Luke Schroeder, columnist

Last Thursday, Congressional GOP leadership finally unveiled their plan for reforming the U.S. tax code. The 429-page bill is called the Tax Cuts and Jobs Act (TCJA). There are two major components to the TCJA – reforms to corporate taxes and reforms to individual taxes.

First, let’s take a look at the corporate side. As I previously wrote in this publication, “the [current] corporate tax rates in the U.S. make our country one of the most hostile for business in the industrialized world.”

Under current law, U.S. corporations are taxed 35 percent at the federal level, on top of an average 4.1 percent state rate. The resulting national rate is a whopping 39.1 percent, nearly 15% higher than the average rate paid by corporations in other member nations of the Organization of Economic Cooperation and Development (OECD).

Under the TCJA, the U.S. federal corporate tax is lowered to 20 percent, which would presumably result in an average 24.1 percent rate once state taxes are factored in. This corporate tax rate places the U.S. on par with most other industrialized nations. This is very good news – this will make the U.S. much more competitive in the global economy, and will lead to more domestic investment, more American jobs and less outsourcing. 

Even better news: the TCJA would make the new 20 percent corporate rate immediate and permanent. This is vital for long term corporate investment in America, and a stark improvement over plans that suggested temporary cuts, which would have failed to create lasting impacts to the American business environment.

The TCJA makes more changes to the tax code on the individual side. Most notably, the current seven brackets would be reduced to four.

The standard deduction would also roughly double, from $6,350 to $12,000 for individuals and from $12,000 to $24,000 for couples. This would avoid raising taxes on the poor, and is meant to compensate for the eliminations of other itemized deductions. It will make the tax code much simpler for the average taxpayer.

Under the TCJA, the child tax credit also increases from $1,000 to $1,600. While this is a good step, it is less of an increase than some Republicans, including Senator Marco Rubio (R-FL), had hoped for. I expect this credit will increase after bill mark-ups have completed.

In addition, the bill also would create a tax credit of $300 for every adult dependent and parent, or $600 each for joint filers. In theory, a family of four (two parents, one young child and one young adult) could reduce their tax burden by $2,500. Like the child tax credit, this credit would phase out when the income of a family exceeds $230,000.

Luckily, the TCJA also phases out the death tax by 2024, ending the immoral practice of taxing death.

Additionally, the bill makes no changes to 401(k) plans, and makes 529 (education savings) plans easier to manage; the legislation would allow 529 funds to be used for high school tuition costs and would allow the accounts to be opened for unborn children.

To translate the number soup above: Speaker Ryan (R-WI) claims this plan would save the average American family of four (which brings in around $59,000 of gross income per year) $1,182 per year in taxes, leaving that family’s tax bill at only $400. This, more money in the pockets of American families, is very good news.

A problem: the plan eliminates state tax deductibility. Under current law, taxpayers can deduct the amount of their state tax when filling out federal taxes. This effectively subsidizes taxpayers living in high-tax states such as California, New York, New Jersey and others. Eliminating this deductibility is a good thing – the federal government, should not subsidize high tax states at the detriment of states that are more fiscally responsible. However, Republicans from those high tax states will have a hard time voting for this legislation, (rightfully) fearing the wrath of their constituents. Expect this issue to take up a lot of oxygen over the coming weeks as the House GOP whips votes.

Another (big) problem: these tax cuts will add about $1.5 trillion to the United States deficit over the next decade. While Republicans are right to cut taxes, they must also act to offset the resulting deficit by making spending cuts – they are supposed to be fiscal conservatives after all. Cutting spending is never easy (especially when addressing entitlement programs), but it’s long overdue and badly needed.

Another problem: many (including myself) would argue that these cuts don’t go far enough for individuals, and don’t cut enough special interest loopholes. However, at the end of the day, this bill is a good first step in addressing the mess of our current tax code. More improvements can always (and should) be made down the road.