How President Trump's tax plan affects you, and what we still don't know about it

Working poor people could owe no income tax, filing a return could get much simpler, and there would even be a new credit for caring for elderly relatives under a tax "framework" being proposed Wednesday by President Trump and Republican leaders in Congress.

The plan cuts the top corporate tax rate dramatically and creates a new top rate for small businesses that is lower than the top rate for individuals.

It also eliminates two taxes paid entirely by the rich, while taking away a deduction for state and local taxes that is used most heavily in some of the most wealthy, and Democrat-dominated, states.

Exactly how many other deductions and credits disappear to help pay for it all, and how much gets added to the deficit or must be offset with other budget cuts, may not be worked out for a while — even though Republicans are eager to move taxes to the front burner after another defeat this week on revamping health insurance.

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As liberal groups decry a giveaway to those at the top, Trump is selling the plan as a boost for working families, starting with a rally in Indiana on Wednesday afternoon. Interest groups are also gearing up ads to sell the plan on television, especially in districts where key senators and House members live.

The goal is to adopt a new tax code by the end of the year, but that's also when business such as setting the 2018 budget that Congress was supposed to tackle this month but postponed is supposed to be completed. So the odds of the plan being enacted are still uncertain.

Here's a look at who benefits and loses under the plan and what still needs to be worked out, based on a plan distributed to House Republicans at a retreat away from Capitol Hill on Wednesday morning,

Fewer brackets, new rates

The seven individual income tax brackets in place now, which range from 10% to 39.6%, would be replaced by 12%, 25% and 35%.

Congress may, however, add a bracket higher than 35% if it needs to ensure the overhaul "does not shift the tax burden from high-income to lower- and middle-income taxpayers," the plan said.

Income levels for each tax rate are to be determined, so it's not possible at this point to determine how individual taxpayers would be affected.

The proposed bottom rate of 12% is higher than the 10% the White House said it was seeking in a one-page list of goals for tax reform released in April. But people paying 10% now may not owe any tax under the new plan.

"We flatten out the tax code, lowering the rates at every level so people can keep more of what they earn," said Rep Kevin Brady, R-Texas, chairman of the House Ways and Means Committee. "That means the 15% rate today will be lowered to 12. The 10% rate today will go to zero. The tax elevator goes down at every level."

The plan would nearly double the standard deduction, the amount that's subtracted from incomes before the tax rate is applied. The deduction would grow from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples.

Some of that increase, however, would be offset by the elimination of personal exemptions for a taxpayer and spouse. In 2017, those exemptions were worth $4,050, meaning a taxpayer and spouse could reduce their income by $8,100 before calculating how much tax was owed.

House leaders also have said the plan would simplify the tax code so much that most people would be able to file their returns on a postcard.

Other credits and deductions unclear

The goal of tax reform was to eliminate the deductions and credits that benefit disparate groups and use the savings to lower rates overall. How much of that would happen remains unclear.

The plan calls for increasing the child care tax credit, currently $1,000 per child, depending on the parents' income. It also would remove a "marriage penalty" that allows two single parents making up to $75,000 each, or $150,000 combined, to get the full credit, but begins to shrink the credit for married couples when their incomes exceed $110,000.

A new credit of $500 would also be created for non-child dependents, such as an elderly relative.

Municipal bond interest would still be tax-free, and tax incentives would remain, with changes "to improve efficiency and effectiveness," for education and saving for retirement. The Earned Income Tax Credit, designed to reward poor people who work instead of receiving welfare, would also continue, though changes are also possible.

State/local tax deduction gone

Taxpayers would no longer be able to deduct what they pay in state or local income or property taxes, a deduction that helps offset high tax rates in such states as California, Connecticut, New Jersey and New York.

Estimates have said eliminating the break would offset more than $1 trillion in tax cuts elsewhere over the coming decade, but municipal and state officials and members of Congress, including Republicans from heavily affected states, have have been trying to pressure their leaders to leave the tax break in place.

Rep. Leonard Lance, R-N.J., said he raised this issue during a retreat of House Republicans on Wednesday morning, highlighting that New Jersey already ranks near the bottom of states when it comes to how much federal spending comes back compared to taxes paid to Washington.

