House Tax Measure Faces Numerous Hurdles
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What tax overhaul is the House considering and who is speaking about it?
This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm Charlie Turner in New York. The tax reform measure being considered by a House committee would affect Americans in all income brackets. But disagreements over key pieces of the measure could force the GOP to make changes and slow down plans to pass the bill by the end of the year. Joining us from Washington to discuss some of the hurdles to passage that the bill faces is is Wall Street Journal reporter Siobhan Hughes. Starting off, Siobhan, one issue in the tax bill that is very divisive is deductions, and the House bill would affect many of them.
That's absolutely right. The House bill would affect everything from your mortgage interest deduction to your ability to deduct medical expenses to your ability to deduct the taxes that you pay to states and localities. all of these pieces are in play and they're going to affect different people, partly depending on your personal situation and partly depending on what part of the country you live in.
Right. The mortgage interest deduction would no longer apply to interest on debt above $500,000 or home equity loans and second homes. And I don't know if changes are afoot, but that has really been a source of much contention.
It's been a huge problem, especially for people who live in urban areas or some expensive suburbs where it's hard to get a home for anywhere less than half a million dollars. And While Congress would be increasing the standard deduction, so an additional maybe $6,000 per person would be exempted, that's not enough to make up for the tax breaks that you get from your mortgage interest payments.
Another issue of contention, Siobhan, is the child tax credit. Why don't you talk about that?
So the child tax credit would be increased to $1,600, and it would be available to more people. It's an important Republican priority. The big issue is that those tax credits expire. And so while people at every income level would get a nice bump in their income early in the early years of the tax plan, by the later years when that tax credit's no longer available, some families could end up with a tax increase. At the same time, from the perspective of liberals, it's a problem because only $1,000 of that $1,600 is refundable, meaning that it's available even to families that do not owe an income tax. And then it's going to be a problem in the Senate because people like Marco Rubio and Mike Lee really feel that that tax credit should be more generous.
They say it's a tough time right now to have kids and a family, and the tax code should help those groups out.
I'm speaking with Siobhan Hughes of The Wall Street Journal, and you're listening to Your Money Matters from The Wall Street Journal. Thanks for listening, everyone. Siobhan, another hurdle that you write about involves pass-through income. Explain what that is and why it's controversial.
So pass-throughs are, they can be big or small businesses. They're organized as partnerships, as corporations, limited liability companies. And what Congress says it wants to do is apply a special 25% rate to those businesses. But be careful.
How would proposed changes affect common deductions like mortgage interest and state taxes?
If you are a professional services company, a doctor, an attorney, an engineer, an architect, you don't qualify for that 25% rate. And then on top of it, anybody who does qualify would have to distinguish between business income and wage income. You only get to treat about 30% of that as business income. And as a result, critics say that such pass-through businesses would end up paying a lot more than a 25% rate. Once you blend the two rates together, it's a lot higher. And so a lot of people think the whole thing is unfair.
Next up, Siobhan, the tax on foreign payments. And as you write, the House bill creates a new 20 percent excise tax on payments from companies in the U.S. to related parties, you know, other parts of the same company outside of the U.S. And the proposal would raise more than $150 billion over a decade. And I understand that conservative groups like the Koch brothers are opposed to this.
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