GOP tax overhaul cuts taxes, limits or kills some deductions
House Speaker Paul Ryan, center, in Washington D.C., at the introduction of the Republicans' tax overhaul in Washington, D.C., on Thursday, Nov. 2, 2017. Credit: Getty Images / Win McNamee
WASHINGTON — House Republicans unveiled a massive tax overhaul Thursday that slashes rates for corporations, small businesses and individuals, but pays for it in part by axing deductions for state income taxes and reducing them for mortgages and property taxes.
While dropping corporate rates from 35 percent to 20 percent, creating a 25 percent rate aimed at small businesses and setting a 12 percent rate to lure back overseas profits, the bill caps property tax deductions at $10,000 and limits deductions for new mortgages to $500,000.
The plan also preserves current tax rules for retirement accounts popular with middle-class Americans, such as 401(k)s and IRAs, and adds a fourth tax bracket to keep the 39.6 percent tax rates for filers with incomes of $1 million or more.
“This is it. This is a very important and special moment for our country,” said House Speaker Paul Ryan (R-Wis.), as he introduced the 400-page complex tax legislation.
The House bill represents the first step by President Donald Trump and Republican leaders as they embark on a fast track to pass by Christmas the first major revamp of the tax code since 1986 to secure Trump’s first major legislative victory.
At a White House meeting, Trump told House Majority Leader Kevin McCarthy (R-Calif.) that “I want to also have a bill on my desk, hopefully, Kevin, by Thanksgiving.”
Rep. Kevin Brady (R-Texas), the Ways and Means Committee chairman, said his panel will begin work on the bill Monday and aim to finish so it can be voted on the following week. The Senate plans to unveil its version next week.
Senate Minority Leader Chuck Schumer called the bill “a tax giveaway to the rich” and said, “Tax legislation is extremely complex and you cannot have a successful bill if you sneak it through in the dead of night.”
The bill quickly ran into opposition from some conservatives because it would add $1.5 trillion to the deficit, and from other lawmakers because it would eliminate $1.26 trillion in tax breaks and deductions.
Tax writers rejected a last-minute appeal Wednesday by New York Republicans seeking to preserve deductions for state and local taxes, prompting Rep. Lee Zeldin (R-Shirley) and Rep. Peter King (R-Seaford) to say they could not support the bill. “This is basically taking money from Long Island and New York to subsidize tax cuts for the rest of the country,” King said.
To force House leaders to restore the deduction, King and Zeldin said Republicans from high-tax states such as New York, New Jersey and California will have to threaten the bill’s passage.
Brady defended the scrapping of deductions, saying they would be made up by the new tax brackets, doubling the standard deduction, charitable deductions and increased child and family tax credits.
The bill finally spelled out the four tax brackets for married couples that will replace the current seven: zero for income up to $24,000; 12 percent for up to $90,000; 25 percent for up to $260,000; 35 percent for up to $1 million, and maintains the 39.6 percent rate for incomes above $1 million.
The plan also doubles the lower threshold of $5.4 million for estate taxes and then phases those taxes out over time, at a cost of $200 billion of the $1.5 trillion deficit.
A partisan dispute arose over how the bill would affect the middle class.
Ryan said a typical family of four would save $1,182 a year on their taxes. “This plan is for the middle-class families in this country who deserve a break,” he said.
Schumer said a family of five with student loans and medical bills would pay $993 more in taxes.
Howard Gleckman, an expert at the centrist Tax Policy Center, said the bill had an “idiosyncratic” effect on individual households. “Some will pay more than under current law while others will pay less,” he said. “It will depend very much on their specific circumstances.”
WASHINGTON — House Republicans unveiled a $1.5 trillion tax plan that cuts the corporate rate, lowers the personal tax rate of most Americans and eliminates or limits some prized deductions. A look at provisions of the proposal:
—Income tax rates: Sets four new income tax rates: 12 percent, 25 percent, 35 percent and 39.6 percent. The 25 percent rate would start at $90,000 for married couples and $45,000 for individuals; the 35 percent rate would apply to family income exceeding $260,000 and individual income over $200,000. The current 39.6 percent top rate would apply to income exceeding $500,000 and earnings exceeding $1 million for married couples.
— Nearly doubles the standard deduction to $12,000 for individuals and $24,000 for couples.
—Limits the mortgage interest deduction for new home loans to the first $500,000 of the loan, instead of the current $1 million limit. Eliminates the deduction for second homes.
—Eliminates the deduction for state and local income taxes, and caps the deduction for state and local property taxes at $10,000.
—Eliminates medical expense deductions, which would affect families dealing with a member living in a nursing home.
—Families: Eliminates personal exemptions of $4,050 for each family member. Repeals alimony payments for divorces after 2017, moving expenses. Workers would owe taxes on the amount of employee achievement awards, and on employer-provided assistance for adoptions and for caring for children or disabled family members.
—Tax credits: Increases the per-child tax credit from $1,000 to $1,600 and extends it to families earning up to $230,000. There’s also a new $300 tax credit for each adult in a family.
—Business taxes: Cuts the top tax rate for corporations from 35 percent to 20 percent. Lowers to 25 percent the rate for many “pass-through” businesses, whose profits are taxed at the owners’ individual rate, though service businesses such as law firms wouldn’t be eligible.
—Multinational corporations: Establishes a 10 percent tax on profits for overseas subsidiaries of U.S. corporations and seeks to prevent tax gamesmanship that has moved U.S. companies overseas. Permits “repatriation” back to the U.S. of profits stockpiled overseas at a one-time 12 percent rate. Tightens tax rules on U.S. operations of foreign companies.
—AMT: Repeals the alternative minimum tax, a parallel tax structure aimed at ensuring that all people pay at least some tax.
—Estate inheritance tax: Immediately doubles the exemption of large estates from $11.2 million to $22.4 million and repeals the estate tax entirely after six years.
—Sports: Repeals the charitable deduction for money spent for the right to buy tickets to college sports events. Ends the tax exclusion for interest on bonds issued by state and local governments to build professional sports stadiums.
—Eliminates the tax credit small businesses have received for easing physical access to their offices for disabled people.
—Reduces the tax credit for companies for producing electricity from alternative sources like wind and solar energy.
— The Associated Press
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