For too long, our economy has not reached its potential. Wages have been stagnant, full-time jobs have become scarce, and companies continue to flee the United States for lower tax rates abroad. The current tax system is notoriously complex, highly inefficient, and severely outdated. This complexity distorts decisions to work, save, and invest, resulting in slower economic growth and lower wages. It is estimated that individuals, families, and employers spend over 6 billion hours and over 160 billion dollars each year trying to understand a labyrinth of rules.
In addition to its unrestrained complexity, our current system destroys opportunities for Americans by driving American jobs, research, and headquarters overseas to countries with more competitive tax codes. The U.S. corporate tax rate is 35 percent, and the top federal rate on smaller, unincorporated businesses reaches 39.6 percent. These high tax rates discourage investment and job creation, distort business activity, and put American businesses at a worldwide tax disadvantage.
Fortunately, the days of this outdated tax code are finally behind us. A modernized system that lowers taxes across the board, enables small businesses to expand, makes the United States competitive on the global stage, and allows individuals to keep as much of their hard-earned pay as possible is no longer a dream, but a reality. The Tax Cuts and Jobs Act focuses on creating more jobs, fairer taxes, and bigger paychecks for hardworking Americans across this country. It overhauls the entire tax code by eliminating costly special-interest tax breaks, removing loopholes, and cultivating a platform for businesses to succeed globally. It is a tax code that finally works for tax payers, not for tax collectors.
Simplifying the tax code has been the goal from the beginning of this extensive process, which began as early as 2011 when House Republicans started to work on legislation that would replace our broken code. Since then, the tax-writing Ways and Means Committee has held over 40 public hearings focused on providing tax relief and strengthening American competitiveness at home and abroad. Then, in June of 2016, during the previous Congress, House Republicans introduced a tax reform paper as part of our bold, clear, conservative agenda, “A Better Way: Our Vision for a Confident America.” This document outlined our vision to simplify the tax code and establish a system that offers lower rates for workers and small business, more support for families and children, and reduces burdens on investments.
More recently, in September of 2017, in conjunction with the Senate and the White House, we built upon this vision by releasing a framework that highlighted our specific shared goals. This framework laid the foundation for the legislative language of a tax reform bill. On November 2, 2017, the House Committee on Ways and Means Chairman Kevin Brady, introduced H.R. 1, the Tax Cuts and Jobs Act. Following an open and deliberative committee process, the House passed this bill through regular order by a vote of 227 to 205, while the Senate passed a similar version by a vote of 51 to 49. Since that time, Members of the House and Senate resolved differences between the two versions – in what is called a Conference Committee - in order to craft a conference report that was voted on in both chambers. The finished product took the best ideas from the House and Senate plans and made it an even better bill.
For Individuals and Families:
H.R. 1 represents a dramatic move away from a code riddled with loopholes that picks winners and losers, and toward a fairer system that provides particular relief to low income and middle class families to make sure they keep more of their hard-earned money. Specifically, it lowers rates for individuals and families at all income levels to 0, 10, 12, 22, 24, 32, 35, and 37 percent. Under this bill, a typical middle-income family of four, earning the median family income of $73,000, will receive a $2,059 tax cut. In Wisconsin, the typical middle-income family of four, earning just under $73,000, can expect a $2,055 tax cut.
In addition to lowering rates, this bill also helps low and middle class Americans by roughly doubling the standard deduction, allowing hardworking families to immediately take home more of their hard-earned paycheck. Further, the bill maintains the Earned Income Tax Credit, preserves the adoption tax credit, and establishes a new Family Credit, in addition to expanding the current Child Tax Credit from $1,000 to $2,000. It would also allow parents to receive a $500 credit for each non-child dependent they are supporting. In order to provide much-need simplicity and fairness while protecting bedrock provisions for the middle class, the bill eliminates many special interest itemized deductions, while simultaneously maintaining tax deductibility of charitable contributions and medical expenses.
