GOP unveils tax-reform bill that faces political hurdles

Updated November 2, 2017 - 11:30 pm

WASHINGTON — Republicans rolled out their much-awaited tax reform bill Thursday and President Donald Trump predicted passage of the legislation by Christmas despite political hurdles in both the House and Senate.

House GOP leaders put on a united front as they unveiled the Tax Cuts and Jobs Act, which would reform the tax code for the first time in three decades, increase the standard deduction for families and cut corporate tax rates.

Trump said Republicans are giving Americans “a big, beautiful Christmas present in the form of a tremendous tax cut, which will be the biggest cut in the history of our country.”

Among other things, the bill would:

■ Permanently cut corporate tax rate from 35 percent to 20 percent.

■ Eliminate federal deduction for state and local taxes.

■ Leave in place the individual mandate to purchase health insurance.

■ Leave in place tax-exempt contributions to 401(k) retirement plans.

■ Cap mortgage interest deductions at $500,000 of principal for new homes.

■ Eliminate deduction for interest on student loans.

■ Compress tax rates on couples and individuals, but leave in place the top rate for wealthiest earners.

The bill met with immediate opposition for its impact on the deficit, a cap on the mortgage deductions and the elimination of the federal deduction for state and local income taxes. The latter left support from GOP lawmakers from states like New York, New Jersey and California in doubt.

Sales tax deduction would vanish

The bill also would eliminate the sales tax deduction for states like Nevada, which do not have state and local income taxes.

“In Nevada, filers who itemize can currently claim the sales tax deduction,” said Jared Walczak with the conservative-leaning Tax Foundation, a Washington-based policy group.

Walczak said despite the elimination of the sales tax deduction, Nevada would fare better than states like New York because “it is generally far more advantageous to deduct income tax.”

The Nevada sales tax deduction amounts to roughly 2.4 percent of adjusted gross income, while New York’s income tax deduction amounts to 9.1 percent, Walczak said.

Rep. Kevin Brady, R-Texas, chairman of the tax-writing House Ways and Means Committee, said the legislation would add $1.5 trillion to the deficit over 10 years, a hard limit that must be met to allow Republicans to muscle the bill through the Senate with a simple majority vote under budget reconciliation rules.

Senate Republicans, following the House, are expected to unveil their version of the bill as early as next week.

Brady said the House bill is “family friendly” and offers middle-class tax relief.

“We are focused on increasing paychecks in a major way,” Brady said.

But reaction to the plan was swift, with some Republicans grousing about geographic inequities over the state and local income tax deduction, and Democrats charging the plan is aimed at relieving the nation’s wealthiest taxpayers at the expense of lunch-bucket workers.

House Minority Leader Nancy Pelosi, D-Calif., said the House tax bill is “designed to plunder the middle class.”

‘Myth of trickle-down economics’

Alan Essig, executive director of the left-leaning Institute on Taxation and Economic Policy, rejected GOP claims that the bill would help the middle class.

“The starting point for tax reform has always been to drastically cut corporate taxes with the promise that benefits would trickle down to the working poor. … The core of this tax overhaul is a bulky tax cut for businesses,” Essig said.

Rep. Dina Titus, D-Nev., called the proposal a “red herring tax plan that relies on the myth of trickle-down economics in order to give the nation’s top earners a handout.”

Titus said she could not see how the plan would help working families with the loss of deductions that include “the sales-tax deduction that saves Nevada residents hundreds of millions annually.”

The GOP bill creates a 25 percent maximum tax rate on “pass-through” business income, praised by Trump and GOP leaders as a benefit to corporations and large businesses to generate job growth.

But Juanita Duggan, president of the National Federation of Independent Business, said that change in the tax code “leaves too many small businesses behind.” Duggan said NFIB would oppose the bill.

Homebuilders said they also would oppose it because of the cap on the mortgage interest deduction, though the bill would allow homeowners to deduct local property taxes on federal forms, with a $10,000 limit.

The bill also would double the estate tax, then eliminate it entirely in six years, and take away deductions for medical expenses.

Geoconda Arguello-Kline, Culinary Local 226 secretary-treasurer in Las Vegas, said the union “condemns cutting health care and education to fund tax breaks for the wealthy and corporations.”

Personal tax brackets would be reduced to four from seven, with the top bracket at 39.6 percent for individuals with $500,000 or more in yearly income and $1 million for couples.

Couples earning $90,000 would fall into a 25 percent bracket, and those making $260,000 would pay 33 percent in taxes.

Standard deduction would double

The standard deduction would double to $12,000 for individuals and $24,000. The bill increases the child tax credit from $1,000 to $1,600, but it eliminates the $4,000 per child deduction.

“This is a strong plan,” said Tim Phillips with the conservative Americans for Prosperity advocacy group. “We’re pleased to see the tax code simplified, the elimination of many costly carve-outs, and an immediate lowering of the corporate rate to a more competitive level.”

The House is expected to begin committee votes on the bill next week.

Republicans control the White House, Senate and House, but the GOP has stumbled on health care reform and has failed to deliver a major legislative victory for Trump since he took office in January.

Although Republicans have championed tax reform in campaigns, differences over federal deductions for state and local taxes could cost GOP votes from high-tax states.

Republicans hold a slim 52-48 majority in the Senate and, with no Democratic support expected, can afford to lose only a few votes to pass a tax reform bill with a simple majority.

Sen. Jeff Flake, R-Ariz., said he worried about the deficit. He warned on Twitter: “We can’t cut, cut, cut today & assume Congress will grow a backbone later.”

Sen. Dean Heller, R-Nev., and Sen. Catherine Cortez Masto, D-Nev., are in line with their respective parties as the Senate awaits a bill introduction by Senate Finance Committee Chairman Orrin Hatch, R-Utah.

Heller serves on the Finance Committee, which will write the legislation in the upper chamber.

Contact Gary Martin at gmartin@reviewjournal.com or 202-662-7390. Follow @garymartindc on Twitter.

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