September 27, 2017 at 3:20 PM
Republican leaders on Wednesday proposed slashing tax rates for the wealthy, the middle class and businesses while preserving popular tax deductions that encourage buying homes and giving to charity, hoping to unify the party behind a proposal to revamp the U.S. tax code.
But the nine-page framework they released to kick off negotiations left many key questions unanswered, including how they plan to avoid adding trillions of dollars to the government's debt. The framework leaned heavily on limiting taxes paid by the wealthiest Americans, such as the alternative-minimum tax, and opposition to these changes from Democrats suggest it will be a battleground as negotiations intensify.
Republicans were also careful not to identify numerous tax breaks they might remove, focusing instead on promises to lower rates so much that President Trump estimated the effort would amount to the biggest tax cut of all time.
The "unified framework" was meant to serve as a starting point for negotiations on a tax deal, which lawmakers hope to complete by the end of the year. Republican leaders are now tasked with resolving controversial questions to unite their party — and possibly some Democrats — behind tax legislation, such as what corporate tax breaks to protect and how much revenue they are willing to lose in pursuit of new economic growth.
Trump has made rewriting the tax code a major part of his domestic agenda, and on Wednesday he urged his party on.
"This is a once-in-a-generation opportunity, and I guess it's probably something you could say I'm very good at," Trump said in Indiana. "I've been waiting for this for a long time."
The Committee for a Responsible Federal Budget estimated that the nine-page framework would equate to a $2.2 trillion tax cut, with $5.8 trillion lost to lower rates and other changes, and another $3.6 trillion recouped by eliminating deductions.
There were few initial estimates of what the tax framework might mean for economic growth, an area that will likely divide Republicans supportive of the plan and Democrats who immediately complained that the changes would disproportionately benefit the wealthy.
The White House and GOP leaders negotiated for months and agreed in large part only on the taxes they want to cut. They now face the more arduous task of agreeing on which tax deductions to take away, a process sure to pit party members against each other and put them under extreme pressure from outside lobby groups fighting to protect their favored tax breaks.
"I hope that people will have the intestinal fortitude it's going to take to do it right," Sen. Bob Corker (R-Tenn.) said late Tuesday. "People say the health care was hard — you have no idea. You have no idea how this is going to be."
In Indiana, Trump threatened to try to oust Democrats who don't vote to help push the tax cuts into law. He singled out Sen. Joe Donnelly (D-Ind.), who is up for reelection next year, as a Democrat who would be targeted if he didn't sign onto the GOP plan.
"We will come here, we will campaign against him like you wouldn't believe," Trump said.
Democratic leaders will try to keep their party united in opposition, and on Wednesday they charged the GOP with proposing a huge tax cut to the wealthy but offering little for anyone else.
They said there was little evidence the tax plan provided any tax relief for low-income Americans, and it couldn't be learned how much the middle class would benefit, either. Republicans didn't specify what tax rates would apply to certain income levels, making it also hard to determine the framework's impact.
"Republicans' tax framework is not tax reform," said House Minority Leader Nancy Pelosi (D-Calif.). "It is a framework that gives away the store to the wealthiest while sticking the middle class with the bill."
Without Democratic support, Republicans would need near-universal backing from their own party to move a tax bill through Congress, especially in the Senate, where they hold a slim majority.
In their blueprint, Republican proposals include cutting the corporate tax rate from 35 percent to 20 percent and making it much easier for multinational companies to bring money earned overseas into the United States. This is roughly in line with a long-standing House Republican goal, though Trump has consistently pushed for the corporate rate to be lowered to 15 percent.
They also propose collapsing the seven individual income-tax brackets into three and allowing more people to qualify for the Child Tax Credit, designed to help low-income working families.
The framework would roughly double the standard deduction that married families and individuals use to reduce their taxable income, a change that Republicans hope will simplify the filing system. But it would also eliminate the "personal exemption" taxpayers can claim, blunting much of the new benefit and potentially leading some middle class households with multiple family members to pay more taxes than they currently do.
Republicans also are holding out the possibility of imposing a new, higher tax rate on the wealthy to ensure that the tax changes do not disadvantage the middle class, though the White House and GOP leaders have not agreed on how that would work.
