Politics

Six Things to Watch in the House GOP Tax Bill

House Republicans expected to unveil legislation Wednesday

Front row, from left, House Ways and Means Chairman Kevin Brady, Speaker Paul D. Ryan, Senate Finance Chairman Orrin G. Hatch and Senate Majority Leader Mitch McConnell at the unveiling of the GOP’s tax framework on Sept. 27. (Tom Williams/CQ Roll Call file photo)

House Republicans will unveil details of their long-awaited tax bill Wednesday, opening the floodgates for lawmakers and outside groups to begin scrutinizing every last provision.

While some broad strokes have been revealed, most of the finer points have been kept quiet by GOP tax writers and leaders. Here are six items to watch when the curtain is raised Wednesday:

The brackets

Republicans have outlined three proposed tax rates for individuals, but they have yet to reveal what those income thresholds will be. That’s a key detail of the tax plan that will affect how large groups of taxpayers fare under the legislation.

The “unified” GOP tax framework released in September called for condensing the current seven brackets into three, with rates of 12 percent, 25 percent and 35 percent. Speaker Paul D. Ryan has since said there will be a fourth tax rate for the highest earners, though they’re still “working on those numbers.” That top marginal rate could potentially remain the same as under current law, 39.6 percent, which would mean the wealthiest Americans would have to look elsewhere in the tax bill for good news.

SALT fix

Rank-and-file Republicans from New York and New Jersey sent a clear message to GOP leaders last week: Don’t eliminate the deduction for state and local taxes, a provision that benefits people in high-tax states the most. Ryan and House Ways and Means Chairman Kevin Brady had initially wanted to scrap the so-called SALT deduction entirely — which would help pay for other parts of the tax overhaul — but they’re now promising to find a middle ground that satisfies members from those states.

Brady, a Texas Republican, revealed at least one part of a potential fix over the weekend. “At the urging of lawmakers, we are restoring an itemized property tax deduction to help taxpayers with local tax burdens,” he said in a statement.

Placing an income cap on who qualifies for that deduction is a compromise idea that remains on the table. But Brady said Monday a portion of the SALT deduction that allows taxpayers to deduct either their income or sales taxes will not be part of the GOP tax bill. 

He said tax writers would meet Tuesday with GOP proponents of the SALT deduction to hash out a deal.

If the fix isn’t good enough for those GOP members, the tax bill could be in trouble. There are 35 House Republicans who hail from New York, New Jersey, Illinois and California, which are among the states most affected by eliminating the deduction. It would only take 23 of them to sink legislation on the floor, if no Democrats ride to GOP leaders’ rescue.

401(k) changes

Are tax benefits for retirement savings on the table or not? It depends if you ask Brady or President Donald Trump, who contradicted each other last week about whether the House plan would potentially tighten the annual limits on how much money workers can add to their 401(k) plans without paying taxes up front.

Both sides have said they want to encourage Americans to save more for retirement, and Brady said his panel was “exploring a number of ideas in those areas.” But limiting tax benefits for 401(k) plans is one way House Republicans were looking to offset the revenue that would be lost due to rate cuts and other parts of their tax bill.

Brady later suggested the tax bill could actually increase how much money workers are allowed to contribute. And Arizona Rep. David Schweikert said changing other types of retirement plans might also be considered as GOP tax writers seek ways to incentivize saving.

Child tax credit

Another detail to look for is the size of the child tax credit, a key benefit for middle-class taxpayers. The September framework promised to “significantly increase” the child tax credit and raise the income levels at which the credit begins to phase out. It also says the first $1,000 of the credit will remain refundable, and would provide a $500 credit for non-child dependents.

The House GOP’s “Better Way” tax plan last year proposed a child tax credit of $1,500 per child, but it’s unclear if Brady and his panel will stick with that number now.

Across the Capitol, proponents like Florida Republican Sen. Marco Rubio have called for a credit of at least $2,000. Ivanka Trump, the president’s daughter and a senior White House adviser, has visited the Capitol to push for a more substantial child tax credit.

Estate tax

Republicans have long railed against what some call the “death tax,” but there’s some question whether the final tax bill would actually kill the estate tax or modify it.

Senate Republicans have already said they might not repeal the estate tax but instead double the amount that is exempt from tax. Under current law, an individual can leave $5.49 million to heirs tax free. Brady said last week that “no decisions on the estate tax design” had been made yet. White House officials have been pushing for a full repeal of the estate tax, one of the planks in the September framework.

Ending the estate tax could be tricky, politically and mathematically. Repealing it would largely benefit very wealthy Americans, something Democrats have eagerly pointed out. And doing so would reduce revenue by $240 billion over 10 years, according to the liberal-leaning Tax Policy Center, while Republicans are trying to avoid blowing up the deficit too much.

Pass-through taxation

On the business side, the House plan is expected to lower the maximum tax rate for owners of “pass-through” businesses to 25 percent, in line with the joint GOP framework. But it’s unclear what provisions might be included to deter wealthy individuals from shifting personal income to pass-through entities such as partnerships and limited liability companies to avoid paying the higher individual tax rate.

The Tax Policy Center estimated that the government could lose $128.5 billion over the next decade from small business owners taking advantage of the lower rate for business income that’s really personal income. The September framework calls for “measures” to limit such maneuvering, but crafting guardrails is a challenge on its own that could spark disagreement between Republican members from different states and regions with different industries and interests.

Lindsey McPherson contributed to this report.

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