A sweeping overhaul of the tax code unveiled by House Republicans on Thursday would cap the deduction for property taxes at $10,000 and preserve the mortgage interest deduction only for existing mortgages and new purchases with loans of $500,000 or less.
Those changes will amount to a tax increase on high-income taxpayers with pricey homes, even if they get lower income tax rates.
House Ways and Means Committee Chairman Kevin Brady, R-Texas, said the change was being made to drive tax relief to middle income families, but it also will go to offset lower corporate rates that sponsors believe will spur the economy and job creation.
The plan maintains the existing top bracket of 39.6% for households earning more than $1 million, Brady said. There would no tax charged on household income less than $24,000; a 12% rate would be charged on income from $24,000 to $90,000; 25% on $90,000 to $260,000; and 35% on $260,000 to $1 million, he said.
Rates would be different for single people and single heads of households.
“This is the beginning of the end of this horrible tax code,” Brady said as he entered a briefing with House members Thursday morning.
Brady said the tax plan would reduce tax revenues over the coming decade by $1.5 trillion, a target set in a budget resolution that both chambers approved earlier this month. Republicans argue that the cuts will spur economic growth that will offset those reduced revenues.
The plan would nearly double the standard deduction, from $12,700 to $24,000 for married couples filing jointly. The personal exemptions in the tax code now, worth $4,050 for each taxpayer, spouse and dependent, would be eliminated.
A new family credit of $1,600 would replace the existing child tax credit of $1,000, and there would be $300 credits for each parent and non-child dependent, such as an elderly parent. The income cap for the credits would also be increased from $110,000 for a married couple to $230,000.
Retirement savings plans such as 401(k)s would be not be changed, Brady said. Taxpayers who itemize could also continue to deduct for charitable contributions, though organizations representing nonprofits have warned that the higher standard deduction might make people less motivated to donate.
Brady said other deductions and loopholes would be eliminated but those details were not immediately released.
The bill's introduction keeps Republicans on an aggressive schedule to try to win House passage by Thanksgiving and enactment by President Trump by Christmas. But it came after two days of intense negotiations over differences within the House GOP conference, which led to some decisions that may not stand when the Senate takes up the bill.
“We’re gonna get this done, you know why? Because the American people are counting on us,” said House Speaker Paul Ryan, R-Wis.
President Trump, in a statement released by the White House, said applauded the release of the plan and said he was ready to fight for it.
"We are just getting started, and there is much work left to do," he said. "The special interests will distort the facts, the lobbyists will try to save their special deals, and some in the media will unfairly report on our efforts. But my Administration will work tirelessly to make good on our promise to the working people."
The top corporate tax rate would be reduced immediately from 35% to 20%, and companies would be able to take an immediate write-off for investments in new equipment, retroactive to mid-September.
The plan also creates a new 25% rate for small-business owners, sole proprietors and partnerships that report business income on personal tax returns, but Brady said there would be rules to prevent abuse by wealthy people who could try to portray their personal income as business income to avoid the 39.6% personal tax rate.
The plan repeals the Alternative Minimum Tax, which mostly hits higher income taxpayers by reducing the value of other deductions in the code. On the estate tax, the plan would immediately double the $5 million exemption and phase it out over six years.
The GOP won a narrow 216-212 victory in the House last week on a budget resolution that laid the foundation for the tax overhaul by including language to block a Democratic filibuster in the Senate. Republicans can pas the bill with no Democratic support in either chamber, if they can get their own party in line behind it.
Among the 20 Republican "no" votes on the budget were 11 New Jersey and New York representatives, who said they could not accept proposals to eliminate the deduction for state and local income, sales and property taxes.
Over the weekend, Brady conceded that some the deduction for property taxes would be retained, but not the one for state income or sales taxes. One New Jersey Republican who had broken with the party on the budget seemed to be won over by the change.
"There's a lot of ways you could look at this, but one headline is we won," said Rep. Tom MacArthur.
But Rep. Frank LoBiondo, R-N.J., was not convinced.
"The elimination of state and local income tax deductions and the $10,000 cap on property tax deductions would be detrimental to New Jersey residents," he said. "This bill is not something I could support in its current form."
A provision to discourage multinational companies from incorporating overseas while selling their products in the United States was assailed as a backdoor tax on consumers by the advocacy group Americans for Prosperity, which called the bill dead on arrival.
But Rep. Mark Walker of North Carolina, who chairs the conservative Republican Study Committee, was satisfied with what he had heard.
“Without trying to ... sugar coat it, it’s extremely positive,” Walker told reporters, describing group's reaction to the bill overall.
Rep. Dave Brat, R-Va., a member of the hard-line House Freedom Caucus, also shrugged off concerns that the committee had included a version of the border adjustment tax, which tax-writers had considered and abandoned.
The BAT was “a sales tax at the border of 18%," Brat said. "There’s nothing of that scope or nature.”
Democrats say the process is being rushed and asked in a letter Wednesday that Brady postpone a hearing on the bill set for Monday in the Ways and Means Committee.
"Reforming our nation's tax code will fundamentally reorganize 100 percent of the United States economy," wrote Rep. Richard Neal of Massachusetts, the senior Democrat on the committee. "It would be reckless in the extreme to rush this process through committee next week. ... Let's slow down and get this right."
But while there is division in the GOP on details, there is almost unanimous support for getting tax bill passed this year because members do not want to go into the 2018 midterm elections without a significant legislative achievement.