Republicans Release Tax Plan, Cutting Corporate And Middle-Class Taxes (Demo)

Republican lawmakers unveiled the most sweeping rewrite of the tax code in decades on Thursday, outlining a $1.51 trillion plan to cut taxes for corporations, reduce them for some middle-class families and tilt the United States closer, but not entirely, toward the kind of tax system long championed by businesses.

The House plan, released after weeks of internal debate, conflict and delay, is far from final and will ignite a legislative and lobbying fight as Democrats, business groups and other special interests tear into the text ahead of a Republican sprint to get the legislation passed and to President Trump’s desk by Christmas.

“With this plan, we are making pro growth reforms, so that yes, American can compete with the rest of the world,” said House Speaker Paul D. Ryan of Wisconsin.

Representative Kevin Brady, chairman of the House Ways and Means Committee, said that the plan had the “full support” of President Trump and predicted that it would be on his desk this year.

The bill is estimated to cost $1.51 trillion over a decade. Lawmakers must keep the cost of the bill to $1.5 trillion if they want to pass it along party lines and avoid a fillibuster by Democrats. Lawmakers have been scrambling for days to find a way to make cuts that are expected to cost trillions of dollars into a $1.5 trillion hole. That has prompted a host of changes on the corporate and individual side, including a new twist that would limit the mortgage interest deduction by capping it at $500,000.

Anticipating the coming resistance from industry groups, Mr. Brady said: “We’re going to prove them wrong once and for all.”

“This isn’t the last product,” said Representative Carlos Curbelo, Republican of Florida and a member of the House Ways and Means Committee. “This is just the kickoff to this tax reform exercise.”

Individual tax rates will change

The plan establishes three tax brackets, 12, 25 and 35 percent, and also keeps a top rate of 39.6 percent for the highest-earners, collapsing the total number of brackets from seven. The brackets, as described by Representative Kevin Brady, chairman of the Ways and Means Committee and Republican of Texas, fall along the following lines:

Single filers making up to $24,000 will pay no income tax; up to $90,000 will be in the 12 percent bracket, up to $260,000 in the 25 percent bracket and up to $1 million in the 35 percent bracket. Those making above $1 million will be in the 39.6 percent bracket, which is currently the top rate for millionaires.

Changes for the middle class

The proposal roughly doubles the standard deduction for middle-class families, expanding it to $24,000 for married couples, from $12,700, and setting it at $12,000 for individuals, from $6,530 today. Republicans also plan to expand the child tax credit to $1,600 from $1,000 and add a $300 credit for each parent and nonchild dependent, such as older family members.

Some tax credits are eliminated

The bill includes a host of changes that will impact taxpayers in different ways. For instance, it repeals certain tax credits, including a 15 percent credit for individuals age 65 or older or who are retired on disability. Right now, those individuals can claim up to $7,500 for a joint return, $5,000 for a single individual, or $3,750 for a married individual filing a joint return.

The House bill would entirely repeal that tax credit. It would also repeal the adoption tax credit, no longer allow deductions for tax preparation and repeal credits for alimony payments. And deductions for moving expenses would no longer be allowed.

No changes to 401(k) retirement plans

After much nail-biting debate, the House will not make any changes to the pretax treatment of 401(k) plans. “Americans will be able to continuing making both traditional, pretax contributions and ‘Roth’ contributions in the way that works best for them,” the talking points say.

Changing the mortgage interest deduction

One of the biggest flash points will be proposed changes to the popular mortgage interest deduction. Under the Republican plan, existing homeowners can keep the deduction, but future purchases will be capped at $500,000.

The National Association of Realtors came out swinging against the bill, suggesting a huge fight awaits over how real estate is treated.

“Eliminating or nullifying the tax incentives for homeownership puts home values and middle-class homeowners at risk, and from a cursory examination this legislation appears to do just that,” said William E. Brown, president of the National Association of Realtors. “We will have additional details upon a more thorough reading of the bill.”

Jerry Howard, chief executive of the National Association of Homebuilders, said he was very disappointed in the Republican tax plan and warned that it could create a recession in the housing market.

“It puts such severe limitations on home buyers ability to use the mortgage interest deduction that home values will fall,” Mr. Howard said in an interview. “If a home seller takes a loss, that’s money they were counting on for retirement.”

Mr. Howard said the bill amounts to a broken promise.

“Contrary to their assertions, the Republicans are picking winners and losers,” he said. “They are picking rich Americans and corporations over small businesses and the middle class.”

Eliminating the medical expense deduction

A big change may be in store for those who deduct medical expenses. The talking points outlined by Republicans say the deduction will go away but that families will be made whole by the overall lowering of tax rates and doubling the standard deduction. But those who make heavy use of the medical expense deduction — including many middle-class families — may be opposed to that change.

Repealing the estate tax — eventually

The proposal will double the estate tax exemption to roughly $11 million, from $5.49 million, meaning families can avoid paying taxes on large inheritance. And it eventually repeals the estate tax altogether, phasing it out entirely in six years.

Adding limits to the state and local tax deduction

One of the biggest flash points will be how the bill treats the state and local tax deduction, which lawmakers are proposing to limit to property taxes and cap at $10,000. That will not be enough for Republicans in some high-tax states, where middle-class families make heavy use of the deduction, which currently applies to state and local income taxes and general sales taxes as well as property taxes.

House Republicans had intended to roll out the tax proposal on Wednesday, but ended up delaying its release by a day, providing a signal of the steep challenge they face in making the math work while also assembling the votes they need to get a bill through the chamber.

Representative Dan Donovan, a Republican from New York, said he remained concerned about the impact of the state and local tax deduction as he left a briefing on the bill but said he would assess the proposed changes on their entirety.

“I’m looking for a benefit for the people I represent,” he said. “The people of New York City deserve a tax break.”

Multinational corporations face big changes

For the first time, the United States is proposing to have a global minimum tax of 10 percent, which would apply to income that American companies earn anywhere in the world. The effort is aimed at preventing companies from shifting profits abroad and grabbing back some of the tax revenue on income earned overseas. Those profits are currently not taxed until they are returned to the United States, giving companies an incentive to keep that money offshore since they are taxed at the current corporate tax rate of 35 percent.

A new tax rate for pass-through businesses, with guardrails

Republicans stuck to their promise of lowering the tax rate for “pass through” businesses to 25 percent. But to prevent the rate from becoming a loophole for all sorts of individuals, tax-writers have created a formula they say will ensure that business owners will pay a higher individual tax rate on income that they receive as wages. The formula would be applied based on the circumstances of the business.

Republican leaders are encouraged

Walking into the men’s restroom, Representative Kevin McCarthy, Republican of California, said of his colleagues, “It looks very positive, these people are excited.” He added: “this is why they came to Congress.”