By Politico.com
The tax overhaul is Republicans’ top priority ahead of next year’s
elections, and lawmakers are desperate for a victory after the Obamacare
repeal failed.
House Republicans unveiled plans Thursday for a sweeping overhaul of
the tax system calling for fundamental changes in business and
individual taxes, including big cuts in rates and new breaks for
families.
It also includes provisions sure to stoke controversy and fierce
lobbying, including new limits on the popular mortgage interest
deduction. People could only deduct interest on the first $500,000 of
loans for newly purchased homes, down from the current $1 million, and
lawmakers would eliminate the break for second homes. The bill would
also make it harder for people to sell their homes without paying taxes
on any capital gains.
And there would be sharply lower limits on a long-standing break for state and local taxes.
While big companies would get a significantly lower 20 percent
corporate rate, down from 35 percent, they would face new limits on
their ability to deduct interest on their loans, a new global minimum
tax on their overseas earnings, and new taxes on U.S. companies heading
abroad.
Republicans dropped a contentious plan to curb tax benefits for
401(k) retirement plans, which had GOP lawmakers cheering House Ways and
Means Chairman Kevin Brady at a closed door briefing on the plan.
The unveiling of the 429-page bill — and a summary that runs 82 pages
— kicks off what is sure to be a grueling slog to get legislation to
President Donald Trump by the end of the year.
Exactly who would lose in the proposal — dubbed the "Tax Cuts and
Jobs Act" — has been a closely guarded secret, and many lawmakers will
surely be surprised at the scope of changes needed to make the numbers
behind the plan work.
Several influential business groups slammed the proposal.
The National Federation of Independent Business announced its
opposition, citing restrictions lawmakers included on which small
businesses can claim their lower tax rate on unincorporated
"pass-through" firms. The issue has been one of the most difficult for
lawmakers to work out, and could prove to be one of the most contentious
going forward.
Though lawmakers would reduce the rate on those businesses to 25
percent, there would be limits on which firms could take advantage,
provisions designed to avoid gaming by wealthy individuals.
Under the proposal, pass-throughs would get the lower rate on 30
percent of their profits, with the remainder taxed at ordinary income
tax rates, though there would be circumstances in which businesses could
qualify for a bigger share being subject to the special rate. That
means, though, that some pass- throughs would actually pay more than 25
percent under the plan.
“This bill leaves too many small businesses behind,” said Juanita
Duggan, the group’s president. “We believe that tax reform should
provide substantial relief to all small businesses.”
The National Association of Home Builders said the legislation
“eviscerates” housing tax benefits, and “abandons middle class
taxpayers.”
The National Association of Realtors meanwhile has already begun
lobbying against the proposal, running online ads in tax writers’
districts. “Don’t let tax reform become a tax increase for middle-class
homeowners,” the ad says.
Other business groups embraced the plan, including the U.S. Chamber of Commerce and the Business Roundtable.
“This bold tax reform bill is exactly what our nation needs to get
our economy growing faster,” said Neil Bradley, a senior vice president
at the Chamber of Commerce. Said Jamie Dimon, head of JP Morgan Chase
& Co. and the Business Roundtable: "We support this tax reform
effort because it is good for all Americans."
The plan is Republicans’ top priority ahead of next year’s elections,
and lawmakers are desperate for a victory to take to voters after the
failed campaign to repeal the Affordable Care Act.
Republicans are hoping to move it quickly through the House, with
committee action penciled in for next week. Lawmakers aim to forward it
on to the Senate later this month. Senate Republicans are working on
their own competing plan they aim to unveil next week. Lawmakers hope to
land a compromise on Trump’s desk by the end of the year.
House leaders, who have written the plan in secret, have avoided
identifying most of the breaks that would be quashed under the proposal
in order to keep lobbyists at bay. But many Republicans had little
inkling of what’s in the bill, and the strategy means leaders have not
had much opportunity to build support among rank-and-file members for
controversial proposals.
The bill is loaded with sure-to-be contentious ideas affecting broad
swathes of the economy. It would delete a long-standing deduction for
people with high medical bills — including those with chronic
conditions. People would have to live longer in their homes, under the
bill, to qualify for tax-free treatment of capital gains when they sell
their houses.
It would also kill a long-standing breaks for adoptions, and for
student loan interest costs. Private universities would face a new 1.4
percent tax on their investment earnings from their endowments. The Work
Opportunity Credit, which encourages businesses to hire veterans, would
be eliminated. So too would the New Markets Tax credit, which
encourages investment in poor areas.
Tax benefits related to fringe benefits would be curtailed. It would
also dump a long-standing break for casualty losses that allow people to
deduct things lost in fires and storms, although it would continue to
allow the provision for people hit by hurricanes — no doubt reflecting
the influence of Brady, whose Houston-area district was hit by Hurricane
Harvey.
Foreign companies operating in the United States would face higher
taxes under the proposal, as would companies such as pharmaceutical
firms that move overseas and want to sell goods back to the United
States.
An official cost estimate of the legislation was not immediately
available, though Brady said that would be released Thursday. He said
the legislation met his party’s budget stipulating that they could not
cut taxes by more than $1.5 trillion.
For individuals, the plan would reduce the number of tax brackets to
four from the current seven, with the top rate remaining at 39.6
percent. Republicans would more than double the income threshold at
which the top rate would kick in to $1 million for married couples. They
would simultaneously raise taxes on the rich, though, by limiting their
ability to take advantage of their lowest income tax bracket. The 35
percent bracket would begin at $260,000 for married couples, and the
threshold for a 25 percent bracket would be $90,000 under the plan
.
Republicans would also get rid of personal exemptions, which are
designed to adjust tax burdens for family size. The plan would instead
double the standard deduction while increasing both the size of the
child tax credit to $1,600, from the current $1000, while increasing the
income threshold at which it could be claimed. They would also create a
new $300 credit for adult dependents as well as another $300 “family
flexibility” credit.
The bill would ease the estate tax by doubling the threshold at which it would kick in before eventually repealing it.
Aside from the lower corporate tax rate, businesses would also get
the ability to immediately write off their investment expenses for the
next five years. They would get a one-time reduced rate of 12 percent on
their overseas earnings on liquid assets and a 5 percent rate on
illiquid assets like factories.
But they would face new limits on their ability to deduct interest
payments on the money they borrow. They would also face a new 10 percent
foreign minimum tax targeting companies that squirrel away money in
offshore tax havens. Life insurance companies would lose a number of tax
benefits, private activity bonds would be eliminated and tax-exempt
bonds could no longer be used to help build professional sports
stadiums.
Rachael Bade and Sarah Ferris contributed to this report.
Politico.com & sotechnaija
