The long-awaited Ways and Means version of the Republican tax-reform bill has finally emerged from its back-room efforts to stave off any defections in the House and Senate. House GOP leadership launched the bill with a cheery press conference, with members clearly relieved at having a bill to move forward. It includes parts of several trial balloons, and excludes one in particular that backfired badly enough to earn a rebuke from Donald Trump.
As part of that reform package, the GOP aims to permanently lower the corporate tax rate to 20 percent.
The House bill would also slash the number of income tax brackets from seven to four: 12 percent, 25 percent, 35 percent and 39.6 percent.
The bill is also expected to raise the child tax credit to $1,600 from its current maximum of $1,000. It’s also expected to preserve popular retirement savings plans like 401(k)s and Individual Retirement Accounts.
That will cause some problems in the Senate, where reconciliation only requires a simple majority vote — but also a net reduction in deficit spending. The GOP floated the trial balloon on much lower 401(k)/IRA caps as a means to boost tax revenues overall, in order to allow Senate Republicans to pass the bill unilaterally. Sponsors of the bill will claim enough growth from the supply-side cuts to overcome the deficit-reduction hurdle, but it’s the CBO score that counts. If it comes up short, the Senate may well reopen the retirement-contribution caps and that entire can of political worms.
Two other components are clearly compromises from earlier proposals that got mixed receptions:
The GOP bill would also allow taxpayers to write off up to $10,000 in state and local property taxes.
But the plan would cut a popular mortgage interest deduction in half. While it would maintain the current deduction of $1 million in mortgage debt for current homeowners, that cap would be slashed to $500,000 for newly purchased homes.
Homebuilders won’t like that change; CNBC reported that stocks fell in that sector by two percent shortly after the announcement. It will allow middle-class earners to keep the deduction, assuming they have enough deductions to get past the expanded standard deduction, but will put higher-income earners more on the spot. Both of these are potential pay-fors for Senate reconciliation, but it’s questionable at the very least whether it will be enough. Republicans wanted to eliminate the state and local tax deduction (SALT) entirely, but that would have cost them a number of votes in the House from blue-state Republicans in places like New York and California.
Two more changes seem likely to complicate matters even further in the Senate, both for reconciliation and for class-warfare politics:
Lawmakers are also expected to move forward in repealing the alternative minimum tax, an extra tax that some have to pay on top of their regular income tax.
The Republican tax plan seeks to immediately double the estate tax exemption and repeal the tax in six years. The estate tax, also known as the death tax, is currently a 40 percent levy on estates greater than $5.49 million for individual filers or about $11 million for married couples.
There are good arguments to be made for these, especially the AMT, which has long been a problem for businesses filing under the individual tax code and for upper-middle-class earners. However, both will have the effect of lowering the tax burden primarily for higher earners, and also create more red ink that will impact the reconciliation process.
At some point, Senate Republicans will have to either attach deep spending cuts to this bill to qualify for reconciliation — cuts that pointedly did not get included in the budget resolution that enabled reconciliation — or raise revenues elsewhere to push the bill out of the red. When that happens, it’s going to reopen some of the same schisms that erupted during the futile attempts to repeal ObamaCare, and it’s going to get very tough to find a simple majority in either chamber to back the package.
One key Senate Republican has already sounded a skeptical note:
Corker says his staff is still going through House tax bill, but he’s looking for “permanence” of changes and $4 trillion loophole closing
— Liz Goodwin (@lizcgoodwin) November 2, 2017
That’s why one reporter asked Paul Ryan about Republican claims to effective governance if this bill fails to pass, just like ObamaCare repeal. And it’s also the reason why Ryan’s not taking the bait.
Reporter: "If Republicans can't get this done, do you deserve to control the Congress?"
Speaker Ryan: "What's your second question?" pic.twitter.com/jIL9wf1uGc
— NBC News (@NBCNews) November 2, 2017