5 Things To Know About GOP Tax Reform Plans

WASHINGTON, DC — In the wake of their failure to repeal and replace Obamacare, Republicans drafted a tax reform proposal released Wednesday that would upend the American tax system by slashing rates for corporations and high-income earners while shrinking the number of tax brackets and eliminating many common deductions.

"We have to acknowledge that any effort to cut or reform taxes is inevitably more complicated than tackling health care," said Mark Hamrick, the senior economic analyst at Bankrate.com. "And we saw how that went. Health care involves around one-sixth of the U.S. economy, while taxes covers pretty much everything. That makes the broader fight even larger and more complicated."

(For more information on this and other political stories, subscribe to the White House Patch to receive daily newsletters and breaking news alerts.)

Watch: Trump Tax Plan Aims To Help The Middle Class And Businesses

But tax reform has long been a legislative dream of Congressional Republicans, so they are sure to do whatever they can to get some version of tax reform over the finish line. Here are five things you should know about the proposal released Wednesday.

1. There would be fewer tax brackets.

Under current law, there are seven different income tax brackets. Republicans want to change that to three different brackets, which would tax income at 12 percent, 25 percent and 35 percent. This would bring the top rate down from 39.6 percent to 35 percent.

It's not yet clear which bracket will apply to which income ranges.

2. Corporate rates would be slashed.

Companies would find themselves paying reduced rates, as the top tax rate cut would fall from 35 percent to 20 percent in part of an effort to make U.S. businesses more competitive globally. The plan would impose a new, lower tax on corporate profits stashed overseas, and create a new tax structure for overseas business operations of U.S. companies.

The tax rate would also apply to "pass-through" organizations, which are often just individuals like the president himself who claim their income as corporate profits. For a wealthy individual in the top income bracket, this cut could mean their tax rate would fall from 39.6 percent to 25 percent.

Though Trump says the tax plan will be bad for him personally, it's impossible to determine whether this is correct because he has not released his tax returns as he promised to do. Many provisions in the plan could potentially offer someone in Trump's situation many benefits.

3. Key deductions would be cut.

People who lower their tax burden using deduction may notice significant changes if the current proposal passes. Currently, taxpayers can deduct state and local taxes from their federal return. This is a big help to people living in high-tax areas, particularly states with Democratic leadership. Under the GOP proposal, this deduction would be eliminated, which could raise taxes on many millions of people in states such as New York, New Jersey and California.

The plan also eliminates the deduction for dependents, though Republicans say they will replace these deductions with an increased child tax credit.

Deductions for mortgage interest payments and charitable donations will be preserved.

4. The estate tax would end.

The estate tax — which is paid by those with multi-million inheritances — would be eliminated, a boon for wealthy individuals who inherit businesses, investments and real estate. Also slated for elimination is the alternative minimum tax, a supplemental tax for certain individuals, corporations and estates that enjoy exemptions lowering their income tax bills.

5. Many details are still uncertain.

It's difficult to characterize broad effects of the tax plan because so many details have been left out. Republicans say the blanks will be filled in during the legislative process.

However, the large tax cuts embodied in the plan will almost certainly add to the budget deficit. Republicans have previously said that tax reform would not increase national debt.

Administration officials said the plan would not add to the debt, when economic growth is taken into account. However, many experts say the administration's projections for economic growth are unrealistic.

Write a letter to the editor of the White House Patch.

Like us on Facebook:

Follow us on Twitter.

The Associated Press contributed to this report.

Photo by Shawn Thew-Pool/Getty Images