In what's being called a major step in rewriting the United States' tax code, House Republicans on Thursday finally unveiled their long-awaited tax reform plan. GOP leaders reportedly view passage of the legislation as crucial to their political survival, and continue to frame the legislation as a boon for middle-class Americans.
"This is a very important and special moment for our country," Speaker of the House Paul Ryan (R-Wisconsin), said at the news conference announcing the legislation. "This is our chance to make sure that generations to come don't just get by, they get ahead in this country."
- The corporate tax rate would be permanently and immediately reduced to 20 percent. (The GOP had previously considered both a gradual phase-in of the new rate and a temporary rate cut that would expire after several years.) Pass-through businesses would be taxed at a rate of 25 percent, as opposed to their current rate of 39.6 percent.
- The current seven tax brackets for individuals would be replaced by four tax brackets with rates at 12 percent, 25 percent, 35 percent, and 39.6 percent (this is the current top rate for high earners, and would apply to those making over $1 million a year under the new legislation).
- The alternative minimum tax and estate tax, which both predominately affect very high earners, would both be eliminated, although the estate tax would remain on the books for another six years.
- The standard deduction and the child tax credit would both be increased significantly. Both of these changes are meant to help middle-class families.
- The cap on the popular mortgage interest deduction would decrease. In the future, Americans would be able to deduct mortgage interest for new mortgages up to only $500,000 (the current limit is $1,000,000).
- With respect to the state and local tax deduction, which has emerged as a major flashpoint in the debate, households would be able to deduct state and local property taxes up to $10,000. The ability to deduct state and local income and sales taxes, however, would be eliminated. It's unclear if this compromise will be enough to win the support of the 30 GOP members of the House of Representatives from high-tax states like California, New York, and New Jersey.
- 401(k) plans, which Chairman of the House Ways and Means Committee Kevin Brady (R-Texas) had controversially been toying with making changes to, are untouched in this version of the legislation.
- Most other deductions (i.e. the moving expenses deduction and the medical expenses deduction) would be eliminated.
This is undoubtedly only the first iteration of tax reform legislation. Brady, who has shepherded the bill, has already said the legislation may change over the weekend. And there's as of yet no data on how this legislation will affect Americans across the income spectrum. Previous analyses of the "Big Six" framework released back in September indicated it would dramatically increase the deficit, with the bulk of the legislation's benefits flowing to the highest earners.
The immediate reaction to this latest bill, however, illustrates the magnitude of the task facing Republican leaders. Various Republican politicians have already expressed concerns about various provisions in the bill, and the powerful realtor and homebuilder industry groups quickly came out against the bill's changes to the mortgage interest deduction.
"Contrary to their assertions, the Republicans are picking winners and losers," Jerry Howard of the National Association of Home Builders told the New York Times. "They are picking rich Americans and corporations over small businesses and the middle class."
The GOP may finally have its tax bill, but the hard work is really just beginning.