Tax overhaul

Goal is simplifying system, but big hurdles ahead.

WASHINGTON — Congressional Republicans are planning a massive overhaul of the nation’s tax system, 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.

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.

Small business owners would get a special top tax rate of 25 percent.

Investment income would be taxed like wages, but investors would have to pay taxes on only half of this income.

Senate Republicans have yet to coalesce around a comprehensive plan, or even an outline.

Trump’s plan

President-elect Donald Trump’s plan has fewer details. He promises a tax cut for every income level, with more low-income families paying no income tax at all.

The Tax Policy Center says Trump’s plan would reduce revenues by a whopping $9.5 trillion over the first decade, with most of the tax benefits going to the wealthiest taxpayers. Trump has disputed the analysis.

Like the House plan, Trump would reduce the top income tax rate for individuals to 33 percent, and he would reduce the number of tax brackets to three. He would also increase the standard deduction.

Trump has embraced two ideas championed by Obama but repeatedly rejected by Republicans over the past eight years. Trump’s plan would cap itemized deductions for married couples making more than $200,000 a year.

It would also tax carried interest, which are fees charged by investment fund managers, as regular income instead of capital gains.