Slashing rates — and popular breaks
Proposed changes to mortgage interest deduction met with resistance from industry groups
House Republicans on Thursday proposed the biggest overhaul of the U.S. 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 — $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 middleand working-class households. The trade-off between reducing tax rates but curtailing deductions — such as the amount that homeowners 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 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 organizations, 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 lawmaker. But to succeed, GOP lawmakers 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 lawmakers 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 percent from 35 percent, the most significant in a series of benefits the bill contains for businesses. In addition to the $1 trillion in total tax cuts over 10 years for businesses, the proposal would mean $300 billion in tax cuts for households and families, as well as $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 lawmakers, discussions that continued right up to the hours before the bill’s release.
For individuals and families, income-tax rates would go down. Currently, families have to pay a tax rate of 39.6 percent on income above $470,700. The House Republican bill would apply that tax rate only to income above $1 million for families. Rates further down the income spectrum would be cut as well.
“It’s an awesome tax cut,” said Rep. Bill Flores, R-Texas. “I mean, it rebuilds working-class 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 Thursday. Under current tax law, Americans can deduct interest payments made on their first $1 million worth of home loans. The bill would allow existing mortgages to keep the current rules, but for new mortgages, homebuyers would be able to deduct interest payments made only on their first $500,000 worth of loans.
Some deductions would be expanded. The bill would nearly double the standard deduction that many Americans claim on their taxes, raising it from $12,700 to $24,000 per family. But this benefit would be partially offset by the elimination of the personal exemption many Americans can claim, which can be large for families with multiple children.
The bill would add up to $1.5 trillion over 10 years to the national deficit, a move that contrasts with Republicans’ efforts under President Barack Obama to block legislation that could have expanded the deficit.
Party leaders are setting an ambitious timeline, with the House and Senate hoping to pass legislation before Thanksgiving. A Senate bill has not yet been introduced.
Jerry Howard, chief executive of the National Association of Home Builders, said his group would fight the bill “tooth and nail,” claiming that it could lead to a decline in home prices and a housing recession.
“This now is a direct assault on the American dream of homeownership,” he said in an interview.
Republicans said these changes are necessary to allow them to lower tax rates for all taxpayers. But many Democrats signaled opposition, vowing to fight its passage even while in the political minority.
“This bill is like a dead fish,” said Senate Minority Leader Charles Schumer, D-N.Y. “The more it’s in sunlight, the more it stinks, and that’s what’s going to happen.”