House GOP rolls out long-awaited tax plan

House Republicans unveiled a massive tax cut package Thursday that they say delivers on President Trump’s promise to slash the corporate rate and would mean a significant break for low- and middle-income Americans.

Wealthy Americans would also benefit from elimination of the estate tax and an end to the alternative minimum tax, though those in the upper-middle class would see their tax rates rise and would lose access to a number of breaks that had helped keep their tax bills in check.

Overall, the bill would cut federal government revenue by $1.5 trillion over the next decade, with two-thirds of that going to business tax cuts and the remaining third going to individuals.

The economic and political stakes are high for Mr. Trump and the House and Senate Republican majorities, seeking to put a major legislative win on the boards before facing voters in midterm elections next year. But the plan already has met with fierce opposition from Democrats, a host of interest groups and even some blue-state Republicans who said it would punish their constituents by slashing the right to deduct state and local taxes from the federal tax bill.

But Republican leaders and Mr. Trump were bullish on their chances. The president told Republican members of the House Ways and Means Committee that he wants to see a bill before the end of the year.

“We are working to give the American people a giant tax cut for Christmas,” an ebullient Mr. Trump said.

“Everyone’s all in on this,” House Ways and Means Committee Chairman Kevin Brady, flanked by Republican leaders, said after meeting with Mr. Trump at the White House.

“You are seeing with singular purpose a unified effort to break the status quo, to drain the swamp of this tax code and change it for the better for the American people,” said Mr. Brady, the Texas Republican who was the primary author of the tax blueprint.

The highlights of the bill track closely with Mr. Trump’s demands as Republicans struggled to craft a final package, jettisoning ideas such as new limits on popular 401(k) savings plans that the president opposed.

The tax plan would collapse the seven individual tax brackets to four rates: 12 percent, 25 percent, 35 percent and 39.6 percent.

It would nearly double the standard deduction, reaching $12,000 for individuals and $24,000 for married couples filing jointly, which would expand the number of people who owe no income tax at all — the “zero” bracket. But the plan also nixes the personal exemption that many filers claim.

Republicans axed some specialized tax breaks such as for adoptions, alimony payments, moving expenses and student loan interest.

But they revamped family tax credits, expanding the child tax credit from $1,000 to $1,600 per child and creating a $300 credit for non-child dependents such as elderly parents.

Republicans estimated that a family of four earning $59,000 per year — the median income in the country — would see a tax break of about $1,200 on average.

Democrats countered those projections by offering up a hypothetical family of five in Virginia with a household income of $75,000 per year, large medical bills and current deductions for state and local tax payments. Under the Democratic calculation, that family would pay at least $720 more, likely because of the loss of the medical expense deduction.

More generally, they said the tax plan offers nothing for the poor and hurts many in the middle class in order to deliver big savings to the wealthy and to big business.

“This is a shell game — a Ponzi scheme — that corporate America will perpetrate on the American people,” said House Minority Leader Nancy Pelosi, California Democrat.

Relief ’at every level’

The Tax Foundation ran eight scenarios ranging from $30,000 in annual income up to $2 million. In each case, the foundation said, taxpayers would owe less — anywhere from a few dollars to nearly $60,000, in the case of a couple owning a small business.

“What we see is tax relief at every level,” Mr. Brady said. “There is tax relief for Americans regardless of where they live.”

Republicans are hoping to push the bill through Mr. Brady’s committee next week en route to a full House vote before Thanksgiving, an ambitious legislative schedule. But they will face a number of objections as opponents and even many Republican lawmakers get their first detailed look at the proposal.

One of those land mines was a surprise limit on the mortgage interest deduction, which under the new plan would be able to be claimed on up to $500,000 worth of a loan — down from a $1 million cap now.

Although the major impact will be on the wealthiest markets, the National Association of Realtors said the broader bill constitutes “a tax increase on middle-class homeowners.” That makes the plan a tricky vote for Republicans from states such as New Jersey, New York and California.

Rep. Thomas MacArthur, New Jersey Republican, said he and other members were floored when leaders proposed the new cap Thursday morning.

“That was a surprise to me this morning, and I’ve talked to the chairman about why that wasn’t socialized earlier,” he said. “They obviously have known and they kept that from us, and I don’t appreciate it. Nobody knew. Every one of us was surprised.”

