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.
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
