Talking Taxes: The Sacred Cows of the Tax Code

Republican plans for a big tax overhaul hinge on how far the White House and Congress are willing to go in eliminating or reining in popular tax breaks, sometimes known in Washington as the sacred cows of the tax code.

Eliminating breaks would allow the government to simplify the tax code and broaden the base of income against which taxes are levied, making room for lower individual and corporate tax rates.

The dilemma -- which Republicans are colliding with right now -- is that many of the biggest tax breaks, especially for individuals, are popular and hard to dislodge. Among the most entrenched are the benefits for employer-sponsored health insurance, state and local taxes, home mortgage interest and charitable donations.

Those big tax breaks are where the money is. In 2018, households will save about $110 billion by deducting state and local tax payments and about $59 billion by deducting charitable donations, according to the Joint Committee on Taxation. The GOP would need to curtail breaks like those to get rates down as far as they want. Employer-sponsored health insurance, likely to be left alone, will lower federal revenue by about $236 billion in 2018, according to the Tax Policy Center.

GOP lawmakers want to remove the state and local tax deduction and make changes that would dramatically scale back the mortgage-interest and charitable donations -- without actually ending them.

Republicans also want to repeal the personal exemption, worth $4,050 per person, and expand the standard deduction to as much as $24,000 for married couples, nearly double what it is now. On top of that, they plan to make changes to the child tax credit.

The plan is still being written, and at this point, it's nearly impossible for a household to know how it would fare. But what's clear is that, for the first time since 1986, some of the largest, most important tax breaks are on the table for change.

Check out our video above on the sacred cows, which uses real cows to illustrate key parts of the GOP plan.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

October 04, 2017 05:44 ET (09:44 GMT)