GOP tax plan would help wealthiest, add US$1.5 trillion to deficit
Republicans on Thursday unveiled a tax-cut plan that would slash the corporate rate and lower the personal taxes of most Americans but also limit a cherished deduction for homeowners, as President Donald Trump and the GOP seek to deliver on the first tax revamp in three decades.
The proposal would add US$1.5 trillion to the nation's debt over the next decade as Republicans largely abandoned fiscal discipline in a plan that could secure a legislative achievement for Trump and score a political win ahead of next year's midterm elections.
Middle-income families would pay less, thanks to doubling of the standard deduction and an increase in the child tax credit. Wealthy Americans, like Trump, would benefit from the repeal of the alternative minimum tax and phase-out of the estate tax. Republicans calculate that a family of four with a median US$60,000 income would receive a tax cut of almost US$1,200.
However, many two-income, upper-middle-class families would pay more after being bumped into a higher tax bracket and losing a valuable deduction on state income taxes.
The proposal would leave intact the existing rules on 401(K) retirement accounts and the ability of Americans to contribute up to US$18,000 into the accounts tax-deferred. But the plan would limit the widely used deduction for mortgage interest to new home loans of US$500,000 or less, a sharp reduction from the current US$1-million cap.
The plan also would limit the deductibility of local property taxes to US$10,000 and eliminate the deduction for state income taxes, which has generated significant opposition from Republicans in high-tax states such as New York and New Jersey.
The tax-writing Ways and Means Committee will work on finalising the proposal next week, and the GOP's ambitious timetable to get a bill to Trump by Christmas faces numerous roadblocks. The proposal caused anxiety for some House Republicans and drew criticism from a few in the Senate, which is intent on writing its own bill.
The fix-it plan
Rep Lee Zeldin, R-New York, announced his opposition: "We need to fix this."
The plan would shrink the number of tax brackets from seven to three, with respective rates of 12 per cent, 25 per cent, 35 per cent and 39.6 per cent. The tax system would be simplified, and most people would be able to file their returns on a postcard-sized form.
The plan would set a 25 per cent tax rate starting at US$90,000 for married couples, with a 35 per cent rate beginning to bite at US$260,000 - which means many upper-income families whose top rate now is 33 per cent, would face higher taxes. Individuals making US$500,000 and couples earning US$1 million would face the current Clinton-era top rate of 39.6 per cent.
The plan would slash the corporate tax rate from 35 per cent to 20 per cent, a demand by Trump. It also would repeal the inheritance taxes on multimillion-dollar estates, a big break for the wealthy.
"There are a lot of people still in our conference who are anxious to see exactly how this plays out with growth in the economy, what the long-term deficit and debt situation turns out to be," said Rep Steve Womack, R-Arkansas.
Reaction among outside groups was mixed. Tax-cut activist Grover Norquist of Americans for Tax Reform said the measure was "long overdue" and offered "great news for taxpayers and those left behind by eight years of slow growth under Obama". But the National Federation of Independent Business, a GOP-leaning lobby for small business, announced its opposition, and the US Chamber of Commerce said the plan still needs work.
The child tax credit would be increased from US$1,000 to US$1,600, though the US$4,050 per child exemption would be repealed.
Senator Marco Rubio, R-Florida, tweeted an objection: "House #TaxReform plan is only starting point. But US$600 #ChildTaxCredit increase doesn't achieve our & @potus goal of helping working families."
The plan calls for nearly doubling the standard deduction used by most average Americans to US$12,000 for individuals and US$24,000 for families, and increasing the per-child tax credit.
On net, it could mean tax increases for many upper-middle-income families.
The emerging plan would retain the Clinton-era 39.6 per cent income tax rate for the wealthiest earners. But for that highest bracket, the tax writers raised the minimum level of income to US$1 million for couples or families from the current US$470,000 - a change that would reduce tax revenue.
Democrats contradicted Trump's rhetoric of bringing tax relief and economic benefit to the stressed middle class.
"What we are seeing today is a plan that exacerbates the unfairness and inequality in our tax code," said top Senate Democrat Chuck Schumer of New York. "To pay for all the tax giveaways in their bill, the Republicans are likely to make it worse for the middle class - not help them, but hurt them."