Nov 3, 2017

The emerging GOP tax bill issues

Photo: J. Scott Applewhite / AP

While leadership and staff were pleased with how yesterday's rollout of the House tax bill went, there are a handful of issues that will be subject to, at the very least, further negotiations among Republicans.

The bottom line: None of these seem to be a huge deal yet. The political pressure to pass the bill is strong, even though getting the math right when changing the bill is going to be tricky.

Context: The introduction of the tax bill yesterday went much better than the introduction of any version of the health care bill earlier this year. It seems that comparatively, any outstanding issues won't be that hard to resolve. But also, this is Congress and it's been one day, so we could end up eating our words on that one.

The issues: Here's what members have raised so far.

  • Mortgage interest deductibility: The bill currently caps the mortgage interest deduction for newly purchased homes at $500,000 (down from $1 million). Some members, including Rep. Tom MacArthur, would like to see that limit raised. It also eliminates the deduction for second homes, which MacArthur wants to restore.
  • State and local tax deduction: The bill eliminates the deduction for state and local income taxes, while preserving the deduction for up to $10,000 of property taxes. While this is good enough for some members from high-tax states, like MacArthur, it's unclear whether it'll be good enough for others.
  • Pass-throughs: The bill allows small businesses, or "pass-throughs" that are currently taxed at the individual rate of the filer, to be taxed at a 25 percent rate. But it also sets up new sets of rules to keep people from taking advantage of the new, lower rate.The default option is for 30 percent of income to be deemed business income, while the other 70 percent would be taxed at the filer's individual rate. The business income would be taxed at the 25 percent rate, while the rate for the individual income would be higher. (There's another option that can be used for capital-heavy businesses.)However, this 30-70 option doesn't apply to certain service businesses, which are taxed at the filer's individual rate. Some members, including some conservatives like Rep. Dave Brat, say this isn't fair.
  • Carried interest tax break: The bill preserves the current policy, but Freedom Caucus Chairman Mark Meadows said today on Morning Joe that he wants the loophole to go away. President Trump has said the same in the past. Carried interest, which is the portion of a fund's profit that is paid to investment managers, is currently taxed at a lower rate than ordinary income, which benefits the wealthy.
  • International tax policy: I've heard grumbling about the international provisions of the bill, but the bottom line seems to be that they're deep in the weeds and members haven't yet wrapped their heads around them, thus gotten comfortable with them, so the exact issues aren't yet clear. "There is a lot of double taxation and it is so complicated the members don't understand it," one GOP lobbyist told me.
  • Individual mandate: Some members want to include a repeal of the Affordable Care Act's individual mandate in the bill, and all Republicans want it gone. But most Republicans understand that this would be throwing a politically explosive issue into something that the GOP really, really wants to get done.
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