Republicans released their tax policy framework on Wednesday, kicking off a legislative sprint over the next few months. Here's what you need to know:
1. Don't try too hard to calculate your tax bill.
The framework offers plenty of specifics on tax rates and some deductions, but nowhere near enough for most people to figure out what they would pay. Among the missing details are: the size of the child tax credit, the break points where tax brackets kick in, changes to the earned income tax credit and the fate of tax breaks beyond the state and local tax deduction (repealed) and the mortgage interest and charitable deductions (preserved).
2. The wealthy win, but stay tuned.
Key features of the tax plan skew the benefits toward upper-income households. Those include repeal of the estate tax, elimination of the alternative minimum tax, a 25% top rate on businesses that pay taxes on their owners' individual returns and corporate tax reductions that will help wealthy shareholders.
Republicans left themselves an opening for a tax bracket above 35% that would apply to the very highest earners, and that could leave some in the top 1% worse off, especially in a high-tax state such as New York where the state and local tax deduction is valuable.
But the GOP framing is quite populist, declaring that the plan isn't a tax cut for the wealthy and that their plan won't change who bears the tax burden. And polls show that most Americans want higher, not lower, taxes on the wealthy.
How Republicans sort this out and defend their plan is worth watching, as it's a potential source of division that will shape the debate.
3. There will be bigger budget deficits.
The framework doesn't include a specific price tag, but it's likely to be a sizeable tax cut overall, perhaps as much as $1.5 trillion over the next decade. That's more than 3% of projected revenue. Structuring the plan as a net tax cut makes the political math easier, because Republicans can create more winners than losers. They will then argue that the tax cuts will spur enough economic growth that the tax plan will fully or partially pay for itself. Expect a debate over whose economic models are correct.
4. It's the beginning, not the end.
Congress still has a long checklist ahead. First, the House and Senate have to adopt a budget resolution. That will specify the maximum size of the tax cut over the next decade. It will also unlock the fast-track procedures known as reconciliation. Under reconciliation, a subsequent tax bill can pass with a simple majority and not require votes from Democrats.
After the budget's done, the House and Senate will each write their own tax bills and advance them through committee. Expect the plans to diverge as legislators try to get the math to work and to wrangle the votes. The House will be tricky because GOP members from New York, New Jersey and California will resist the repeal of the state and local tax deduction. In the Senate, Republicans have just a two-vote margin, meaning each senator will have significant sway.
5. Business fights lie ahead.
The framework leaves out details on three crucial business-taxation issues and how each is resolved will matter.
First, the document calls for partial limits on corporations' ability to deduct interest and leaves open the question of what happens to non-corporate businesses. The answers matter to the real estate, agriculture and private-equity industries, along with large portions of corporate America.
On international taxes, the plan refers to rules that would tax U.S. companies' foreign profits "at a reduced rate and on a global basis." That sounds like the minimum tax on foreign income that many multinational companies oppose.
And the taxation of so-called pass-through businesses, which pay taxes on their owners' individual returns, still has a large blank space. The 25% rate in the framework creates an incentive to classify wage income as business profits. The framework refers to rules that would prevent such tax avoidance but the tax-writing committees will have to figure them out. Taxpayers who use pass-throughs, including car dealers, accountants, lawyers and doctors, are an important part of the GOP base.
Write to Richard Rubin at email@example.com
(END) Dow Jones Newswires
September 27, 2017 15:17 ET (19:17 GMT)