The GOP Tax Plan: Tough Choices With Limited Room to Maneuver
September 26 2017 - 5:59AM
Dow Jones News
By Richard Rubin and Siobhan Hughes
WASHINGTON -- Republicans face a daunting challenge as their tax
plan comes into sharper focus: They are trying to fit more than $5
trillion of tax cuts inside a $1.5 trillion box.
This week's planned release of a unified GOP blueprint from the
Senate, the House and the Trump administration marks the beginning
of a race to a tax overhaul that will likely take months to
complete. The plan will call for driving down the corporate tax
rate into the low 20% range, from 35%, according to a person
familiar with the discussions. It will also likely include a
doubling of the standard deduction that would benefit many
individual filers, lower individual rates, fewer tax brackets and
sharply reduced rates for "pass-through" business owners who pay
tax on business income through their individual returns.
The tax rates laid out in the plan will present achievable
guideposts that could shift as tax bills move through the House
Ways and Means Committee and Senate Finance Committee, the person
said.
Republicans also have said they want to eliminate the estate
tax, repeal the alternative minimum tax, expand write-offs for
business investments and reduce taxes on U.S. corporate foreign
profits.
In all, the Republicans' wish list will likely add up to more
than $5 trillion worth of tax cuts over a decade, estimates Kyle
Pomerleau of the Tax Foundation. Getting it into a budget blueprint
that allows for just $1.5 trillion in cuts over 10 years could
require paring back ambitions for rate cuts and curtailing
long-cherished breaks. It could also mean resisting calls to use
the bill to repeal a whole other set of taxes created as part of
the 2010 Affordable Care Act.
"To fit every policy you want, you need a full-size SUV, but at
best you have a midsize crossover," said Sage Eastman, a former
Ways and Means GOP aide. "Some stuff just isn't going to fit, no
matter how much cramming you do."
That $1.5 trillion benchmark came from an agreement reached by
Sens. Bob Corker (R., Tenn.) and Pat Toomey (R., Pa.) in the Budget
Committee that would be locked into the budget resolution governing
the tax debate. A budget resolution, which hasn't yet been adopted,
is necessary because it lets Republicans pass a subsequent tax bill
on a simple-majority vote in the Senate without Democratic support,
using a procedure known as reconciliation.
Under this agreement, the $1.5 trillion would be the maximum tax
cut over the next decade. Mr. Corker, who has expressed concern
about budget deficits, said in an interview that he agreed to the
compromise because it gave the Trump administration room for its
agenda while forcing Congress to make difficult decisions about
taking away tax preferences.
"Giving them some headroom to make this work, to me, was an
important thing to do," said Mr. Corker. He has come under
criticism for abandoning a revenue-neutral tax policy, which
wouldn't expand budget deficits at all, that Senate Majority Leader
Mitch McConnell (R., Ky.) and others repeatedly backed this
year.
Mr. Corker said how he will vote on the ultimate tax bill will
depend on assessments on the economic growth it is likely to
produce and whether that growth is enough to keep budget deficits
from rising.
The compromise "kept enough pressure on Congress to do things
like doing totally away with state and local deductions," Mr.
Corker said. "I care deeply about deficits, and at the end of the
day, this cannot produce deficits."
The $1.5 trillion in budget plans doesn't include an assumption
that tax cuts will spur faster growth. Even if Republicans assume
tax changes will help stoke growth, they will still face tough
decisions about eliminating popular tax breaks to pay for the cuts,
Mr. Corker said.
One such tax break is the individual deduction for state and
local taxes, especially important to high-income residents of
high-tax states such as New York and New Jersey. Getting rid of
this deduction could face resistance from House Republicans
representing these states.
The party will also likely look at limits on the ability of
businesses to deduct interest costs, which could face resistance
from real-estate and finance firms. Other deductions and credits
are on the chopping block, too, such as breaks for renewable
energy.
Most breaks don't amount to much in a tax plan in the scale of
trillions of dollars, meaning many different deductions and credits
need to be targeted to have much of an impact. Conceding one small
tax break to one constituency might lead to demands for concessions
to others.
Republicans have other options, including phasing in some rate
cuts to minimize the 10-year cost, Mr. Pomerleau said.
"There is probably an endless number of...things you could do to
get a plan to fit within a budget number," he said.
Write to Richard Rubin at richard.rubin@wsj.com and Siobhan
Hughes at siobhan.hughes@wsj.com
(END) Dow Jones Newswires
September 26, 2017 05:44 ET (09:44 GMT)
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