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Here's how the GOP wants to overhaul the tax system

  • House Republicans unveiled their plan to overhaul the tax code on Thursday.
  • The plan would reduce the number of income tax brackets, raise the child tax credit and preserve popular retirement savings plans.
  • Tax reform has been a major focus for a GOP in need of a legislative win since their failure to repeal Obamacare.

House Republicans unveiled their plan to overhaul the tax code on Thursday in what could be the biggest rewriting of the system in decades.

For President Donald Trump, who has repeatedly pledged to slash taxes, passing the Tax Cut and Jobs Act would give him his first major legislative win of his administration.

As part of that reform package, the GOP aims to permanently lower the corporate tax rate to 20 percent. The House bill would also slash the number of income tax brackets from seven to four: 12 percent, 25 percent, 35 percent and 39.6 percent.

The bill seeks to raise the child tax credit to $1,600 from its current maximum of $1,000. It also preserves popular retirement savings plans like 401(k)s and Individual Retirement Accounts.

Under current law, taxpayers can put a specified amount in 401(k) retirement savings plans without paying taxes upfront. The amount workers can contribute to a 401(k) rises to $18,500 next year, up from $18,000 in 2017. People age 50 and older can tack on a so-called catch-up contribution of $6,000.

The GOP bill would also allow taxpayers to write off up to $10,000 in state and local property taxes.

But the plan would cut a popular mortgage interest deduction in half. While it would maintain the current deduction of $1 million in mortgage debt for current homeowners, that cap would be slashed to $500,000 for newly purchased homes.

Homebuilder stocks were hit hard on the plan. Both the SPDR S&P Homebuilder ETF and the iShares U.S. Home Construction ETF fell more than 2 percent, pacing for their worst daily performances in about a year.

The proposal also moves forward in repealing the alternative minimum tax, an extra tax that some have to pay on top of their regular income tax.

The Republican tax plan seeks to immediately double the estate tax exemption and repeal the tax in six years. The estate tax, also known as the death tax, is currently a 40 percent levy on estates greater than $5.49 million for individual filers or about $11 million for married couples.

The bill also proposes a reduction in taxes for companies with international earnings in an attempt to encourage U.S. corporations to bring back some of the trillions in profits overseas. The GOP plan would cut the tax of this foreign-earned income to 12 percent for cash and 5 percent for non-cash.

This specific proposal would especially benefit technology giants like Apple and Alphabet. The iPhone maker, set to report earnings later Thursday, holds $261.5 billion in cash. Most of that figure is held overseas.

Overhauling the tax code has been a major focus for both the White House and congressional Republicans after failing to repeal Obamacare.

After the bill's release, Trump said in a statement that he applauded the House Ways and Means Committee for its work on the bill. He said his administration is just getting started and "will work tirelessly to make good on our promise to the working people who built our Nation and deliver historic tax cuts and reforms — the rocket fuel our economy needs to soar higher than ever before."

The GOP tax reform package had originally been scheduled for release Wednesday. But House Republicans postponed the release, saying they still had to finalize a few details of the plan.

Last week, the House narrowly approved a Senate version of the 2018 federal budget, clearing the path for the Republican-controlled Senate to pass its tax reform plan later this year.

Passing that version of the budget kicked off the reconciliation process, allowing the Senate to pass legislation with a simple majority. Typically, a 60 vote supermajority is needed to end debate and move a bill to a vote.

— CNBC's Ylan Mui, Diana Olick, Christina Wilkie and Christopher Hayes contributed to this report.