GOP proposes deep tax cuts, provides few details on how to pay for them

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WASHINGTON — Republican leaders on Wednesday proposed slashing tax rates for the wealthy, the middle class and businesses while preserving popular tax deductions that encourage buying homes and giving to charity, according to a nine-page framework they hope will eventually unify the party behind a proposal to revamp the U.S. tax code.

But the document, titled “Unified Framework for Fixing Our Broken Tax Code,” leaves many key questions unanswered. In it, the White House and Republican congressional leaders do not identify the numerous tax breaks they say will be removed to offset some of the trillions of dollars in revenue lost by cutting tax rates.

The framework was presented to Republicans and the public Wednesday as a starting point for negotiations on a tax deal. Congress would have to vote the changes into law, and Republican leaders are now tasked with resolving controversial questions to unite their party – and possibly some Democrats – behind tax legislation.

President Donald Trump has made rewriting the tax code a major part of his domestic agenda, and on Wednesday he urged his party on. “This is a once-in-a-generation opportunity and I guess it’s something I could say that I’m very good at,” Trump said. “I’ve been waiting for this for a long time”

Trump threatened to try to oust Democrats who don’t vote to approve his tax framework. He singled out Sen. Joe Donnelly, D-Ind., who is up for reelection next year, as a Democrat who would be targeted if he didn’t sign onto the GOP plan.

“We will come here, we will campaign against him like you wouldn’t believe,” Trump said.

The White House and GOP leaders negotiated for months and have agreed in large part only on the taxes they want to cut.

They propose, among other things, cutting the corporate tax rate from 35 percent to 20 percent and making it much easier for multinational companies to bring money earned overseas into the United States. This is roughly in line with a long-standing House Republican goal, though President Trump has consistently pushed for the corporate rate to be lowered to 15 percent.

They also propose collapsing the seven individual income-tax brackets into three and allowing more people to qualify for the Child Tax Credit, designed to help low-income working families.

But they stop far short of offering a complete plan, a calculated decision they made to delay attacks from business groups they fear will erupt once they realize some of their favored tax breaks could be eliminated.

The Committee for a Responsible Federal Budget, a group that analyzes tax and spending policy, estimated the GOP plan would lead to a net loss of $2.2 trillion in revenue over 10 years. The government would lose $5.8 trillion in revenue from the rate cuts and other changes, but it would recoup $3.6 trillion in new revenue if they are able to follow through on many of the unspecified tax breaks they promise to eliminate.

“I hope that people will have the intestinal fortitude it’s going to take to do it right,” Sen. Bob Corker, R-Tenn., said late Tuesday. “People say the health care was hard – you have no idea. You have no idea how this is going to be.”

Republicans said they would curb some of the tax benefits companies claim from interest they pay on their debt, but those savings would largely be applied to allowing companies to expense all investments in things such as equipment for five years. They also call for preserving the tax benefit companies receive for research and development, a popular benefit that encourages innovation and saves companies roughly $100 billion a year.

The framework would, among other things, roughly double the standard deduction that married families and individuals use to reduce their taxable income, a change that Republicans hope will simplify the filing system.

They also are holding out the possibility of imposing a new, higher tax rate on the wealthy to ensure that the tax changes do not disadvantage the middle class, though the White House and GOP leaders have not agreed on how that would work.

Many of the tax changes would benefit upper-income Americans. The Republicans propose eliminating the estate tax and the alternative minimum tax. The tax framework does not mention Trump’s long-standing promise of raising taxes for hedge fund managers, suggesting that differences on this point have not been resolved.

And while it preserves tax breaks for mortgage interest and charitable contributions, it proposes changing the tax benefits for retirement and education. It is unclear how those changes might work.

Republicans see their control of the White House and Congress as a rare opportunity to deliver once-in-a-generation changes to the tax code that they assert will expand the economy and boost wages.

They are trying to fashion the tax changes in a way that essentially add about $1.5 trillion in debt over 10 years, a level that many Republicans say they consider acceptable in order to achieve the tax changes.

The next step for congressional Republicans is to pass a budget resolution that would allow a tax bill to pass the Senate with a 51-vote majority. Senate bills often need 60 votes to overcome a filibuster, but the budget resolution would allow Republicans to use the process known as “reconciliation” to avoid that higher threshold.

Sen. Patrick Toomey, R-Pa., said Wednesday the Senate Budget Committee is expected to send a draft budget to the Senate floor next week.

