GOP plan calls for tax cuts. major changes
House Republican proposal scraps popular deductions.
A House Republican WASHINGTON— plan to overhaul the federal tax code would lower income tax rates for many Americans, but would dramatically change the way taxpayers rely on deductions to save money on their annual returns.
The ambitious bill, unveiled Thursday during a series of news conferences and televised appearances that had all the appearance of a glitzy political campaign, is the latest Republican hope to demonstrate to voters that they can deliver the fifirst overhaul of the tax code since 1986.
House Speaker Paul Ryan, R-Wis., who for years has championed a major revision of the tax code, told reporters “with this plan, we are getting rid of loopholes for special interests and leveling the playing fifield,” adding most Americans will be able to do their “taxes on a form the size of a postcard.”
Columbus-area Rep. Pat Tiberi, R-Genoa Twp., and a member of the tax-writing House Ways and Means Committee, called the release of the bill a “historic moment that moves us one step closer to sending a tax bill” to President Donald Trump to sign.
But though Republican strategists believe GOP lawmakers must push a tax bill through Congress or face major losses in next year’s elections, the Republicans run the risk of antagonizing voters over aspects of the plan. For example, the plan scraps deductions for state and local income taxes, and ends the $4,050 personal exemption for every family member.
In addition, the bill limits to $10,000 a year the amount
Americans can deduct in property taxes, which could hurt taxpayers in states with high home prices.
The bill also would allow those with existing home mortgages to de duct the interest on their mortgages. But for newly purchased homes, the home-mortgage interest deduction would be limited to $500,000 instead of $1 million under current law.
William E. Brown, president of the National Association of Realtors, warned that “eliminating or nullifying the tax incentives for home ownership puts home values and middle class homeowners at risk, and from a cursory examination this legislation appears to do just that.”
The GOP dropped a contentious proposal to reduce the amount of money Americans can pour tax-free into their 401(k) retirement accounts. When word circulated the Republicans wanted to reduce those contributions —which currently are capped at $18,000 a year — fifinancial institutions reacted with alarm.
“Thank you to all those in Ohio and across the country who stood up and said ‘hell no’ to those in Washington who wanted to cut take-home pay for working people and make it harder for them to save for retirement,” said Sen. Sherrod Brown, D-Ohio.
But the bill also kills deductions for medical expenses, which impacts people who are paying nursing home expenses.
In addition, unless the bill sparks a robust economic expansion not seen in two decades, itwould add roughly $1.5 trillion to the federal government’s publicly held debt during the next 10 years, according to the bill’s own projections.
That comes on top of the $ 10 trillion that will be added to the publicly held debt under current law, according to projections from the nonpartisan Congressional Budget Offiffice.
Republicans had to choose between two areas of emphasis that have guided them during the past four decades: cutting deficits or cutting taxes. With this bill, Republicans made clear they want to reduce taxes as opposed to bringing the ballooning federal debt under control.
Michael Peterson, president and chief executive officer of the Peter G. Peterson Foundation in Washington, denounced the bill as “an example of fiscal irresponsibility. It is based on a presumption that it’s somehow acceptable to add $1.5 trillion tour national debt over the next 10 years when we will already be adding $ 10 trillion as it is. We need to improve our dangerous fiscal outlook, not make it worse.”
House Ways and Means Committee Chairman Kevin Brady, R-Texas, next week will begin the process of pushing the bill through his panel in hopes of winning House passage by Thanksgiving. With Democrats already lining up in opposition, the Republicans may have to hope their members stay together and pass it with little or no Democratic support.
U.S. Rep. Marcy Kaptur, D-Toledo, said of the bill: “This process has nothing to do with preventing job outsourcing or creating jobs or putting money in people’s pockets. It has everything to do with promises made by Republican lawmakers to wealthy, corporate donors.”
The plan is designed to simplify the cumbersome tax code. The bill would reduce the current seven individual income tax brackets to four, slash the corporate income tax from 35 percent to 20 percent, and double the exemption for the estate tax before eliminating it altogether in six years.
House Republicans kept the 39.6 percent rate for marriedcouples with an adjusted gross income of $1 million or more. A married couple earning between $260,000 and $1million would be taxed at 35 percent. A married couple earning up to $260,000 annually would be taxed at a 25 percent rate, while a couple earning $ 90,000 would pay 12 percent rate.
How individual taxpayers would be affected depends on their situation. While the standard deduction would double to $24,000 a year for married taxpayers and $12,000 for those who are single filers, taxpayers would lose the $4,050 personal exemption they have for themselves and family members.
Also, taxpayers who accept the higher standard deduction could not itemize their returns to take deductions for mortgage interest or charitable contributions.
But in a nod to the high cost of raising a child, the child tax credit would rise in the bill from $1,000 per child to $1,600.