Republicans unveiled their $1.51 trillion tax cut plan and it makes several changes to individual tax rates over 10 years. It also lowers corporate taxes from 35% down to 20%. However, cuts to 401k contributions were absent from the legislation.
Kevin Brady (R-TX), House Ways and Means Committee Chairman, is the primary author of the bill. “Today marks the beginning of the end of America’s broken tax code,” he said. He did add that he intends to offer a revision to the bill making it a work in progress.
TSP and 401K
Any reductions to the allowed amounts to 401k contributions would affect those who contribute to TSP. Some previous debates over taxes considered reducing the amount employees could contribute to the retirement savings program from the annual amount of $18,500 to $2,400 per year. This reduction would be an effort to push retirement savers to Roth savings accounts where participants contribute after-tax dollars and pay no taxes upon withdrawal at retirement age.
Democrats criticized this proposal as an attack on middle class and countered with a proposal to raise the 401k contribution limits from 2018’s $18,500 to $24,500.
Individual Tax Rates
This Republican proposal would consolidate the individual tax brackets from the current 7 down to 3, along with keeping the top 39.6% bracket for high-income earners. New brackets established by the plan would be 12%, 25%, and 35%.
Single filers making up to $24,000 will pay no income taxes, and those earning up to $90,000 will be in the 12% bracket. Those who earn up to $260,000 will be in the 25% bracket, up to $1 million earners will fall in the 35% bracket, and those over $1 million will remain in the 39.6% bracket, which is currently the highest.
Estate Tax and Mortgage Interest Deduction
This plan roughly doubles estate tax to $11 million, from $5.49 million and phases it out completely over 6 years. The mortgage interest deduction allows current homeowners to keep the deduction, but it would be capped under the proposal at $500,000 for future home purchases.