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Tax primer: How the GOP handled several thorny issues

Tax primer: How the GOP handled several thorny issues
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House Republicans on Thursday unveiled their long-awaited tax bill, which they hope to pass before Thanksgiving.

The 429-page measure makes numerous changes to both the individual and business sides of the tax code.

In the weeks and months leading up to the bill’s release, there was much speculation and pushback over various ideas.

Here’s how the bill addressed several controversial issues.

State and local tax deduction

Republicans faced a revolt from GOP lawmakers representing New York and New Jersey when they floated the idea of repealing the deduction for state and local taxes.

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In the end, GOP leaders offered a compromise to blue-state Republicans, eliminating the deductions for state and local income and sales taxes, but allowing up to $10,000 in deductions of state and local property taxes.

Given high property values in places like the New York suburbs, the existing language will help constituents of the complaining lawmakers. But it won’t make them whole, and it will almost certainly cost the bill some votes.

Reps. Pete KingPeter (Pete) Thomas KingKey GOP lawmaker says public oblivious to consequences of opioid crisis Cook Political Report moves 5 GOP-held seats towards Dems The Hill's Morning Report — Kavanaugh could be confirmed within days MORE (N.Y.), Lee Zeldin (N.Y.) and Frank LoBiando (N.J.) all said they could not support the bill in its current form.

“We need to fix this state and local tax deduction issue,” Zeldin said in a statement. “Adding back in the property tax deduction up to $10,000 is progress, but not enough progress.”

Top tax bracket

The GOP bill keeps the 39.6 percent top tax rate, which will make it easier for Republicans to argue that their bill is focused on middle-class tax relief and is not primarily benefitting the wealthy.

However, it increases the income threshold for that bracket from about $470,000 for a married couple to $1 million.

The different threshold will allow conservatives to argue that the bill does provide tax relief throughout the code. Conservatives have traditionally supported reductions in individual tax rates across-the-board.

Some on the right were unhappy the high tax rate was retained, however.

The 39.6 rate drew criticism from Americans for Prosperity (AFP), a group backed by GOP mega-donors Charles and David Koch. AFP President Tim Phillips argued that Republicans succumbed “to the politics of envy.”

401(k) retirement plans

The financial industry raised the alarm bells when they caught wind that congressional Republicans were considering lowering the cap on pretax contributions to 401(k) retirement plans.

Following reports about the potential alteration, President Trump pushed back too, saying the plan wouldn’t change 401(k)s. Ultimately, House Republicans agreed and made no change to the cap amount.

A reduction in the limit on pretax contributions — and a corresponding shift toward “Roth” 401(k)s where money is taxed when it’s put in but not withdrawn — could have been used to help raise revenue in the short-term to help pay for rate cuts. But critics called the idea a budget gimmick that would likely reduce the amount that people save for retirement.

ObamaCare mandate

Trump tweeted on Wednesday that he wanted ObamaCare’s individual mandate repealed in the tax bill.

But congressional GOP leaders have said they want to keep health care and tax reform separate. Each issue has enough political hurdles individually and could face even more challenges if they’re combined.

Republican leaders in Congress won on this issue for now: Repeal of the individual mandate is not a part of the bill. Additionally, the bill did not repeal any of ObamaCare’s taxes.

Still, the fight may not be over. Trump told GOP lawmakers Thursday that he still wants the mandate eliminated as part of a tax overhaul.

Estate tax

The tax bill would repeal the estate tax, though not immediately.

The measure first increases the amount that’s exempt from the tax and then eliminates it after 2023.

Republicans have long opposed the estate tax — calling it the “death tax” and arguing that it makes it harder for families to pass their businesses and farms on to the next generation.

But Democrats have hit Republicans particularly hard on their estate-tax repeal goals, since the tax only applies to the very wealthy. Eliminating the tax also adds to the deficit.

Democrats are likely to make the estate tax a big part of their argument against the tax bill, casting its repeal as a carve out to the super-wealthy.

Including the full repeal of the estate tax could also be a problem in the Senate, where some GOP lawmakers, including Sen. Susan CollinsSusan Margaret CollinsManchin wrestles with progressive backlash in West Virginia Conservatives bankrolled and dominated Kavanaugh confirmation media campaign The Hill's Morning Report — Presented by the Coalition for Affordable Prescription Drugs — Health care a top policy message in fall campaigns MORE (Maine) have expressed concerns or questioned the need for elimination.

Mortgage interest deduction

Major housing industry groups came out against the bill before it was even released, and their priorities were not treated well in the bill.

It keeps the mortgage-interest deduction, but fewer people would be likely to take it because the measure also nearly doubles the standard deduction. Additionally, it would lower the cap for new mortgages from $1 million to $500,000 and eliminate the deduction for second homes.

The National Association of Home Builders had been pushing for a credit that would have replaced the mortgage interest and property tax deductions and could be taken regardless of income level. But they were unsuccessful in getting their proposal into the initial legislation.