House Republicans released their long-awaited redo of the tax code, which they promised would dramatically reduce the federal tax bill for most American households and give a big break to businesses.

But as written, the Tax Cuts and Jobs Act offers modest tax savings for most middle-income Americans. And it could negatively affect college students and their families, people with very high medical bills, and residents of high-tax areas.

"In general, if you live in a low-tax state, if you have an inexpensive mortgage, if you take the standard deduction, you’ll do pretty well,” says Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, a nonprofit think tank based in Washington, D.C. "If you live in a high-tax state with a big mortgage and you itemize, you’re not going to do so well."

The bill's signature change affecting households—it nearly doubles the standard deduction and reduces the current seven tax rates to four—would mean that a four-person household making the median income of $59,000 a year would save $1,182 annually in taxes, according to talking points released today by the House Committee on Ways and Means, which drafted the bill.

Those earning just above the new standard deduction levels—$18,300 for heads of households, $12,200 for single filers, and $24,400 for couples filing jointly—would pay more tax on ordinary income: 12 percent versus 10 percent, which could offset the savings from the higher standard deduction.

The elimination of the personal exemption, currently $4,050 per person, could offset those savings even more. But many people who generally owe federal tax on their returns might end up paying no tax at all, Gleckman said.

Wealthy taxpayers would still be subject to the current top tax rate of 39.6 percent. In a boon to the very wealthiest, the bill's sponsors aim to double the basic exclusion on income subject to the 40-percent estate tax to nearly $11 million per person, and repeal the tax entirely in 2024.

Other changes affect fewer taxpayers. For example, families could no longer get a tax credit when they adopt a child. People suffering a catastrophic loss, such as from a home fire, could no longer deduct their losses unless they were in a federally declared disaster area. And a tax credit of up to $7,500 for purchasers of electric cars and plug-in hybrids also would go away.

The bill must still be scored by the Congressional Budget Office, not to mention reconciled with a yet-to-be-released Senate bill. Its wide-ranging cuts in revenue—much due to a major drop in the top corporate tax rate to 20 percent from 35 percent—could cost the Treasury an estimated $1.51 trillion over 10 years, according to the House Ways and Means Committee's analysis.

Observers note that many measures in the tax framework might not make it into the final version of the bill. And as written it could have unintended consequences. Because the average person won't be itemizing, "with a higher standard deduction, there's much less incentive to contribute to charities," notes Mark Luscombe, principal analyst with Wolters Kluwer Tax and Accounting, based in Riverwoods, Il.

Here's how the proposed plan could affect different types of households and taxpayers:

Likely Winners

• Middle-income families with dependents. In additional to benefiting from a higher standard deduction, families whose income qualifies them for a child tax credit would get more per child: $1,600, versus $1,000 in the current law. A new $300 credit would be available for  each parent and non-child dependent, as well. The credit, however, is scheduled to phase out in 2023. 

"Broad strokes, I see a lot in the bill for middle- and lower-income taxpayers," says Mark Steber, chief tax officer at the Jackson-Hewitt, the tax preparation company. "Doubling the standard deduction and increasing the child tax credit means more families will be winners." 

More on Taxes

• Taxpayers subject to the Alternative Minimum Tax. This parallel taxation system, which mainly affects taxpayers in the $200,000 to $400,000 income range, would be eliminated. Depending on where these taxpayers fit on the new tax bracket scale (see chart below), however, the benefit could be muted. 

• Wealthy taxpayers. With the change in tax brackets, married people filing jointly would pay a tax rate of no more than 35 percent on up to $1 million of income, rather than a top tax rate of 39.6 percent. 

Likely Losers

• Students and new graduates. Recent graduates could no longer exclude from taxable income up to $2,500 in student loan interest. The average exclusion is $1,086, a tax savings of $272, noted Mark Kantrowitz, publisher of Cappex.com, a website that provides information on college admissions and financial aid.

Kantrowitz pointed out that the optics of the change won't look good to voters, which could make it a hard sell. "The actual tax benefit is small, but people are going to focus on that $2,500 figure and say, 'You're making it hard for us to pay our student loans,'" he says. "I would not be surprised if there’s a pushback on that."

Among other measures to "streamline" higher education benefits, in the House plan's words, is the elimination of a tax deduction for employer-paid tuition assistance. Currently, workers who participate in such plans can exclude up to $5,250 in tuition from income. 

Employers also would not be able to count on a tax benefit from providing student-loan assistance plans, Kantrowitz notes. "This would pull out the rug from under those efforts," he says.

• Residents in high-tax areas. State and local taxes, including sales and income taxes, could no longer be deducted. The bill would allow for a property-tax deduction of up to $10,000. 

• Homebuyers taking large mortgages. Deductible interest on a home mortgage would be capped at $500,000, compared with $1 million under current law. That change would affect new purchases only. 

• People with very high medical bills. Medical expenses could no longer be deducted. Currently these expenses—including long-term-care insurance premiums—have to be very high for a taxpayer to use this break. Only expenses above 10 percent of adjusted gross income can be deducted. But the loss of that tax break could have a major impact on people with chronic illnesses or very high-deductible health plans, says Betsy Imholz, special projects director focused on healthcare at Consumers Union, the policy and mobilization division of Consumer Reports. "Eliminating the deduction could cause a lot of pain."