"The elimination of this deduction would further increase the disparity," Lance said. "I will continue to speak out on this issue and work hard to include the state and local tax deduction among those itemized deductions that need to be preserved."

Brady told reporters only that when his committee was done with its work, "I'm confident we can deliver tax relief for all Americans regardless of where they live."

The tax plan also calls for eliminating most other tax deductions but does not specify them. Common deductions that could be affected include those for medical costs, job expenses, having a home office, or teachers paying for school supplies.

Mortgage, charity deductions stay, but ...

Popular deductions for mortgage interest and charitable contributions would continue. But like the current system that requires a choice between the standard deduction or itemizing, those expenses would only be deductible if they exceed the increased standard deduction amounts above.

The National Association of Realtors argues that having a higher standard deduction could make home ownership less valuable in comparison to renting. And that, they warn, could reduce what someone would be willing to pay for a home and therefore potentially lower the value of existing homes.

The association also did a study of an early version of the plan this year that combined the change in the standard deduction with the loss of the deduction for local property taxes, and it said average homeowners making $50,000 to $200,000 would end up paying more in taxes.

Big corporate rate cut

Corporations would see their top tax rate drop from 35% to 20%, which is higher than the 15% Trump wanted, but comparable to or lower than other major industrial nations.

The tax code would begin to transition from a system that taxes American companies based on worldwide profits to a territorial system based on domestic profits alone. Companies with cash held by overseas subsidiaries — one estimate put the amount at  $2.3 trillion — would be encouraged to bring it back to the United States through a temporary low tax rate, which was not immediately identified.

The plan would also eliminate the corporate Alternative Minimum Tax, which seeks to prevent companies from using credits and other provisions to lower their tax rates too much.

Trump has said the corporate rate cut would spur job creation and lead companies that had moved operations offshore to return. Others have said it would benefit primarily stockholders. The White House has said that would include pension funds for police and teachers and other public employees.

The plan would put new limits on the ability of companies to write off the cost of interest on money they borrow, but it would, for five years, allow for "full expensing." This means the cost of assets such as trucks or equipment bought after Wednesday for a business could be written off immediately, rather than amortized over a number of years, a change that supporters believe will spur investment in growing businesses.

Business deductions for research and development and for low-income housing would be retained, but others could be eliminated.

Small-business owners who file their taxes on their individual returns, rather than on corporate returns, would see a new top rate of 25%. For those whose incomes would otherwise put them in the 35% individual bracket, this would be a tax cut that arguably could be used to expand their companies.

Taxes on wealthy eliminated

The plan eliminates the individual Alternative Minimum Tax, which is designed to prevent people from avoiding tax entirely through deductions and credits and overwhelmingly is paid by the rich.

In 2014, 4.1 million of the 4.2 million people who paid AMT made more than $100,000 and the tax they paid totaled nearly $28 billion, according to IRS data.

The plan also eliminates the estate tax, which is charged only on estates worth about $5.5 million or more. Supporters of eliminating this tax say it can force family-owned businesses to be broken up and sold to pay taxes, affecting workers' jobs.

Cost TBD

Trump has said he wants the tax cut to be the largest in history, but how much it will cost may take a while to determine and could be in dispute long after that.

This is both because key details must be worked out, but also because members of Congress want to use a different way to calculate costs that takes into account anticipated economic growth resulting from tax cuts.

Step 1 is for the House and Senate to agree on a budget resolution. Work on that is supposed to begin in the Senate next week, but the two chambers do not have agreement on what would be included, and it is possible each house adopts a different budget and a conference committee would have to hash out the differences.

The extent to which Republicans who dominate both houses are willing to increase the deficit to provide tax cuts, or insist on budget cuts elsewhere, will determine how quickly action takes place.

Liberal groups have warned that the cuts to federal revenue would be so deep Congress would ultimately have to look to cut popular programs such as Social Security and Medicare.

Once a budget is adopted, the tax-writing committees can begin filling in the details on actual legislation. The budget would also set rules the Senate could use to prevent a filibuster, which would require 60 votes to break, on the bill. 

Contributing: Maureen Groppe