As part of a compromise with blue-state Republicans, the plan would allow taxpayers to continue deducting expenses tied to local property taxes.

But there will be a $10,000 cap on that benefit, and the plan repeals the deductibility of state and local income taxes — another provision that is popular among middle- to upper-income households.

Several Republicans from New York and New Jersey said they were not on board yet, signaling that party leaders could have to engage in some more horse-trading in order to get the bill across the finish line.

“Adding back in the property tax deduction up to $10,000 is progress, but not enough progress,” said Rep. Lee M. Zeldin, New York Republican.

Mr. MacArthur said he would like the limit bumped up to $12,500.

“There’s a lot of good in the bill,” he said. “I think that we’ve got to try to improve these couple of areas so that we don’t discourage homeownership in certain states.”

Rep. Peter T. King, New York Republican, said, “This is basically taking money from Long Island and New York to subsidize tax cuts for the rest of the country.”

In the Senate, Majority Leader Mitch McConnell, Kentucky Republican, said he expects a similar bill in his chamber.

Senate Finance Committee Chairman Charles E. Grassley, Iowa Republican, praised the House bill in a statement as a “critical step forward in passing middle-class tax relief and pro-growth tax reform,” but added, “It’s important to remember that the Senate is writing its own plan.”

Mr. Grassley told reporters he thought it would be “somewhat miraculous” if the lowest 20 percent corporate tax rate — a key demand of President Trump — survived in the final bill.

Senate gauntlet

Assuming no Democrats support the bill, Mr. McConnell can lose no more than two of his members to pass a package using fast-track rules that will allow it to be approved on a simple majority.

Republican Sens. Bob Corker of Tennessee and Jeff Flake of Arizona — both of whom have announced they won’t run for re-election next year, amid feuds with Mr. Trump — signaled that they were wary of passing a tax bill that would expand federal deficits.

“We cannot have cuts today that assume that we will grow a backbone in the out-years in terms of the real reforms that we’re going to need,” Mr. Flake said.

Deficit watchdog groups said the Republican plan would add to the country’s already-ballooning $20 trillion debt.

“True tax reform should aim to grow the economy without growing the debt,” said Robert Bixby, executive director of the Concord Coalition. “This plan would move U.S. fiscal policy in a dangerous direction, openly inviting higher deficits in the face of unsustainable debt.”

But Brian Riedl, a senior fellow at the Manhattan Institute for Policy Research, said the $1.5 trillion in total tax cuts isn’t a major dent. He said it’s just 3 percent of the revenue the government would collect over the next 10 years.

He said the bigger problem is spending and warned that without also tackling the big entitlements of Social Security and Medicare, the government’s deficits will far outstrip the $1.5 trillion from tax reform. Mr. Trump’s budget director said last month that the president won’t touch those programs.

“By refusing to address Social Security and Medicare, President Trump is undermining the long-term sustainability of his tax agenda,” Mr. Riedl said. “These tax cuts simply cannot survive if Social Security and Medicare run an $82 trillion deficit over the next 30 years.”

Congressional Republicans have said they expect the economy to grow fast enough to make up some of the ground in the deficit, explaining why they put so much effort into cutting business taxes.

The biggest change is an immediate and permanent cut in the corporate tax rate from 35 percent to 20 percent, one of Mr. Trump’s few must-haves in a tax package.

The tax plan also works toward a territorial system so that companies’ overseas earnings will no longer be subject to U.S. tax laws, another major win for big corporations.

Republicans would allow a one-time repatriation tax of 12 percent for offshore cash holdings and 5 percent for other overseas assets in an effort to get companies to return some $2.5 trillion parked offshore back into the U.S. economy.

The plan calls for a 25 percent tax rate for smaller pass-through companies that file their taxes as individuals.

Businesses would be able to apply at least 30 percent of their net income to the lower rate, and the plan says they have to prove that they are active owners to prevent individuals from gaming the system and repurposing their personal income.

The Joint Committee on Taxation, which scores tax legislation for Congress, estimated that the plan would add $1.487 trillion to federal deficits over 10 years. If the plan adds to deficits beyond that, provisions will likely have to be made temporary in order to comply with Senate rules.