WASHINGTON — House Republicans would preserve the popular retirement account for middle-class Americans while limiting a cherished deduction for homeowners in a sweeping tax cut plan unveiled Thursday that would add $1.5 trillion to the nation's debt.
U.S. President Donald Trump speaks during a Cabinet Meeting in the Cabinet Room of the White House November 1, 2017 in Washington, DC. Photo by Olivier Douliery (Photo: IC)
GOP leaders briefed rank-and-file lawmakers on the proposal Thursday morning ahead of a formal rollout and a show of unity event at the White House with President Donald Trump. A major revamp of the tax code, the first in three decades, is a top legislative and political priority of Republicans.
Details were contained in a summary obtained by The Associated Press.
The proposal would leave intact the existing rules on 401(k) retirement accounts and the ability of Americans to contribute up to $18,000 into the accounts tax-free.
But the plan limits the widely used deduction for mortgage interest for newly purchased homes at up to $500,000, a sharp reduction from the current $1 million cap.
The plan also limits the deductibility of local property taxes to $10,000 while eliminating the deduction for state income taxes, which generated significant opposition from Republicans in high-tax states such as New York and New Jersey.
"I view the elimination of the deduction as a geographic redistribution of wealth, picking winners and losers," said Rep. Lee Zeldin, R-N.Y., who represents eastern Long Island. "I don't want my home state to be a loser, and that really shouldn't come as any surprise."
The child tax credit would be increased from $1,000 to $1,600, though the $4,050 per child exemption would be repealed.
The legislation is a longstanding goal for Capitol Hill Republicans who see a once-in-a-generation opportunity to clean up an inefficient, loophole-cluttered tax code. But there is lingering opposition from northeastern Republicans fearful of losing a cherished deduction for state and local taxes and anxiety among other rank-and-file lawmakers over emerging details.
Influential conservative Rep. Mark Meadows, R-N.C., dismissed proposed retirement changes as a "non-starter," adding "that's what most of middle-income America uses as their nest egg."
The plan shrinks the number of tax brackets from seven to three or four, with respective tax rates of 12 percent, 25 percent, 35 percent and a category still to be determined. The tax system would be simplified, and most people would be able to file their returns on a postcard-sized form.
The plan calls for nearly doubling the standard deduction used by most average Americans to $12,000 for individuals and $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 plan slashes the corporate tax rate from 35 percent to 20 percent, a demand of Trump. It also repeals the inheritance taxes on multimillion-dollar estates, a big break for the wealthy.
Republicans and Trump argue that sharply cutting tax rates for businesses improves U.S. economic competitiveness, but the possibility of letting the lower corporate rates expire is rankling some longtime advocates who say the uncertainty could limit its boost to the economy.
The ambitious timetable calls for passing the complex measure in the House by Thanksgiving.
"Failure is not an option," said Rep. Chris Collins, R-N.Y.
The emerging plan would retain the Clinton-era 39.6 percent income tax rate for the wealthiest earners. But for that highest bracket, the tax writers were considering raising the minimum level of income to $1 million for couples or families from the current $470,000 — a change that would reduce tax revenue.
Meadows, the chairman of the House Freedom Caucus, said he was worried about eligibility limits that could prevent some businesses from taking advantage of a lower 25 percent tax rate.
"How as a Republican can we pick winners and losers that way? I mean it makes absolutely, certifiably no sense," Meadows said.
Trump set an aggressive timetable for the legislation and predicted a grand signing ceremony before Christmas at "the biggest tax event in the history of our country."
Democrats have repeatedly complained the plan was too favorable to business and the wealthy, and contradicted Trump's rhetoric of bringing tax relief and economic benefit to the stressed middle class.
Associated Press writer Alan Fram contributed to this report.