Cut rates, brack­ets but what about deficit: GOP on taxes

Kuwait Times - - BUSINESS -

Con­gres­sional Repub­li­cans are plan­ning a mas­sive over­haul of the na­tion’s tax sys­tem next year, a heavy po­lit­i­cal lift that could ul­ti­mately af­fect fam­i­lies at ev­ery in­come level and busi­nesses of ev­ery size. Their goal is to sim­plify a com­pli­cated tax code that re­wards wealthy peo­ple with smart ac­coun­tants, and cor­po­ra­tions that can eas­ily shift prof­its - and jobs - over­seas. It won’t be easy. The last time it was done was 30 years ago.

Se­nate Ma­jor­ity Leader Mitch McCon­nell, R-Ky, and Speaker Paul Ryan, RWis., have vowed to pass a tax pack­age that would not add to the bud­get. The Wash­ing­ton term is “rev­enue neu­tral.”

It means that for ev­ery tax cut there has to be a tax in­crease, cre­at­ing win­ners and losers. Law­mak­ers would get some lee­way if non-par­ti­san con­gres­sional an­a­lysts project that a tax cut would in­crease eco­nomic growth, rais­ing rev­enue with­out in­creas­ing taxes.

Nev­er­the­less, pass­ing a mas­sive tax pack­age will re­quire some tough votes, po­lit­i­cally. Some key Repub­li­can sen­a­tors want to share the po­lit­i­cal risk with Democrats. They ar­gue that a tax over­haul must be bi­par­ti­san to be fully em­braced by the public. They cite Pres­i­dent Barack Obama’s health law - which passed in 2010 with­out any Repub­li­can votes - as a ma­jor pol­icy ini­tia­tive that re­mains di­vi­sive.

Con­gres­sional Democrats say they are ea­ger to have a say in over­haul­ing the tax code. But McCon­nell, who faulted Democrats for act­ing uni­lat­er­ally on health care, is lay­ing the ground­work to pass a purely par­ti­san bill.

Both McCon­nell and Ryan said they plan to use a leg­isla­tive ma­neu­ver that would pre­vent Se­nate Democrats from us­ing the fil­i­buster to block a tax bill. McCon­nell says he wants the Se­nate to tackle a tax plan in the spring, af­ter Congress re­peals Obama’s health law. House Repub­li­cans are more ea­ger to get started, but haven’t set a time­line.

Some things to know about Repub­li­can ef­forts to over­haul the tax code:

The house plan

House Repub­li­cans have re­leased the out­line of a tax plan that would lower the top in­di­vid­ual in­come tax rate from 39.6 per­cent to 33 per­cent, and re­duce the num­ber of tax brack­ets from seven to three. The gist of the plan is to lower tax rates for just about ev­ery­one, and make up the lost rev­enue by scal­ing back ex­emp­tions, de­duc­tions and cred­its. The plan, how­ever, re­tains some of the most pop­u­lar tax breaks, in­clud­ing those for pay­ing a mort­gage, go­ing to col­lege, mak­ing char­i­ta­ble con­tri­bu­tions and hav­ing chil­dren.

The stan­dard de­duc­tion would be in­creased, giv­ing tax­pay­ers less in­cen­tive to item­ize their de­duc­tions.

The non-par­ti­san Tax Pol­icy Cen­ter says the plan would re­duce rev­enues by $3 tril­lion over the first decade, with most of the sav­ings go­ing to the high­est-in­come house­holds. That’s not rev­enue neu­tral. Small busi­ness own­ers would get a spe­cial top tax rate of 25 per­cent. In­vest­ment in­come would be taxed like wages, but in­vestors would only have to pay taxes on half of this in­come. — AP

WASH­ING­TON: The ex­te­rior of the In­ter­nal Rev­enue Ser­vice (IRS) build­ing in Wash­ing­ton. Con­gres­sional Repub­li­cans are plan­ning a mas­sive over­haul of the na­tion’s tax sys­tem in 2017, a heavy po­lit­i­cal lift that could ul­ti­mately af­fect fam­i­lies at ev­ery in­come level and busi­nesses of ev­ery size. — AP

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