WASHINGTON - House Republican leaders on Thursday proposed legislation that would overhaul the U.S. tax code, slash corporate and individual income tax rates and jettison numerous tax breaks Americans and businesses have used for years to limit their tax bills.
The release of the proposal accelerates a frantic political effort that could impact almost every American household and business. In a number of cases, the tax plan cuts back on tax benefits for families and individuals while expanding tax benefits for companies.
The Tax Cuts and Jobs Act would lower the corporate tax rate from 35 percent to 20 percent and collapse the seven tax brackets paid by families and individuals down to four. It would create giant new benefits for the wealthy by cutting business taxes, eliminating the estate tax, and ending the alternative minimum tax.
The legislation would cut in half the popular mortgage interest deduction used by millions of American homeowners, changing the deduction's rules for new mortgages. Currently, Americans can deduct interest payments made on their first $1 million worth of home loans. Under the bill, for new mortgages, they would only be able to deduct interest payments made on their first $500,000 worth of home loans.
This change could have a particularly big impact on high-cost areas, such as San Francisco, New York, Boston, and the Washington D.C. area, and housing groups and lawmakers will likely try to defeat it. The bill would allow people to deduct their local property taxes from their taxable income, though this benefit would be capped at $10,000.
The bill would nearly double the amount of money not subject to federal income tax, a tax break known as the "standard deduction." Under the plan, that deduction would rise from $12,700 per family to $24,000. But this benefit would be partially offset by the personal exemption many Americans can claim, which can be large for families with multiple children.
The bill's true impact on the middle class will be difficult to immediately measure. The bill would create a new "Family Credit" and expand the child tax credit used by working families. The child tax credit would grow from $1,000 per child to $1,600 for each child.
Families would also no longer be able to deduct their state income taxes from their federal taxable income, another change that would have a particular impact on places like New Jersey and New York, where state taxes are higher than in other areas. Taxpayers will be able to deduct their property taxes up to $10,000.
Americans would no longer be able to deduct their medical expenses or property and casualty losses, according to a document outlining the plan.
The legislative fight over the tax bill has become the Trump administration's biggest political goal, after failed attempts to repeal the Affordable Care Act. Trump wants the legislation to pass the House and the Senate by the end of the year, though they must resolve numerous differences.
The bill would add $1.5 trillion to the debt over 10 years, but Republicans believe the changes would trigger a surge in economic growth, higher wages, and job creation.
Other changes in the bill would be far reaching. It would, for example, make changes to college savings programs and have new requirements for tax-exempt organizations like churches and charities.
The measure now moves into a contentious phase as Republican lawmakers look to make their preferred changes to the bill while nearly all Democrats work to block it, all while an army of lobbyists lean on Congress in a bid to protect their preferred deductions.