent of taxable income, regardless of deductions for depreciation, amortization or depletion.
CLEAN ENERGY: Preserves tax credits for producing electricity from wind, biomass, geothermal, solar, municipal waste and hydropower.
CARRIED INTEREST: Leaves in place “carried interest” loophole for private equity fund managers and some hedge fund managers, despite pledges by Republicans including President Donald Trump to close it. These financiers can now claim a lower capital gains tax rate on much of their income from investments held more than a year. A new rule would extend that holding period to three years, putting the loophole out of reach for some fund managers, but preserving its availability for many.
BRACKETS: Maintains the current seven tax brackets, but temporarily changes most of the income levels and rates.
For married couples filing jointly, effective Jan. 1, 2018 and ending in 2026, income tax would be:
10 percent up to $19,050, versus 10 percent up to $18,650 under existing law;
12 percent on $19,051 to $77,400, versus 15 percent on$18,651 to $75,900;
22 percent on $77,401 to $165,000, versus 25 percent on $75,901 to $153,100;
24 percent on $165,001 to $315,000, versus 28 percent on $153,101 to $233,350;
32 percent on $315,001 to $400,000, versus 33 percent on $233,351 to $416,700;
35 percent on $400,001 to $600,000, versus 35 percent on $416,701 to $470,700
37 percent above $600,000, versus 39.6 percent above$470,700.
For single individuals, effective Jan. 1, 2018 and ending in 2026, income tax would be:
10 percent up to $9,525, versus 10 percent up to $9,325 under existing law;
12 percent from $9,526 to $38,700, versus 15 percent on $9,326 to $37,950;
22 percent on $38,701 to $82,500, versus 25 percent on $37,951 to $91,900;
24 percent on $82,501 to $157,500, versus 28 percent on $91,901 to $191,650;
32 percent on $157,501 to $200,000, versus 33 percent on $191,651 to $416,700;
35 percent on $200,001 to $500,000, versus 35 percent on $416,701 to $418,400;
37 percent above $500,000, versus 39.6 percent above $418,400.
These brackets would expire after 2025.
STANDARD DEDUCTION: In a change expected to end itemizing of deductions for millions of Americans, the bill for eight years beginning on Jan. 1, 2018 would increase the standard deduction - a fixed amount that can be subtracted from adjusted gross income to lower taxable income - to $12,000 from $6,350 for individuals, and to $24,000 from $12,700 for married couples.
CHILD TAX CREDIT: Doubles the child tax credit to $2,000 per dependent child under age 17, with a refundable portion of $1,400. The refundable portion allows families to lower their tax bills to zero and receive a refund for the remaining value.
PERSONAL EXEMPTION: Temporarily eliminates the $4,050 individual personal exemption. Under present law, taxpayers who earn below certain income caps can subtract this fixed dollar amount from their adjusted gross incomes to lower their taxable incomes. Generally, one exemption has been allowed per individual, spouse and child or other dependent. This would take effect Jan. 1, 2018, but then the personal exemption would return in 2026.
INHERITANCES: Raises the exemption for estate and gift taxes to $10 million from $5 million per person and indexes the new exemption level for inflation after 2011. That means even fewer Americans would pay the estate tax, but it would stay on the books.
MORTGAGES: For residences bought from Jan. 1, 2018, through Dec. 31, 2025, the bill caps the deduction for mortgage interest at $750,000 in home loan value. After Dec. 31, 2025, the cap would revert to $1 million in loan value. Suspends the deduction for interest on home equity loans from Jan. 1, 2018 until 2026.
OBAMACARE MANDATE: Repeals a federal fine imposed on Americans under Obamacare for not obtaining health insurance coverage, a change expected to undermine the 2010 healthcare law.
ANWR DRILLING: Allows oil drilling in Alaska’s Arctic National Wildlife Refuge.
Reporting by Amanda Becker and David Morgan, Editing by Kevin Drawbaugh and Paul Simao
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