GOP tax overhaul has a lot of blanks to be filled in, but many Nebraska and Iowa lawmakers like what they see so far
WASHINGTON — American taxpayers would see their standard deduction nearly double under the tax overhaul Republicans started pitching last week.
“It removes people from the tax rolls, really,” said Rep. Adrian Smith, R-Neb., who represents Nebraska’s sprawling 3rd District and serves on the tax-writing House Ways and Means Committee.
After the collapse of repeal-and-replace health care efforts, Republicans are moving on to taxes and hoping for some much-needed legislative success.
The plan they unveiled last week was really just a blueprint with many key details to be fleshed out later, but its direction garnered positive comments from several GOP lawmakers representing Nebraska and Iowa.
Democrats quickly criticized it as overly weighted toward benefiting the wealthy.
The proposal would reduce the number of tax brackets from seven to three. Democrats noted that the top rate would fall and the bottom rate would rise somewhat under the plan.
Republicans, meanwhile, are leaning on the standard deduction increase to help make the case that they aren’t overly favoring the wealthy and also to advance the goal of allowing many Americans to file their taxes on a postcard.
“Doubling of the standard deduction is probably the best way to simplify the tax-return process for millions of Americans,” Smith said.
Tax preparers don’t appear to be panicking over the prospect of lost business just yet, however.
Cindy Hockenberry, director of tax research and government relations at the National Association of Tax Professionals, said the group has not weighed in on the postcard idea because so much remains unknown.
“Obviously, if filing your annual tax return was reduced to a couple of lines of information on a postcard, it would have a significant impact on the professional tax-preparation industry,” Hockenberry said. “The likelihood of this happening is negligible for the majority of taxpayers.”
And experts say the public should consider the totality of tax changes before counting on any savings.
Richard Kaplan, a professor of law at the University of Illinois at Urbana-Champaign who specializes in tax policy, said making definitive judgments about what Republicans released last week is complicated by the lack of detail.
He described the document as more of a “campaign wish list” than a blueprint. But he noted that the “doubling” of the standard deduction is paired with the elimination of the personal exemption.
“While that may sound a little nerdy, what it means is that this year between the two of them you could exempt $10,400 and under this plan you would exempt $12,000,” he said. “Now, that is an increase but it’s not doubling.”
The effect of how dependents would be treated under the personal exemption and tax credits further complicates the situation and makes it hard to say whether some people would come out ahead or behind.
Another Republican proposal would eliminate the deduction for state and local taxes, which would further push many to simply take the standard deduction rather than itemize, Kaplan noted.
“That will simplify things for them but that doesn’t mean they’re going to be happy about it,” he said.
Eliminating the deduction for state and local taxes would make it difficult for Republicans in high-tax states such as New York and California, but it’s a key revenue-raiser in the package. If they ditch it, the proposal would add that much more to the deficit.
Smith said lawmakers are working hard to avoid “inadvertent tax increases.” He said the elimination of the state and local tax deduction is about fairness.
“We are doing what we can to prevent one region of the country subsidizing another region,” Smith said. “We won’t get to perfect there, but I think you see some pretty thoughtful approaches here on this point and others to be saying, ‘Hey let’s level things out here as much as we can.’ ”
Rep. Steve King, R-Iowa, said the blueprint falls short of his preferred tax policy — abolishing the IRS and establishing a national sales tax. But he likes a lot of what he sees.
King said he’ll be pushing to include a few proposals of his own, such as making everyone’s health insurance premiums fully deductible and seeking to ensure that employers aren’t taking as tax deductions the wages and benefits they pay to those in the country illegally.
Still, he praised the overall thrust of the blueprint and said he doesn’t want to see Republicans squander a good opportunity to unlock economic growth over lesser policy disagreements.
He said that if the plan passed there would be more people who are completely untaxed — a development that actually gives him some pause because he says those people then have no income tax “skin in the game” when it comes to federal spending.
“If you charged them a small percentage it wouldn’t pick up a lot of revenue but it would mean ‘pay attention because government’s spending the money you’re earning,’ ” he said, even as he noted that such a proposal is unlikely to pass Congress.
Rep. David Young, R-Iowa, and Rep. Don Bacon, R-Neb., praised provisions of the Republican plan. Young and Bacon said it would put money in the pockets of constituents.
Sen. Deb Fischer, R-Neb., said that, as with any legislation, there will be winners and losers and that she’s “looking for tax relief for families.”
Sen. Chuck Grassley, R-Iowa, is a senior member of the Senate Finance Committee, which is responsible for crafting tax legislation.
He said the framework released last week shows that Congress is committed to fulfilling its role and that it would increase the opportunity for small businesses to create jobs.
“For individuals, I’ve never met anybody who wants to spend more time or money doing their taxes,” Grassley said. “We should do everything we can to put taxpayers in the driver’s seat of how they use more of their own money.”
Rep. Jeff Fortenberry, R-Neb., said he sees good energy around the tax proposals and commitment to pass legislation that will benefit hardworking Americans, but there’s a long way to go.
“There’s going to be some knee scrapes and stumbles and there’s going to have to be some adjustments,” Fortenberry said.
A key provision that Democrats have seized on in saying the proposals favor the wealthy is the elimination of the estate tax. Fortenberry said some small businesses are hit by that tax and the federal tax code should not be distorting people’s business decisions.
“On the other side of this, it cannot be perceived that somehow this is a cut for the rich,” he said. “I don’t think that’s either tolerable on my side of the aisle or sellable to the people.”
Kaplan said the bottom line is that Republicans still have to fill in a lot of blanks in their tax plan.