In light of certain rumors about H.R. 1, it is also critical to note that this bill retains popular deductions and credits that so many hardworking families rely on. This bill protects retirement savings options, keeping 401(k)s and Individual Retirement Accounts unchanged, so that Americans can continue to save and comfortably plan for their futures. Additionally, this bill continues to allow people to write off the cost of state and local property taxes up to $10,000. Furthermore, the bill preserves the home mortgage interest deduction for all existing mortgages while also maintaining deduction for newly purchased – or second – homes up to $750,000. The Tax Cuts and Jobs Act preserves the student loan interest deduction while continuing to exempt the value of reduced tuition from taxes for graduate students. H.R. 1 also maintains the deduction for classroom supplies bought by teachers. Lastly, the bill improves saving vehicles for education by allowing families to save for elementary, secondary, and higher education. Upholding these benefits and deductions will help more Americans give back to local charities, save for their future and their children’s future, achieve the dream of home ownership, and simply allow families the freedom to decide what they want to do with their money.
I have also heard from constituents with concerns about Obamacare’s individual mandate penalty tax. Under current law, Obamacare’s individual mandate forces individuals to purchase a government-approved health care plan. If an individual chooses not to buy such a plan, the government levies a major tax. By eliminating the individual mandate penalty tax, American families will no longer be forced to buy a plan they don’t want and can’t afford. H.R. 1 repeals this penalty beginning January 1, 2019.
For Job Creators of All Sizes:
While Congress can provide reforms that allow taxpayers to keep more of their paychecks, it is also important to make sure that we unleash the private sector’s ability to create jobs and make the investments that increase productivity and wages. That is why the Tax Cuts and Jobs Act ensures much needed tax relief goes to job creators as well. In order to reduce the burdens on businesses of all sizes, this bill allows businesses to immediately write off the cost of new equipment and investments for at least five years, and levels the playing field for American companies and workers by reducing the corporate tax rate to 21 percent – down from 35 percent, which is the highest in the industrialized world. This significant reduction will give a much-needed lift to the economy, create jobs, promote competitiveness, and put an end to the perverse incentive that companies had to offshore jobs and keep profits overseas.
In Wisconsin, approximately 9 out of 10 businesses file their taxes as individuals. These small businesses, known as "sub-chapter S corporations," limited liability corporations (LLCs) and partnerships employ more than half of all private sector workers. Today, two-thirds of net new jobs in America are created by these small businesses. To support these small and family-owned businesses – the backbone of America’s economy – this bill offers a 20% tax deduction that applies to the first $315,000 of joint income earned. For business owners with income above this level, a 20 percent deduction on business profits will be instituted, reducing the marginal tax rate to no more than 29.6 percent.
The Tax Cuts and Jobs Act also makes significant strides in boosting American energy production. This legislation establishes an environmentally responsible oil and gas program in the non-wilderness area of the Arctic National Wildlife Refuge (ANWR). The ANWR is non-wilderness federal land in Alaska that is known to be rich in energy, most notably, oil. By allowing for responsible development in this area America can raise tens of billions of dollars for deficit reduction, create thousands of new jobs, keep energy affordable, and most importantly, reduce our reliance on foreign oil. By capitalizing on our nation’s natural resources, we diminish our dependence on foreign competitors and reinvest in the American worker.
Lastly, some have raised concerns related to the national deficit. It is imperative to understand that our goal is to make tax reform as permanent as possible so businesses can plan for the future and make long-term investments in the American economy. The Tax Cuts and Jobs Act meets the requirements that previously passed both the House and Senate. By allowing businesses to invest in the American worker, we will promote faster growth and help us hit our economic potential. While our national debt is caused by too much spending – not insufficient taxation – it is worth noting that stronger economic growth produced by reform would have a positive effect on future tax revenues.
On December 19, 2017, the House passed H.R. 1, by a vote of 227 to 203. I voted in favor of final passage. On December 20, 2017, the Senate passed an amended version of this bill by a vote of 51 to 48. Later that day, the House agreed to this final version by a vote of 224 to 201. Again, I voted in favor of final passage. On December 22, 2017, President Trump signed this bill into law.
This is a generational defining moment for our country. Delivering immediate relief to hardworking families is what we were elected to do. The passage of this bill is a prime example of a promise being made, and that promise being kept. It is a historic victory for taxpayers.
Should you be interested in viewing the Tax Cuts and Jobs Act, you may do so by visiting: https://fairandsimple.gop/, where summaries of the legislation and frequently-asked-questions are also provided.