A New Tax Cut for the Rich
The final plan lowers the top tax rate for top earners. Under current law, the highest rate is 39.6 percent for married couples earning over $470,700. The GOP bill would drop that to 37 percent and raise the threshold at which that top rate kicks in, to $500,000 for individuals and $600,000 for married couples.
This amounts to a significant tax break for the very wealthy, a departure from repeated claims by Trump and his top officials that the bill would not cut taxes on the rich.
The new tax break for millionaires goes beyond what was in the original House and Senate bills, with Republicans seeking to ensure wealthy earners in states such as New York, Connecticut, and California don’t end up paying substantially higher taxes as a result of the bill.
A Massive Tax Cut for Corporations
Starting on Jan. 1, 2018, big businesses’ tax rate would fall from 35 percent to just 21 percent — the largest one-time rate cut in U.S. history for the nation’s largest companies.
- The House and Senate bills originally had the rate falling to 20 percent.
- Republicans compromised at 21 percent due to budget constraints.
- This equates to about a $1 trillion tax cut for businesses over the next decade.
Republicans argue this will stimulate economic growth. However, most independent economists and Wall Street banks predict only a modest and short-lived economic boost.
State, Local, and Property Tax Deductions Capped
One of the most controversial parts of the GOP tax plan is the limitation on how much state and local taxes (SALT) Americans can deduct on federal income taxes.
- Previous Law: Unlimited SALT deduction
- Final Plan: Capped at $10,000 total for property, income, or sales taxes
This move is widely viewed as a hit to blue states like New York, Connecticut, and California, with concerns it could:
- Cause property values to drop
- Reduce funding for public schools and infrastructure
Child Tax Credit Expanded for Working-Class Families
Thanks to a push by Sen. Marco Rubio and Sen. Mike Lee (R-Utah):
- Current Credit: $1,000 per child
- New Credit: $2,000 per child, up to $400,000 income eligibility
- Refundable Portion: Raised from $1,100 to $1,400
This makes the credit more accessible to families who owe little to no federal income taxes, providing them with larger government refunds.
Individual Health Insurance Mandate Repealed in 2019
Beginning in 2019, Americans are no longer required to buy health insurance or pay a penalty:
- The mandate was a core element of the Affordable Care Act (ACA).
- The repeal was a key priority for Trump and GOP leaders.
- The Congressional Budget Office estimates:
- 13 million more uninsured by 2029
- Over $300 billion in government savings
Some Republicans aim to introduce additional reforms to curb expected premium hikes following this change.
Estate Tax Exemption Doubled
While the estate tax remains, the exemption level has changed:
- Previous Threshold: $5.5 million per individual / $11 million per couple
- New Threshold: $11 million per individual / $22 million per couple
This compromise ensures fewer families pay the estate tax, a win for the wealthy without fully repealing the tax.
20% Deduction for “Pass Through” Companies
Many American businesses — such as S corporations, LLCs, partnerships, and sole proprietorships — are structured as “pass through” entities.
- The GOP bill allows a 20% deduction on pass-through income.
- Applies up to $315,000 for married couples in service industries (e.g., law firms, doctor’s offices).
- Expires after 2025.
Initially opposed by the National Federation of Independent Business (NFIB), the organization later endorsed the final legislation.
Corporate Alternative Minimum Tax (AMT) Eliminated
- Senate Version: Included corporate AMT
- House Version: Did not include it
The final bill eliminates the corporate AMT, which had discouraged investment by nullifying related tax credits.
Individual AMT Thresholds Raised
Originally designed in 1969 to prevent the wealthy from avoiding taxes:
- Thresholds Increased: Fewer families — particularly those earning just into six figures — will pay AMT
- House Proposal: Full repeal
- Final Compromise: AMT remains, but with higher income thresholds
Mortgage Interest Deduction Reduced
- Old Law: Interest deductible on mortgages up to $1 million
- Final Bill: Cap reduced to $750,000 for new loans only
Existing mortgages are unaffected by this change.
What Is NOT Changing
Despite various proposed cuts and changes, several popular provisions remain intact:
- Student loan deduction: Preserved
- Medical expense deduction: Preserved and temporarily expanded
- Graduate student tuition waivers: Remain
- 401(k), IRA, and Roth IRA limits: Unchanged
- Johnson Amendment: Still in place, maintaining the ban on religious and nonprofit institutions endorsing political candidates
Trump had sought to repeal the Johnson Amendment, but Senate rules blocked its inclusion.
Frequently Asked Questions
What are the main benefits for the wealthy under the new tax plan?
The plan lowers the top income tax rate from 39.6% to 37% and raises the income threshold at which this rate applies. It also doubles the estate tax exemption and offers a new 20% deduction for certain pass-through businesses, collectively amounting to significant tax relief for high-income earners.
How does the corporate tax cut compare historically?
The drop from 35% to 21% for corporate taxes is the largest one-time corporate tax rate reduction in U.S. history. It’s projected to reduce federal revenue by about $1 trillion over the next decade.
How does the SALT deduction cap affect homeowners?
The cap on state and local tax deductions is set at $10,000, which is expected to negatively impact taxpayers in high-tax states by increasing their federal tax liabilities and potentially reducing home values.
What happens to the Affordable Care Act’s individual mandate?
Starting in 2019, individuals are no longer required to have health insurance or face a penalty. This repeal is expected to lead to 13 million more uninsured Americans by 2029 and contribute over $300 billion in federal savings.
Are there any provisions that remain unchanged?
Yes, several deductions and credits remain intact, including student loan interest, medical expense deductions (temporarily expanded), tuition waivers for graduate students, and retirement savings limits. The Johnson Amendment also remains in effect.