The House Freedom Caucus, a key holdout bloc of conservative lawmakers, endorsed the tax framework Wednesday, setting up a floor vote on the House budget as soon as next week. That would set up a conference between the chambers, with senior Republicans expecting the final, consensus budget resolution to closely resemble the Senate version.

Once the budget resolution passes both chambers, the tax-writing committees – Senate Finance and House Ways and Means – would begin drafting and amending tax legislation, where the politically thorny work of identifying revenue offsets would take place.

Toomey acknowledged that hard trade-offs are ahead, saying that lawmakers will have to identify offsets of about $3 trillion over 10 years to align the plan with the budget resolution.

The framework released Wednesday calls for eliminating many business tax credits and individual income deductions, while specifically naming only a few that should be spared.

“We’ve definitely identified the items that can get us there,” Toomey said. “The question is, will we have the political will to do it?”

To raise revenue to offset the cuts, Republicans are likely to consider limiting or eliminating the deductibility of state and local taxes, a proposal that is generating opposition from lawmakers in states with high tax burdens. They will also consider limits on how much businesses can deduct for interest payments, a tax provision frequently used by financial and real estate firms.

“Those are two big ones that have to be on the table,” Toomey said.

Business groups, who have already been leaning heavily on lawmakers to protect their favored tax breaks, had mixed reactions to the plan. Many cheered the general direction of the plan but made clear they were watching to see how Congress approached key unresolved details.

“Now, we are entering into a crucial new phase of the effort to overhaul the tax code, and the hardest work is just beginning,” U.S Chamber of Commerce president Thomas Donohue said in a statement. House Ways and Means Committee chairman Kevin Brady, R-Texas, will visit the Chamber on Thursday to discuss the plan.

Koch Industries sent an open letter to Congress, praising them for moving forward on tax reform but encouraging them to cut as many business-specific tax breaks as possible.

“We encourage policymakers to remove corporate welfare provisions from the code. Wherever possible, loopholes, deductions, exemptions and other handouts should disappear. We maintain that cutting rates is the most reliable pathway to growth,” wrote Philip Ellender.

Other industry groups outlined specific concerns.

The National Association of Realtors denounced the blueprint, saying in a statement Wednesday that the proposal to double the standard deduction would “all but nullify the incentive to purchase a home” for most taxpayers. With the standard deduction doubling, more homeowners would likely use that deduction when they filed their tax returns, rather than taking advantage of the lucrative mortgage interest deduction.

“This proposal recommends a backdoor elimination of the mortgage interest deduction for all but the top 5 percent who would still itemize their deductions,” William Brown, president of the National Association of Realtors, said in a statement. “Plummeting home values are a poor housewarming gift for recent homebuyers and a tremendous blow to older Americans who depend on their home to provide a nest egg for retirement.”

Jim Tobin, the chief lobbyist for the National Association of Home Builders, said his organization was encouraged to see many of its top priorities included, including access to interest deductions and the preservation of the low-income housing credit.

He said his organization, like the Realtors, was concerned about doubling the standard deduction and concerned about losing the deduction for state and local taxes.

“We also recognize we’re in the opening stages of what is going to be a long fight, a long journey, to realize tax reform — so as the opening play in this, we feel good about continuing to move forward,” Tobin said.

Democratic leaders on Wednesday previewed their opposition to the proposal.

Some Democratic members of the House Ways and Means Committee were invited to a White House meeting with Trump on Tuesday, and they said the president repeatedly emphasized the need for bipartisanship. But Democrats had no role in drafting the blueprint, and most roundly rejected it Wednesday.

Democrats have said they will oppose tax changes that add to the debt or benefit the wealthiest Americans. Those appear to be major elements of the GOP proposal, something Democrats noted Wednesday as they attacked the plan.

Proposals in the GOP framework “would result in a massive windfall for the wealthiest Americans and provide almost no relief to middle-class taxpayers who need it most,” Senate Minority Leader Charles Schumer, D-N.Y., said on the Senate floor. “It seems that President Trump and Republicans have designed their plan to be cheered in the country clubs and the corporate boardrooms.”

Schumer is trying to hold Democrats united, which could prove a difficult task, with a number having shown interest in negotiating tax changes with Trump. The White House is trying to court several Senate Democrats who are up for reelection in conservative states next year, convinced that they might feel pressure to cut a deal to preserve their seats.

“Republicans’ tax framework is not tax reform,” said House Minority Leader Nancy Pelosi, D-Calif. “It is a framework that gives away the store to the wealthiest, while sticking the middle class with the bill.”