Many of the tax changes would benefit upper-income Americans. The Republicans propose eliminating the estate tax and the alternative minimum tax. They also proposed lowering taxes on investment income. The tax framework does not mention Trump's long-standing promise of raising taxes for hedge fund managers, suggesting that differences on this point have not been resolved.
While the blueprint preserves tax breaks for mortgage interest and charitable contributions, it proposes changing the tax benefits for retirement and education. It is unclear how those changes might work.
The next step for congressional Republicans is to pass a budget resolution that would allow a tax bill to pass the Senate with a 51-vote majority. Senate bills often need 60 votes to overcome a filibuster, but the budget resolution would allow Republicans to use the process known as "reconciliation" to avoid that higher threshold.
Sen. Patrick J. Toomey (R-Pa.) said Wednesday the Senate Budget Committee is expected to send a draft budget to the Senate floor next week.
The House Freedom Caucus, a key holdout bloc of conservative lawmakers, endorsed the tax framework Wednesday, setting up a floor vote on the House budget as soon as next week. That would set up a conference between the chambers, with senior Republicans expecting the final, consensus budget resolution to closely resemble the Senate version.
Once the budget resolution passes both chambers, the tax-writing committees — Senate Finance and House Ways and Means — would begin drafting and amending tax legislation, where the politically thorny work of identifying revenue offsets would take place.
Toomey acknowledged that hard trade-offs are ahead, saying that lawmakers will have to identify offsets of about $3 trillion over 10 years to align the plan with the budget resolution.
The framework released Wednesday calls for eliminating many business tax credits and individual income deductions, while specifically naming only a few that should be spared.
"We've definitely identified the items that can get us there," Toomey said. "The question is: Will we have the political will to do it?"
To raise revenue to offset the cuts, Republicans are likely to consider limiting or eliminating the deductibility of state and local taxes, a proposal that is generating opposition from lawmakers in states with high tax burdens. They will also consider limits on how much businesses can deduct for interest payments, a tax provision frequently used by financial and real estate firms.
"Those are two big ones that have to be on the table," Toomey said.
Business groups, who have already been leaning heavily on lawmakers to protect their favored tax breaks, had mixed reactions to the plan. Many cheered the general direction of the plan but made clear they were watching how Congress approached key unresolved details.
"Now, we are entering into a crucial new phase of the effort to overhaul the tax code, and the hardest work is just beginning," U.S. Chamber of Commerce President Thomas J. Donohue said in a statement. House Ways and Means Committee chairman Kevin Brady (R-Tex.) will visit the Chamber on Thursday to discuss the plan.
Koch Industries sent an open letter to Congress, praising members for moving forward on the tax changes but encouraging lawmakers to cut as many business-specific tax breaks as possible.
"We encourage policymakers to remove corporate welfare provisions from the code. Wherever possible, loopholes, deductions, exemptions and other handouts should disappear. We maintain that cutting rates is the most reliable pathway to growth," wrote Philip Ellender, president of government and public affairs at Koch Companies Public Sector.
Other industry groups outlined specific concerns.
The National Association of Realtors denounced the blueprint, saying in a statement Wednesday that the proposal to double the standard deduction would "all but nullify the incentive to purchase a home" for most taxpayers. With the standard deduction doubling, more homeowners would probably use that deduction when they filed their tax returns, rather than taking advantage of the lucrative mortgage interest deduction.
"This proposal recommends a backdoor elimination of the mortgage interest deduction for all but the top 5 percent who would still itemize their deductions," William E. Brown, president of the National Association of Realtors, said in a statement. "Plummeting home values are a poor housewarming gift for recent homebuyers and a tremendous blow to older Americans who depend on their home to provide a nest egg for retirement."
Jim Tobin, the chief lobbyist for the National Association of Home Builders, said his organization was encouraged to see many of its top priorities included, including access to interest deductions and the preservation of the low-income housing credit.
He said his organization, like that of the Realtors, was concerned about doubling the standard deduction and about losing the deduction for state and local taxes.
"We also recognize we're in the opening stages of what is going to be a long fight, a long journey, to realize tax reform — so as the opening play in this, we feel good about continuing to move forward," Tobin said.