Still scrambling to produce a draft bill. House GOP leaders promised they’d roll out a tax bill today, but they are still battling over details and now plan to release their plan tomorrow. Speaker Paul Ryan did reveal some details to conservative groups and some lobbyists late yesterday. He reportedly said the plan would cut the corporate income tax rate to 20 percent right away, but retain the top individual rate of 39.6 percent, and postpone repeal of the estate tax. Other key issues, such as the fate of the state and local tax deduction, details of a child tax credit, the tax treatment of US-based multinational corporations, and rules for pass-through businesses were either unresolved or not disclosed in yesterday’s private meetings.
Blue-state Republicans are pushing their governors to lower state taxes. If they do, they argue, repealing the state and local income tax deduction won’t be such a big deal. Said House Majority Leader Kevin McCarthy of California: “There’s no reason that tax reform shouldn’t be a federal and state project.” Plus, House Ways & Means Chairman Kevin Brady says today’s tax bill will include a deduction for property taxes.
The Senate on SALT: Not our problem. While House Republicans and the White House are still struggling to find a way to scale back the state and local tax deduction without losing GOP votes from high-tax states, Senate Republicans are mellow. “I don’t think it’s going to be a problem,” Finance Committee Chair Orrin Hatch told The Hill. What’s the difference? There are no GOP senators from the highest-tax states, such as New York, California, New Jersey, and Illinois.
Defined contribution plans may take a tax hit. Democrats are trying to stop it, but the GOP may change the rules for defined contribution plans to help pay for tax cuts. Proposals to limit the use of traditional 401(k)s and shift workers to Roth’s would accelerate tax revenue inside the budget window but cost Treasury big bucks in the long run. TPC’s Len Burman and Bill Gale explain how it’s actually “a gigantic budget gimmick. It’s borrowing in disguise, an on unfavorable terms for the government,” and could also weaken workers’ retirement security.
While those foreign investors would be rollin’ in it extra deep. TPC’s Steve Rosenthal explained last week how in the short run, foreign investors would receive 35 percent of the benefits of lower corporate income tax rates. He elaborates this week, noting “their windfall could be especially generous because increases in asset values produced by the corporate rate cut would largely be tax-free to foreign investors at the shareholder level. By comparison, US individuals generally would be subject to a 23.8 percent shareholder-level tax on their long-term capital gains or dividends received.”
The ACA mandate is safe for now. Ways & Means Chair Kevin Brady said “no” to Sen. Tom Cotton, who wanted to use the tax bill to repeal the Affordable Care Act’s tax penalty for people who have no insurance. “What I don’t want to do is to add things that could again kill tax reform like health care died over there,” explained Brady.
One thing you’ll always know: TPC calls ‘em like it sees ‘em. TPC Director Mark Mazur explains that “like an umpire, we are sometimes subject to criticism. When critics identify legitimate problems with our models or approach, we make the appropriate fixes. But if the criticism is merely a political reaction to an unfavorable result, we’ll continue to do what TPC does best – producing unbiased analyses on which policymakers, the media, and the American public can rely.”
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