What Doesn't Change

• Earned income tax credit. This credit for working lower- and middle-income families with dependents, which is as high as $6,318, will remain the same. 

• Retirement savings. Pretax contributions to 401(k) plans will remain essentially the same. Nonetheless, the fact that many more people will face lower tax rates could make pretax savings less attractive to many people, notes Tim Steffen, director of advanced planning at Baird Private Wealth Management in Milwaukee. "This makes Roth-style plans marginally more attractive," he notes.

The First Salvo

Every U.S. taxpayer could be affected in some way by the proposed new tax rules. The chart below, based on information from the House Committee on Ways and Means and the IRS, details the major changes.

Tax Measure Current Law (for 2017) Proposed
Rates and brackets, single filer Up to $9,325: 10%
$9,326 to $37,950: 15%
$37,951 to $91,900: $25%
$91,901 to $191,650: 28%
$191,651 to $416,700: 33%
$416,701 to $418,400: 35%
Over $418,400: 39.6%
Up to $45,000: 12%
$45,001 to $200,000: 25%
$200,001 to 500,000: 35%
Over $500,000: 39.6%
Standard deduction $6,350 for single filers.
$9,350 for heads of household.
$12,700 for married filing jointly.
$12,200 for single filers.
$18,300 for heads of household.
$24,400 for married filing jointly.
Rates and brackets, married filing jointly Up to $18,650: 10%
$18,651 to $75,900: 15%
$75,901 to $153,100: $25%
$153,101 to $233,350: 28%
$233,351 to $416,700: 33%
$416,701 to $470,700: 35%
Over $470,700: 39.6%
Up to $90,000: 12%
$90,001 to $260,000: 25%
$260,001 to $1 million: 35%
Over $1 million: 39.6%
Personal exemption $4,050 None
Mortgage interest Interest on loans of up to $1 million may be deducted. Interest on loans of up to $500,000 may be deducted. Limit applies to new home purchases.
State and local taxes State and local property, income, sales and other taxes may be deducted. State and local tax deduction eliminated. Property tax deduction remains, capped at $10,000.
Retirement accounts Pretax contributions of up to $18,000 for those under age 50. Pretax contributions of up to $24,000 for those 50 and older. No major changes.
Popular credits and deductions Student loan interest of up to $2,500 may be excluded from income, though the deduction phases out as income increases.

Child tax credit of $1,000, phased out as income increases.

Deduction of charitable contributions, subject to some limits.

No deduction of student loan interest.

Child tax credit of $1,600, plus $300 each for taxpayer, spouse and non-child dependents. (Due to phase out in 2023.)

No change in charitable deduction rules.
Alternative Minimum Tax Separate tax calculation, mainly affecting upper-middle-income-taxpayers. No Alternative Minimum Tax


Tax Measure Current Law (for 2017) Proposed
Rates and brackets, single filer UP to $9,325: 10%
$9,326 to $37,950: 15%
$37,951 to $91,900: $25%
$91,901 to $191,650: 28%
$191,651 to $416,700: 33%
$416,701 to $418,400: 35%
Over $418,400: 39.6%
Up to $45,000: 12%
$45,001 to $200,000: 25%
$200,001 to 500,000: 35%
Over $500,000:39.6%
Standard deduction $6,350 for single filers.
$9,350 for heads of household.
$12,700 for married filing jointly.
$12,200 for single filers.
$18,300 for heads of household.
$24,400 for married filing jointly.
Rates and brackets, married filing jointly Up to $18,650: 10%
$18,651 to $75,900: 15%
$75,901 to $153,100: $25%
$153,101 to $233,350: 28%
$233,351 to $416,700: 33%
$416,701 to $470,700: 35%
Over $470,700: 39.6%
Up to $90,000: 12%
$90,001 to $260,000: 25%
$260,001 to $1 million: 35%
Over $1 million: 39.6%
Personal exemption $4,050 None
Mortgage interest Interest on loans of up to $1 million may be deducted. Interest on loans of up to $500,000 may be deducted. Limit applies to new home purchases.
State and local taxes State and local property, income, sales and other taxes may be deducted. Property tax deduction capped at $10,000.
Retirement accounts Pretax contributions of up to $18,000 for those under age 50. Pretax contributions of up to $24,000 for those 50 and older. No major changes.
Popular credits and deductions Student loan interest of up to $2,500 may be excluded from income, though the deduction phases out as income increases.

Child tax credit of $1,000, phased out as income increases.

Deduction of charitable contributions, subject to some limits.
No deduction of student loan interest.

Child tax credit of $1,600, plus $300 each for taxpayer, spouse and non-child dependents. (Due to phase out in 2023.)

No change in charitable deduction rules.
Alternative Minimum Tax Separate tax calculation, mainly affecting upper-middle-income-taxpayers. No Alternative Minimum Tax


Correction: In the section on wealthy taxpayers, an earlier version misstated the amount of income that would be subject to a top tax rate of 35 percent.