Which Tax Proposals Are Likely to Pass?
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This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm Anne-Marie Fertoli in New York. A lot of the discussion around Republican tax bills in the House and the Senate has focused on their differences, but that's left out where they overlap and where we're most likely to see changes to the U.S. tax code. Joining me now in our studio to talk about the major tax proposals that are most likely to pass in Washington is Wall Street Journal reporter Laura Saunders. Laura, let's start with standard deduction and personal exemption. There's certainly overlap there between the House and the Senate versions. How do the House versions and the Senate versions differ currently, and what compromise are we likely to see now that the House has approved its version of the bill?
Well, we don't know what the compromise is, but we know that there's a lot of similarity. In both cases, they would get rid of the personal exemption, which is about a $4,000 deduction you get for each member of a family, and they would double the standard deduction. And this means that the standard deduction would go up to about $12,000 per person or $24,000 per couple. And it also means that people wouldn't be breaking out their deductions and listing them on Schedule A for mortgage interest and charitable contributions and things like that. That would give the IRS a lot less work to do, and it would make your tax return easier to fill out, but you would be much less likelier to get a charitable contribution deduction.
We've also heard a lot about the repeal of the estate tax, and both bills will double the current exemption. Are the House and Senate bills completely aligned there?
No, they're not. The House bill would repeal the estate tax entirely as of about 2023 or 2024, but the Senate would not. But they both double the exemption, and so very few people in the United States owe estate tax now. The exemption currently is about $10 or $11 million per couple. It would go up to $22 million a couple. And only currently about 5,000 estates owe it. And in the future, if this change goes through, fewer than 2,000 would owe it. There's a lot of talk about the estate tax, but not many people pay it ever. Laura, let's talk about the alternative minimum tax. Oh, yes. Even Congress hates this tax. It's often called the dreaded alternative minimum tax.
What overlapping changes to the standard deduction and personal exemption are likely to pass?
It's a parallel tax. It takes away all the deductions you get in the regular tax. And it's horrible. It's unpredictable. It costs money. It's dreadful. And even Congress has gotten sick of it. So both bills would repeal it and good riddance.
I want to ask you about another unpopular part of the tax overhaul. That is repealing the deduction for state and local income and sales taxes. That's been heavily opposed by highly taxed states, including New York and New Jersey. But it's something that both bills currently call for. So is that pretty much a sure bet?
Well, it's as sure as many other things because it loses a lot of money to give the deductions. And so taking that deduction away would raise a lot of money. They can do other things with like lowering corporate taxes and things. Notice they both agree on getting rid of state and local income tax deductions. There's a difference over state and local property tax deductions because the House wants to allow a deduction for $10,000 of property taxes per return, whereas the Senate doesn't have that. It just would repeal everything.
How would doubling the standard deduction affect itemized deductions like charitable gifts?
So we have to see what happens there.
I'm speaking with The Wall Street Journal's Laura Saunders about tax proposals likely to pass in Washington. And you're listening to Your Money Matters from The Wall Street Journal. Welcome back, everybody. Laura, another big concern about the Republican tax overhaul is changes to existing retirement plans. What are we looking at in the House and the Senate? And more importantly, what changes are likely?
Well, there's good news there because we got very close to having a provision that would have restricted amounts of money people could have put into retirement plans.
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