House Republican leaders began rolling out a tax bill Thursday that contains sweeping changes for business and individual tax rates, including a measure to cut the corporate tax rate to 20%.
The bill would cap the mortgage-interest deduction on new home sales at $500,000 – a departure from the current cap of $1 million for couples filing jointly, according to a memo written by the House Ways and Means Committee. The National Association of Realtors, which has been wary of the tax plan, said the memo "appears to confirm many of our biggest concerns."
Another provision that's likely to provoke controversy would tax large university endowment income at 1.4%. That measure, described by a Republican aide, would apply to schools with assets of more than $100,000 per student. It would exempt small schools, said the aide, who asked not to be named because the bill isn't yet public.
The bill would also impose a tax of as much as 12% on multinational companies' accumulated offshore earnings, a GOP lawmaker said – a rate that's higher than either President Donald J. Trump or House Speaker Paul Ryan have proposed. It would phase out the estate tax over years, more slowly than either of them would prefer.
The bill will include "no changes" to popular 401(k) retirement plans, according to a House memo, and it's not expected to repeal the Obamacare individual mandate. It would cut individual tax rates for millions of Americans, but not for earners at the very top of the scale, lawmakers have said. Keeping the top rate at 39.6% won't please conservatives who want across-the-board cuts.
The legislation won't satisfy everyone, but it represents Trump's last chance for a major legislative victory in his first year. To pass it by Christmas, as the president has called on Congress to do, lawmakers must prevail over a series of challenges with no real margin for error. The first test comes Monday, as the House Ways and Means Committee is scheduled to take up the bill.
The long-awaited legislative text arrives Thursday, the same day that Trump is expected to name Federal Reserve Governor Jerome Powell to the top job at the U.S. central bank. The former private-equity executive favors continuing gradual interest-rate increases and would preside over what Trump has promised as robust growth – should the planned tax overhaul come to fruition. "Push Biggest Tax Cuts EVER," Trump said on Twitter Wednesday.
The 2018 budget resolution approved by the House and Senate allows for tax legislation that would increase the federal deficit by $1.5 trillion over 10 years, before accounting for any growth that might result from the changes. Figuring out how to achieve the deep rate cuts that Trump, Ryan and others want while staying within that bright line has complicated the bill drafters' task. Earlier this week, House officials postponed the legislation's planned release by one day.
On Thursday, they'll unveil a bill that took months to write. It may be rewritten over the weekend, at least in part – though which provisions would change is unclear.
House Ways and Means Chairman Kevin Brady, the Texas Republican who'll manage the bill, said late Wednesday that he may have a revised version in time for Monday's hearing. "Are there some areas where we've asked people to bring solutions? Yeah," he said.
Representative Carlos Curbelo, a member of the panel, said there "may be some" differences in the legislative text by the time the committee begins its work. "It's settling; it's all settling," he said. Details began to emerge late Wednesday.
The child tax credit would be increased to $1,600 from $1,000 per child under 17, with an additional $300 credit for each parent as part of a consolidated family tax credit, according to the House memo. The credit had been a priority for Ivanka Trump, who had met with lawmakers in recent weeks to discuss it.
One key consideration involves a compromise that Brady offered on tax breaks for individuals in high-tax states: allowing individuals to deduct the cost of their state and local property taxes. That benefit would be capped at $10,000, according to the memo.
"ONE BY ONE"
It was unclear Wednesday how many lawmakers would be won over by Brady's offer to preserve an individual deduction for state and local property taxes. "They're working over concerned lawmakers one-by-one at this point," Representative Tom MacArthur, a New Jersey Republican, said of GOP leaders.
"We are close," said Representative Tom Reed of New York Wednesday evening. "We are going to be able to solve that problem."
Members of the Ways and Means panel met late into the night Wednesday as they discussed yet another issue: placing limits on a proposed tax cut for many businesses organized as partnerships, limited liability companies and other so-called pass-throughs. Currently, such companies pass their earnings through to their owners, who are taxed at their individual income rates – which can be as high as 39.6%.
The bill would reduce the top rate to 25% – but place limits on the kind of income that would qualify, said a person aware of the details. First, "professional services" – including doctors, lawyers, accountants and others – wouldn't qualify for the rate.
Other business owners could choose one of two options: 1. Categorize 70% of their income as wages – and pay their individual tax rate on it – and 30% as business income, taxable at the 25% rate. Or 2. Set the ratio of their wage income to business income based on the level of their capital investment.
The guidelines are aimed at preventing abuse of the 25% rate – such as high-earning individuals forming themselves into corporations to get a tax cut.
Trump and others have pitched the pass-through plan as a boon for small businesses – but pass-throughs can be very large businesses in addition to mom-and-pop shops. Trump himself owns hundreds of limited liability companies, according to his federal financial disclosure.
Setting limits on the pass-through rate is a touchy issue for a number of lawmakers.
"I want to make sure the pass-through rate for small businesses is actually a pass-through rate for all businesses – I'm hearing that may not be the case, and that is a problem," said Representative Mark Meadows, a North Carolina Republican and the chairman of the House Freedom Caucus.
Earlier Wednesday, Meadows predicted a bumpy ride for the House bill, saying it would unleash dissent "like you've never seen." Still, that doesn't mean the effort will fail, he said.
"It may be a little messy, it may not be as fun as we would all have liked to have seen it be over the past few weeks," Meadows told reporters. "But we're going to get it done, and failure is not an option."