The House Ways & Means Committee began its mark-up of the GOP’s Tax Cuts and Jobs Act yesterday. There remains division within the GOP ranks. While most support the bill’s broad themes, issues such as curbs on deductions for state and local taxes, mortgage interest, and medical expenses; and the rules limiting the ability of many pass-throughs to take advantage of the special 25 percent tax rate remain sore points. Further complicating matters: the weekend release of the Paradise Papers, a collection of documents on the financial dealings of some of the world’s leaders and corporations, including Apple.
Brady revises the bill. Last night, the Ways & Means Chair made several changes to the bill the panel was considering. They included a new limit on an excise tax on private university endowments, a three-year holding period for investment firms to benefit from "carried interest," new restrictions on the Earned Income Tax Credit, and changes to the bill's base erosion provisions for US-based multinationals. Brady also said he would not include in the bill a proposal to repeal some of the Affordable Care Act's excise taxes on parts of the health care industry.
If the property tax deduction stays in the bill, who would benefit? TPC’s Kim Rueben and Frank Sammartino explain that the TCJA would roughly double the size of the standard deduction and eliminate other itemized deductions such as those for other state and local taxes, medical expenses, and casualty losses. The result? Relatively few households would benefit from the remaining itemized deductions at all (such as for mortgage interest paid or charitable donations), and most remaining itemizers would have high-incomes. In other words: The property tax deduction would become irrelevant for most taxpayers.
There may be a better way to address the mortgage interest deduction. The TCJA would cap the deduction at $500,000 in mortgage debt but TPC’s Bill Gale has a different idea: Replace the deduction with a one-time $10,000 credit for first-time homeowners. That would encourage home buying rather than mortgage debt and target the subsidy to those who need it most.
There’s one TCJA provision that deserves everybody’s cheers. TPC’s Richard Auxier shows why ending the tax exemption for bonds used to build professional sports stadiums is a good idea. It’s only worth $200 million, but it “could at least curtail the size of the giveaways by requiring local governments or the team owners to pay higher, taxable interest rates for borrowing to fund the subsidies.”
But two provisions would hurt frail older adults. TPC’s Howard Gleckman explains in Forbes. The TCJA repeals the medical expense deduction and indirectly cuts the tax benefits for charitable giving. These two changes would make it harder for frail older adults, younger people with disabilities, and their families to receive badly-needed services. The medical expense deduction helps those who face major uninsured expenses for medical treatment or long-term supports and services. Reducing the tax incentive for charitable giving would hurt community-based non-profits that often provide direct services to seniors and younger people with disabilities.
Passing the plate: Could repealing the Johnson amendment create a new campaign financing gimmick? The House bill would end the decades-old law that bars churches from political advocacy. But the head of the Joint Committee on Taxation warned the Ways & Means panel that the bill could allow givers to run campaign money through faith-based organizations. One benefit: Contributions could be tax free. Giving to other political groups is not.
There’s still time to tune in at 9:00 am today to hear Senator Ron Wyden at TPC. TPC’s Distinguished Speaker Series will be webcast live right here.
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