WASHINGTON – Divided Republicans in Congress are tackling an ambitious overhaul of the nation’s tax system that would deeply cut levies for corporations and double the standard deduction used by most average Americans.
Despite controlling Congress and the White House, Republicans failed to carry out their years-long promise to dismantle and replace former President Barack Obama’s health care law. They say the nearly $6 trillion tax plan, to bring the first major revamp in three decades, is their once-in-a-generation opportunity. President Donald Trump sets it as his highest legislative priority.
But can they deliver? What are the next steps for Congress? How would the changes affect the average taxpayer? Some questions and answers:
WHAT DOES THE TAX PLAN DO? WHY IS IT IMPORTANT?
Trump and Republican leaders unveiled the proposal last month, pitching it as a boon to the middle class and a needed spark to economic growth and job creation. It’s only an outline, with Congress left to put meat on the bones as lawmakers turn it into complex legislation.
The plan calls for reduced taxes for most individuals, slashing the corporate tax rate from 36 per cent to 20 per cent, and doubling the standard deduction used by most average Americans to $12,000 for individuals and $24,000 for families. The number of tax brackets would shrink from seven to three, with tax rates of 12 per cent, 25 per cent and 35 per cent. (Now make that four, with an added bracket for high-income earners, rate to be determined, House Speaker Paul Ryan said Friday.) Inheritance taxes on multimillion-dollar estates would be repealed.
It would bring far-reaching changes for businesses large and small, with fallout too for American companies beyond U.S. borders. The American middle-class family could take advantage of a heftier child tax credit and the extra money that could come from the bigger standard deduction.
But there are too many holes in the spare nine-page plan, like the income levels that would fit with each tax bracket and what might happen to other deductions used by middle-class people, to know how it actually would affect individual taxpayers and families. Other looming unknowns are how it would be paid for and how much it might add to the mounting $20 trillion national debt.
HOW DO THE PLAN’S BACKERS AND OTHERS SAY IT WOULD AFFECT AVERAGE PEOPLE?
The Trump administration is promising that the tax cuts — “which will be the biggest in the history of our country!” — would bring a $4,000 pay raise annually for the average family. Trump expanded that number even further Friday, telling Fox Business Network’s Maria Bartiromo, “It can be $5,000 average per individual, per group.”
That might sound like the pledge of “a chicken in every pot” that’s been attributed to President Herbert Hoover in the 1920s. But Trump’s claim is based on fuzzy math, in the view of skeptical tax experts and Democratic lawmakers.
Rather than helping the middle class, Democrats charge, the plan mainly would benefit wealthy individuals — like Trump — and big corporations.
The partisan debate over the plan is all about who’s got the middle class’s back. You’ll be hearing those two words a lot out of Washington in coming weeks.
WHAT HAPPENS NEXT?
Now that Senate Republicans have muscled through a $4 trillion budget plan, and the House is poised to adopt it, the ground has been laid for serious work to begin on filling in the details and whipping up complex tax legislation. The budget plan provides for $1.5 trillion over 10 years in debt-financed tax cuts, busting earlier GOP pledges of strict fiscal discipline. More bad news on the federal budget deficit came Friday, when the government reported it rose to $666 billion in the just-completed fiscal year, an $80 billion increase.
But the work won’t be quick. Strap in for a long slog in separate House and Senate committee hearings, drafting meetings and closed-door negotiations. And a feast for lobbyists descending on lawmakers, especially members of the two tax-writing committees. The swarm depicted in “Showdown at Gucci Gulch,” the book chronicling lobbying in the landmark 1986 tax overhaul under President Ronald Reagan, is about to get its second act.
The Republicans are promising to get a final bill to Trump’s desk by Christmas — already slippage from the earlier Thanksgiving deadline. The House version of the legislation is expected to come forward by early next month. The Senate has its own ideas and may well craft its own bill, which means the differences would have to be hammered out in a potentially contentious joint conference.
THAT SOUNDS HARD. AND THE REPUBLICANS THEMSELVES ARE DIVIDED?
Complicating the picture further, the tax plan already has driven a sharp wedge through House Republicans, cracking open regional fault lines within the majority party. The plan would eliminate the federal deduction for state and local taxes, a widely popular break used by some 44 million Americans, especially in high-tax, Democratic-leaning states like New York, New Jersey and California.
Republican lawmakers from those states have revolted, balking at supporting the tax plan when their votes are so critically needed. Their opposition has led the GOP leaders in Congress to hear out the fractious GOP members and seek a compromise with them. At the same time, the White House has made overtures on the tax plan to conservative Democrats in the House and Democratic senators from states that Trump won in the 2016 election.
This story has been corrected to reflect that the proposed tax rate for the third bracket is 35 per cent, not 25 per cent.