A sweeping overhaul of the tax code would cap the deduction for property taxes at $10,000 and preserve the mortgage interest deduction only for existing mortgages and new purchases with loans of $500,000 or less, documents distributed to House members Thursday show.
Those changes will amount to a tax increase on high-income taxpayers with pricey homes, even if they get lower income tax rates.
The plan also maintains the top bracket of 39.6% for high-income households and phases out rather than immediately repeals the estate tax, which applies now to estates worth about $5 million or more.
Other brackets would be compressed to new rates of 12%, 25% and 35%, but income thresholds for those brackets were not immediately released.
“This is the beginning of the end of this horrible tax code,” Ways and Means Chairman Kevin Brady, R-Texas, said as he entered a briefing with House members Thursday morning. The full tax bill is due to be released later in the day.
Documents provided to House members show the plan would nearly double the standard deduction, from $12,700 to $24,000 for married couples filing jointly. And a new family credit of $1,600 would replace the existing child tax credit of $1,000. The existing credit for child care costs and caring for an elderly dependent would be maintained.
Retirement savings plans such as 401(k)s would be retained, the documents said. There would also be no change to the deduction for charitable contributions, though organizations representing nonprofits have warned that the higher standard deduction might make people less motivated to donate.
The bill's release keeps Republicans on an aggressive schedule to try to win House passage by Thanksgiving and enactment by President Trump by Christmas. But it came after two days of intense negotiations over differences within the House GOP conference, which led to some decisions that may not stand when the Senate takes up the bill.
The top corporate tax rate would be reduced from 35% to 20%, and companies would be able to write off investments in new equipment immediately. The plan also creates a new 25% rate for small-business owners, sole proprietors and partnerships that report business income on personal tax returns, but proposes rules to prevent abuse by wealthy people who could try to portray their personal income as business income to avoid the 39.6% personal tax rate.
The plan repeals the Alternative Minimum Tax, which mostly hits higher income taxpayers by reducing the value of other deductions in the code. On the estate tax, the plan would immediately double the $5 million exemption and phase it out over six years.
The GOP won a narrow 216-212 victory in the House last week on a budget resolution that laid the foundation for the tax overhaul by including language to block a Democratic filibuster in the Senate.
Among the 20 Republican "no" votes on the budget were 11 New Jersey and New York representatives, who said they could not accept proposals to eliminate the deduction for state and local income, sales and property taxes.
Over the weekend, Brady conceded that some the deduction for property taxes would be retained, but not the one for state income or sales taxes. One New Jersey Republican who had broken with the party on the budget seemed to be won over by the change.
"There's a lot of ways you could look at this, but one headline is we won," said Rep. Tom MacArthur.
But Rep. Frank LoBiondo, R-N.J., said that a conference call scheduled for Wednesday night to discuss the tax changes did not happen because White House officials did not get on the call.
"If they don't make a move on state and local, including income taxes, there's a problem," LoBiondo said. Interviewed as he headed to an Intelligence Committee meeting happening at the same time as the members' briefing, he said he would need to see detailed figures to determine whether a deduction for property taxes only helped his district.
"They're not giving us numbers now, they're giving us the rah-rah," he said.
The concession on property taxes ate into the estimated $1.3 trillion that the bill's authors had hoped to recoup from a full elimination of the state and local deduction, which would have been used to pay for lower rates for individuals and corporations. The budget resolution put a $1.5 trillion cap over 10 years on the amount of revenue the bill can give up in tax cuts.
Democrats say the process is being rushed and asked in a letter Wednesday that Brady postpone a hearing on the bill set for Monday in the Ways and Means Committee.
"Reforming our nation's tax code will fundamentally reorganize 100 percent of the United States economy," wrote Rep. Richard Neal of Massachusetts, the senior Democrat on the committee. "It would be reckless in the extreme to rush this process through committee next week. ... Let's slow down and get this right."
But while there is division in the GOP on details, there is almost unanimous support for getting tax bill passed this year because members do not want to go into the 2018 midterm elections without a significant legislative achievement.