GOP tax plan would shrink mortgage interest benefit, slash corporate tax rate

WASHINGTON – House Republican leaders on Thursday proposed an overhaul of the U.S. tax code, introducing legislation that would sharply cut tax rates for corporations and individuals while scrapping or scaling back numerous tax breaks Americans and businesses have used for decades.

The bill, unveiled by GOP leaders at an elaborate roll-out conference in the Capitol on Thursday morning, would slash the corporate tax rate from 35 percent to 20 percent, the most significant in a series of benefits the bill contains for businesses. In total, the tax plan contains $1 trillion in total tax cuts over 10 years for businesses and $300 billion in tax cuts for households and families, as well another $200 billion in tax cuts – almost all of which will accrue among the wealthiest families – by repealing the estate tax, according to estimates from the nonpartisan Committee for a Responsible Federal Budget.

In a number of cases, the plan cuts back on tax benefits for families and individuals while expanding benefits for companies. In total, the plan contains $1 trillion in total tax cuts over 10 years for businesses and $300 billion for individuals and families, as well as $200 billion in tax cuts – almost all of which will accrue among the wealthiest families – by repealing the estate tax, according to estimates from the nonpartisan Committee for a Responsible Federal Budget.

[Analysis: Winners and losers in the GOP tax plan]

The bill's net effect on middle- and working-class households, however, remains difficult to discern – the trade-off between reduced rates and eliminated deductions means its impact will vary widely from one family to another depending on circumstances and geography.

For Republicans, the tax push represents another opportunity, possibly their last, to pass a major piece of legislation before next November's elections, when their majorities in the House and Senate will be challenged.

President Donald Trump has put changing the tax code at the center of his domestic agenda, and the party holds enough seats in the House and Senate to pass the bill into law without support from a single Democratic lawmaker. But to succeed, GOP lawmakers will have to avoid the internal divisions that have undermined other major legislative efforts, including multiple failed attempts to repeal the Affordable Care Act.

Trump praised House lawmakers for introducing the bill and predicted some iteration of the tax cut plan will be signed into law by year's end. "We are giving them a big, beautiful Christmas present in the form of a tremendous tax cut," he said in brief remarks from the White House.

The bill introduced Thursday is the result of months of negotiation among Trump administration officials and many Republican lawmakers, discussions that continued right up to the hours before the bill's released.

On Wednesday evening, House Ways and Means Committee Chairman Kevin Brady, (R-Texas, suggested the party might wobble on Trump's promise to permanent cut the business tax rate to , instead setting up the rate to expire after eight years to limit the bill's increase in the deficit. But in a last-minute change, Republicans instead scaled back the size of a new "Family Flexibility Credit" for parents and non-child dependents that the bill would create. In the version of the bill introduced Thursday, the credit would be worth $300 annually and would be eliminated in five years.

For individuals and families, income-tax rates would go down. Presently, families have to pay a tax rate of 39.6 percent on income above $470,700. The House Republican bill would apply that tax rate only to income above $1 million for families. Rates further down the income spectrum would be cut as well.

"It's an awesome tax cut," said Rep. Bill Flores, R-Texas. "I mean, it rebuilds working-class America – great for jobs, great for the economy. It's going to be huge."

The bill would seek to balance revenue lost to the rate cuts, however, by scrapping numerous tax breaks, some of which are used by tens of millions of Americans and have large-scale support.

The legislation would slash the popular mortgage interest deduction. Under current tax law, Americans can deduct interest payments made on their first $1 million worth of home loans. The bill would allow existing mortgages to keep the current rules, but for new mortgages, home buyers would be able to deduct interest payments made only on their first $500,000 worth of loans.

The bill would also scale back a deduction that, under current law, allows Americans to deduct taxes they pay to state and local governments from their federal tax bill. Republicans initially proposed eliminating that deduction entirely, but after a revolt from GOP lawmakers from New York, New Jersey and other high-tax states, the bill introduced Thursday contained a compromise. The bill would allow people to deduct their local property taxes from their taxable income, but only up to the first $10,000.

And Americans would no longer be able to deduct their medical expenses or property and casualty losses, according to a document outlining the plan. Tax credits for electric cars would be eliminated. Americans would no longer be able to deduct moving expenses or alimony payments. Large college endowments would pay taxes on their income in a way that treats them more like private foundations.

Some deductions would be expanded. The bill would nearly double the standard deduction that many Americans claim on their taxes, raising it from $12,700 to $24,000 per family. But this benefit would be partially offset by the elimination of the personal exemption many Americans can claim, which can be large for families with multiple children.

The bill would also increase the child tax credit from $1,000 per child to $1,600. That credit would phase out once a family earns more than $230,000 a year, more than double the current $110,000 threshold.

The bill would add up to $1.5 trillion over 10 years to the national deficit, a move that contrasts with Republicans' efforts under President Barack Obama to block legislation that could have expanded the deficit.

With legislation introduced, the GOP tax effort moves into a new and perilous phase, with party leaders working to unify their caucus behind the measure while individual lawmakers seek changes that match their ideologies or the preferences of their constituents and donors – all while Democrats pound the measure and attempt to rally the public against it.

Party leaders are setting an ambitious timeline, with the House and Senate hoping to pass legislation before Thanksgiving. A Senate bill has not yet been introduced.

The GOP effort will also be tested by what House Speaker Paul Ryan, R-Wis., warned would be an "army of lobbyists" that would push Congress to make changes on behalf of their client industries and interest groups.

At least one major industry group, the National Association of Home Builders, announced days before the bill was released that the group would not support it, and others joined the attack within minutes of the measure's unveiling. The powerful National Federation of Independent Businesses said it was also not backing the effort, saying the legislation "leaves too many small businesses behind."

Other business groups lauded the bill and are expected to try to help it win passage.

"In terms of a legislative text that addresses the core issues that must be addressed if we are going to grow our economy faster and raise wages for families, this is a home run," said Neil Bradley, chief policy officer at the U.S. Chamber of Commerce.

Among lobbying groups, the change to the mortgage interest deduction has proved particularly contentious.

Some budget experts have said this change is necessary because otherwise the tax code essentially subsidizes the purchase of large homes in the wealthiest parts of the country. But housing groups have long fought off such a change, as the median home price in numerous parts of the country can be very high.

Jerry Howard, chief executive of the National Association of Home Builders, said his group would fight the bill "tooth and nail," claiming that it could lead to a decline in home prices and a housing recession.

"This now is a direct assault on the American dream of homeownership," he said in an interview.

Republicans said these changes are necessary to allow them to lower tax rates for all taxpayers. But many Democrats signaled opposition, vowing to fight its passage even while in the political minority.

"This bill is like a dead fish. The more it's in sunlight, the more it stinks, and that's what's going to happen," Senate Minority Leader Charles Schumer, D-N.Y.

The bill would not make changes to popular retirement plans such as 401(k)s, though. It also would not attempt to repeal provisions of the Affordable Care Act, though Republicans have said they might try to change the bill later for these purposes.

The legislative fight over the tax bill has become the Trump administration's biggest political goal after failed attempts to repeal the ACA. Trump wants the legislation to pass the House and the Senate by the end of the year, though they must resolve numerous differences.

Other changes in the bill would be far reaching. It would, for example, make changes to college savings programs and have new requirements for tax-exempt organizations such as churches and charities.

Republican supporters of the measure said Americans will see a number of changes if the tax plan is signed into law, but they argued that the final result would be a major tax cut.

"They're interested in tax relief," said Rep. Peter Roskam, R-Ill. "They're not particularly interested in the formula by which that relief gets to them."