Washington
GOP leaders had planned to collapse the seven existing income tax brackets into three brackets, lowering the top rate from 39.6 percent to 35 percent, but now will retain the top bracket for people earning more than a certain threshold, perhaps $1,000,000, the people said.
The detail was one of several that emerged on Tuesday as GOP leaders scrambled to put the final touches on their plan, widely seen as the last best chance for Trump and congressional Republicans to advance a major policy achievement this year. House Republicans decided late Tuesday to delay the rollout of their plan one day — now unveiling it Thursday — to give themselves more time to convince nervous lawmakers that the plan would work while resolving several remaining issues.
The bill, written by House Ways and Means Committee Chairman Kevin Brady, R-Texas, will aim to slash corporate tax rates, simplify taxes for individuals and families and lure the foreign operations of multinational firms back to the United States with incentives and penalties.
The decision to preserve a top rate signals that Republicans are eager to avoid the impression that their plan, which already has come under attack as doing little to boost the middle class, seeks only to reward wealthy Americans and corporations. And the move could attract the support of more moderate Republicans.
The House and Senate plan to work on separate tracks to pass legislation by Thanksgiving and send a bill to President Donald Trump for his signature by year’s end, though many expect it will take longer than that, if the effort succeeds at all.
“It will be the biggest tax event in the history of our country,” Trump promised on Tuesday during a meeting with business trade groups at the White House, a claim he has made repeatedly.
In a sign that House Republicans are willing to go only so far to mollify concerns about inequality, they plan to move ahead with a proposal to eliminate the estate tax, though it would be phased out over a number of years. They also will propose changes to tax-protected retirement savings plans, such as 401(k)s, in an effort to raise revenue. But Brady said on Tuesday those changes remained in flux and that 401(k)s ultimately might be left alone.
Overall, House Republicans say their plan will reduce federal tax revenue by $1.5 trillion over the next decade. Keeping the tax rate for people earning over $1 million could reduce the impact on the deficit by about $200 billion over a decade, according to the Committee for a Responsible Federal Budget.
House Majority Leader Kevin McCarthy, R-Calif., said on Tuesday that Brady’s tax plan would lower the corporate tax rate from 35 percent to 20 percent, as demanded by Trump. A new wrinkle was emerging late Tuesday, however, with concern growing that the corporate tax reduction might not be able to be made permanent if it proves too costly.
Business leaders will fight hard to prevent Republicans from allowing the rate to go back up after several years, but the GOP could be hamstrung, because it cannot push into law a tax change that adds too much to the deficit.
Numerous details of the tax proposal came during a briefing that House Speaker Paul D. Ryan, R-Wis., had spent Tuesday afternoon with conservative activists. Grover Norquist, president of Americans for Tax Reform, is one of the people who confirmed the 39.6 percent rate would remain for the highest income.
“Overall, I’m very happy with the bill,” said Adam Brandon, who is chief executive of FreedomWorks and attended the Ryan briefing. “My read is that everyone is going to be seeing a tax cut.”
Currently, families pay the 39.6 percent rate on income above $470,700, so the proposal still would lower taxes for people who earn above the lower amount.
The implications of the changes envisioned by GOP leaders could be far-reaching, but numerous aspects remain uncertain.
Thousands of companies that pay their taxes through the individual income-tax code would see their rates lowered on top income from 39.6 percent to 25 percent. It’s unclear whether there would be new provisions to prevent more-wealthy individuals from creating companies to pay the 25 percent rate on their income rather than the higher rate.
The new proposal is expected to include a new “minimum tax” that U.S. companies will be required to pay on certain foreign earnings as a way to prevent them from moving U.S. operations to low-tax countries. Businesses are watching carefully how the House bill deals with U.S. companies that produce goods overseas and then sell them back into the United States.
The House GOP plan would also allow companies to immediately expense capital investments, such as new equipment, for five years but cut back the ability to deduct interest payments.
Many businesses and the wealthy are expected to be the biggest beneficiaries, according to initial versions of the plan, while the impact on many in the middle class is disputed and less clear.
The proposal would roughly double the “standard deduction” that many Americans can claim to exempt a portion of their income from taxation, but it also would eliminate the “personal exemption,” which tends to benefit families with multiple children. But the tax plan is expected to expand the child tax credit, something Ivanka Trump has said will help working families.
The House GOP plan would allow Americans to deduct the property taxes they pay from their income but prohibit, for the first time, Americans from deducting the state and local income taxes they pay from their federal taxable income, a simmering issue that threatens to rip apart the GOP coalition needed to approve the bill.