GOP tax plan would slash corporate tax rate
WASHINGTON: House Republicans on Thursday proposed the biggest overhaul of the US tax code in three decades, a plan that would sharply cut tax rates for corporations and individuals while eliminating many popular deductions that Americans have long enjoyed.
At its core, the legislation would deliver the kind of tax relief to companies – US$ 1 trillion over 10 years - that Republicans say will spark economic growth and encourage businesses to create more jobs and invest heavily in the United States.
Far less clear is the bill’s impact on middle- and workingclass households. The trade- off between reducing tax rates but curtailing deductions - such as the amount that home owners can write off for their mortgage interest payments - means the impact will vary widely from one family to another.
Many Americans who need to take out big loans to buy homes in expensive areas such as New York, Boston and San Francisco could see their taxes go up. The Washington region would be a prime example of the trade- offs. High salaries here at lower tax rates would deliver savings off Internal Revenue Service bills. But high home prices mean home buyers take out big loans. The District of Columbia region is home to six of the 10 counties where residents take the highest average mortgage deduction.
The GOP bill would also scale back the amount Americans can deduct from their federal bill because of taxes paid to state and local governments. That could punish those who live in states with high income taxes - states that generally are governed by Democrats.
The uneven effects of the legislation - and the possibility that some middle- class Americans could see their tax bills increase - promise to complicate the Republican effort to unify behind the bill. Several powerful lobbying organisations, some long aligned with the GOP, vowed Thursday to fight the proposal.
But for Republicans, the tax push represents possibly their last opportunity to pass a major piece of legislation before campaign season begins for next November’s elections, when their majorities in the House and Senate will be challenged.
President Donald Trump has put changing the tax code at the top of his domestic agenda, and the party holds enough seats in the House and Senate to pass the bill into law without support from a single Democratic law
The GOP bill would also scale back the amount Americans can deduct from their federal bill because of taxes paid to state and local governments.
maker. But to succeed, GOP law makers will have to avoid the internal divisions that have undermined other major legislative efforts, including multiple failed attempts to repeal the Affordable Care Act.
Trump praised House law makers for introducing the bill and predicted that some iteration of the tax cut plan will be signed into law by year’s end.
“We are giving them a big, beautiful Christmas present in the form of a tremendous tax cut,” he said in brief remarks from the White House.
The bill, unveiled by GOP leaders Thursday morning at an elaborate news conference in the Capitol, would slash the corporate tax rate to 20 per cent from 35 per cent, the most significant in a series of benefits the bill contains for businesses. In addition to the US$ 1 trillion in total tax cuts over 10 years for businesses, the proposal would mean US$ 300 billion in tax cuts for households and families, as well as US$ 200 billion in tax cuts - almost all of which will benefit the wealthiest families - by repealing the estate tax, according to estimates from the nonpartisan Committee for a Responsible Federal Budget.
The legislation is the result of months of negotiation among Trump administration officials and many Republican law makers, discussions that continued right up to the hours before the bill’s release.
Last Wednesday evening, House Ways and Means Committee chairman Kevin Brady, Republican, suggested the party might wobble on Trump’s promise to permanently cut the business tax rate, instead having the rate expire after eight years as part of an effort to facilitate the bill’s passage in the Senate. But in a late change, Republicans extended the cut in the business tax rate, in part by scaling back the scope of a new “Family Flexibility Credit” for parents and nonchild dependents that the bill would create, said several people involved in the discussions who were not authorised to discuss them publicly.
In the version of the bill introduced Thursday, the credit would be worth US$ 300 annually and would be eliminated in five years.
For individuals and families, income-tax rates would go down. Currently, families have to pay a tax rate of 39.6 per cent on income above US$ 470,700. The House Republican bill would apply that tax rate only to income above US$ 1 million for families. Rates further down the income spectrum would be cut as well.
“It’s an awesome tax cut,” said Republican Bill Flores, Texas. “I mean, it rebuilds workingclass America - great for jobs, great for the economy. It’s going to be huge.” The bill would seek to balance revenue lost to the rate cuts, however, by scrapping numerous tax breaks, some of which are used by tens of millions of Americans and have large-scale support.
The change to the mortgage interest deduction drew immediate attention last Thursday. Under current tax law, Americans can deduct interest payments made on their first US$ 1 million worth of home loans. The bill would allow existing mortgages to keep the current rules, but for new mortgages, home buyers would be able to deduct interest payments made only on their first US$ 500,000 worth of loans.
The proposal to scale back allowing Americans to deduct state and local tax payments from their federal bill was particularly contentious during negotiations.
Republicans initially proposed eliminating that deduction entirely, but after a revolt from GOP law makers from New York, New Jersey and other high-tax states, the bill introduced Thursday contained a compromise. The bill would allow people to deduct their local property taxes from their taxable income, but only up to the first US$ 10,000.
And Americans would no longer be able to deduct their medical expenses or property and casualty losses, according to a document outlining the plan. — WP-Bloomberg