On Friday, congressional Republicans released the final text of their comprehensive tax reform plan, the Tax Cuts and Jobs Act. The conference committee merged the House and Senate versions of the bill into one conference report.
Unlike in the Maryland General Assembly, Congress still has to vote on the conference committee’s product. The House plans to vote on the final bill on Tuesday afternoon, with the Senate vote coming either Tuesday or Wednesday.
Once approved by both chambers, the Tax Cuts and Jobs Act will be ready for President Trump’s signature.
Importantly for Maryland counties, the final version eliminates advance refunding bonds, which enable counties to refinance municipal bond debt. It also caps the state and local tax (SALT) deduction, allowing any individual or family who itemizes their tax returns to deduct up to $10,000 in local property and either income or sales taxes.
For counties, the final tax reform package represents a mixed bag. Many county priorities were preserved, including the tax-exempt status of municipal bonds and private activity bonds (PABs), tax treatment of certain governmental pension plans — and some housing incentives, such as the New Markets Tax Credit (NMTC). However, other provisions in the bill could place significant financial constraints on counties, most notably changes capping the deduction for state and local taxes (SALT), eliminating the tax-exempt status of advance refunding bonds, and the absence of a further delay or repeal of the Cadillac Tax — an excise tax on high value employer-sponsored health insurance plans.
To view a chart detailing county priorities in the tax reform bill, please click here.
The final bill:
- Retains seven tax brackets, but lowers most rates. They are set at 10, 12, 22, 24, 32, 35 and 37 percent. (current rates are at 10, 15, 25, 28, 33, 35 and 39.6 percent.)
- Drops the corporate tax rate from 35 to 21 percent.
- Increases the Child Tax Credit from $1,000 to $2,000 and expands the refundable portion of the tax credit.
- Repeals the Affordable Care Act individual mandate.
- Maintains the medical expense deduction, with some changes for tax years 2018-19.
- Eliminates the employee expense deduction.
- Maintains the charitable giving deduction.
- Reduces the mortgage interest deduction limit to $750,000; maintains it for primary and secondary homes.