Although Congress has put off any serious consideration of comprehensive tax reform until next year, House Republican leaders on Friday unveiled a far ranging wish list of measures designed to spur economic growth and simplify the tax code.
The 34-page tax policy white paper – the final installment in House Speaker Paul Ryan’s new series of election-year policy talking points – in many ways resembles the costly tax plan that presumptive GOP presidential nominee Donald Trump released earlier this year.
Both proposals would sharply compress the number of individual tax brackets from seven to three; substantially lower corporate tax rates; increase the standard deductions for individuals and families, and abolish the highly unpopular alternative minimum tax and estate tax.
The three new individual tax rates under the House approach would be 12 percent, 25 percent and 33 percent, while Trump has proposed new rates of 10 percent, 20 percent and 25 percent.
House GOP leaders and Trump are closer on lowering the 35 percent corporate tax rate, with the House favoring a new 20 percent level and Trump seeking an even lower rate of 15 percent. Those rates are also roughly in line with the proposed new top pass-through rates on sole proprietorships, partnerships, and S-Corporations that the Republicans and Trump would impose.
But Trump and Ryan have publicly differed on a wide range of policy issues this year, and they are far from total agreement on many tax reform issues. For instance, Trump is more inclined than the House GOP to cull many of the existing tax incentives and loopholes from the tax code to save money, with the notable exceptions of charitable and home mortgage deductions.
The Republicans acknowledge that the tax code is riddled with wasteful loopholes that foster “crony capitalism,” but they see the virtue in preserving or enhancing the earned income tax credit to encourage low income Americans to find jobs, tax advantages for savings and retirement plans and other deductions that spur education and job creation.
House Republicans also said they are trying harder to think outside of the box, including developing ways to shift taxation away from income and towards consumption – a more “pro-growth” approach. It wasn’t clear precisely what they have in mind, although they didn’t call for a flat tax or consumption tax.
“Movement toward a consumption-based system need not involve a shift to an explicit consumption tax, such as a retail sales tax, but instead could result from reforms which exclude certain features of the income tax base,” the lawmakers explained. “Those changes would achieve similar economic results albeit through different administrative rules,” the blue print states.
And while Trump and his Democratic rival, Hillary Rodham Clinton, both favor substantially raising the tax rate on the hundreds of billions of dollars of income generated annually by managers of hedge funds and other private equity funds – so-called “carried interest” -- the House GOP plan is silent on that topic.
With so much money at stake, the financial world has aggressively lobbied against any change in the carried interest rate on federal personal income. A Republican aide to the House Ways and Means Committee said on Friday that that “It’s something we will have to discuss.”
“The blueprint is the beginning, not the end of the conversation,” the aide added.
The House GOP document also included several novel ideas that were discussed on Capitol Hill and along the Republican presidential trail this year, including one enabling taxpayers if they choose to submit a simplified tax return on the back of a postcard.
The blue print was developed by Ryan, a long-time champion of tax reform, House Ways and Means Committee Chair Kevin Brady (R-TX) and other senior members of a GOP tax task force. Previous efforts by GOP lawmakers to reform the federal tax code have fallen short. The lawmakers said they were offering “a detailed, credible, fiscally responsible plan to create a modern tax code built for growth.
“We are committed to growing our economy without increasing the deficit – taking into account the increased Federal revenues that result from economic growth,” the Republicans wrote.
However, the tax proposal left many questions unanswered.
The document is devoid of specific legislative language and technical analysis of the potential fiscal impact of the proposed tax cuts and policy changes. There is also no attempt to describe the distributional effect of those changes on Americans of different income levels.
House Republican aides told the Morning Consult on Thursday that the leaders believe the plan could generate hundreds of billions in new revenues “using a dynamic model” for scoring the proposals.
An analysis of Trump’s plan by the Urban-Brookings Tax Policy Center earlier this year concluded that it would disproportionately benefit the wealthiest Americans and would substantially add to the national debt.
According to the report’s findings, Trump’s plan “would reduce federal revenues by $9.5 trillion over its first decade before accounting for added interest costs or considering macroeconomic feedback effects.”
And while the Trump’s plan would improve people’s incentive to work, save and invest, the analysis added, it would increase the national debt by nearly 80 percent of gross domestic product by 2026, absent any offsetting spending cuts by Congress.