It was the moment many of us had anxiously been waiting for. Late Friday, Republican leaders produced their final version of the tax reform bill -- an amalgamation of the previous House and Senate proposals. And while there are several key aspects worth celebrating, like the lowering of tax rates across almost all brackets and the child tax credit boost that will no doubt help countless households with dependents, the final bill certainly isn't flawless.
To understand the extent to which the bill falls short, we must remember that the push for tax reform stemmed not just from the need to alleviate the burden on the neediest taxpayers, but also from the need to limit the complexities that made the current code difficult for the typical American to understand. In fact, President Trump stated repeatedly that one primary goal of tax reform was to simplify the existing laws by paring down the number of individual tax brackets and eliminating other aspects of the code that most could only describe as confusing.
Yet the final version of the tax bill fails to accomplish that goal.
The mind continues to boggle
Trump made it clear from the start that he was looking to scale back the number of current individual tax brackets. Initially, he hinted at reducing the existing seven brackets down to three, and then four. But if you look at the final version of the bill, you'll see that there are still seven distinct brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Now these new rates do represent an almost across-the-board reduction. But be that as it may, it doesn't accomplish the goal of simplifying the current system.
Another horrendously confusing aspect of the tax code that failed to go away? AMT. Short for alternative minimum tax, the AMT was implemented back in 1970 to ensure that wealthy taxpayers wound up paying their share by limiting the extent to which they could capitalize on existing deductions. What the AMT does is essentially force so-called higher earners to calculate their tax liability under the standard rules, and then repeat that process under a totally different set of rules. To further complicate matters, the AMT has its own set of brackets that determine the rate at which income is taxed.
While earlier versions of the tax bill called for the elimination of the AMT, the final version preserves this rule. Granted, it does raise the income thresholds at which the AMT applies, which means fewer taxpayers will be subject to it. But that doesn't achieve the goal of making the tax system easier for Americans on a whole to digest.
Finally, while previous tax bills called for the full elimination of the SALT (state and local tax) deduction, the final version limits it to $10,000 per year -- something countless taxpayers are already up in arms about. But here's the thing -- the AMT wipes out that deduction for those most likely to otherwise benefit from it. And the sad part? A large chunk of those folks bemoaning the new limit probably don't realize they're not actually getting that benefit to begin with. Why? Because the tax code is just too darn intricate.
While there are certain facets of the final tax bill that may indeed come to benefit a large portion of taxpayers, we can't ignore the fact that under it, the tax code remains as glaringly complicated and cumbersome as ever. In other words, get ready to keep your accountants on speed dial -- you're still going to need them.