A Look at Fast-Moving House GOP Tax Plan

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The delayed release of the GOP tax plan last week and scheduled markups this week in the House Ways and Means Committee hasn’t allowed much time to analyze the myriad tax cuts and tax increases and their impact. No matter, more tweaks are expected.

The plan includes benefits and costs to corporate and individual taxpayers, municipalities and other stakeholders. You can’t rely on either political party, media outlets or interest groups to explain fully or fairly all of the tax provisions. They either have an agenda, are narrowly focused on their special tax treatment or don’t have the sophistication to analyze the entire package.

It’s obvious to everyone the GOP is rushing this bill through the process. This is a deliberate tactic to hide the bill’s warts and gives less time for lobbyists to mobilize on individual tax items. There are pros and cons to this strategy. GOP rank and file members also have little time to absorb the consequences of the bill and may be reluctant to support a bill they don’t understand. That’s a risk GOP leadership is willing to take.

The House markup will start Monday and go through Thursday, so there will be time next week to weigh in. There may be an opportunity to amend the bill on the House floor the week before Thanksgiving. The Senate is expected to produce its own tax package and won’t be using the House bill as its base bill. Because of the nature of the Senate, it’s likely to be a more moderate proposal.

The Joint Tax Committee prepared a useful chart that provides a snapshot of the many individual, corporate and foreign tax changes in the GOP House tax reform plan. Here are a few observations and comments on the proposal:

  1. The implications and impacts of the bill vary by household, zip code and state for each taxpayer. Thus, it’s difficult to make a simple recommendation of whether you should support, oppose or take no position on the bill. For example, there are concerns with the state and local tax (SALT) deduction being partially eliminated, but the tax rate for a household making up to $90,000 is reduced from 25 percent to 12 percent. So many households, especially those that don’t own a home, may pay less taxes. Homeowners could pay more. Local government interests are mounting an effort to change the SALT limitation.
  2. Americans Against Double Taxation is a group made up of NACO, NLC, Conference of Mayors and a ton of public sector groups. They put out an analysis the day before Ways and Means Chairman Kevin Brady’s bill was published. You can see the findings here. They modeled the impacts of the Brady plan on an average family of four that owns a home and earns between $50,000 and $200,000. Their data suggests that middle-class homeowners in all 50 states would see a tax increase ranging from 3.7 percent to 26.4 percent. More than half of all states will experience double-digit percentage increases. For Oregon, the increase would be 18.4 percent increase and Washington 9.5 percent. These numbers are for homeowners only, not all middle-class families. For people who don’t own a home, many may receive a tax benefit.
  3. Private Activity Bond Elimination: PABs are a type of bond to fund private projects that have a public benefit, and the interest for the bonds is exempt from federal taxation (just like the interest for bonds issued directly by state and local governments). The bond market considers PABs to be a part of the municipal bond sector. The change came as a complete surprise to the infrastructure community – the White House has been discussing significant expansion of PABs in its forthcoming infrastructure proposal. It also was a surprise to states and cities – Emily Brock, director of the federal liaison center for the Government Finance Officers Association, told Bond Buyer magazine, “We’ve had over 90 Hill meetings and there was absolutely no talk of advance refundings, private activity bonds or tax credit bonds…”
  4. Regarding the Commuter Tax Benefit, under current law, “transportation fringe benefits” (employer-provided parking, mass transit passes, and bicycle commute cost reimbursement) are currently tax-free both to employers (as a deductible business expense) and to employees (the dollar value of the benefits are excluded from their income tax calculation). In the tax plan, the pretax payroll deduction option is retained, but the ability of employers to deduct the cost of this benefit is eliminated. This could provide a disincentive to employers from offering this key benefit which promotes job connectivity and growth.
  5. The proposal eliminates the New Markets Tax Credit and the Historic Buildings Tax Credit programs. Both of these programs have facilitated investment in large and small communities.

See the chart below for a summary of the major individual, corporate and foreign tax changes:

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As Vice President, Federal Affairs, Joel brings to CFM broad public policy experience as a senior Congressional aide and successful private sector lobbyist.