Trump knows his tax plan is already in trouble

A variety of people are attacking the Republican tax reform effort and it's making Trump nervous

Published September 29, 2017 5:44PM (EDT)

Mitch McConnell; Donald Trump; Paul Ryan   (AP/Alex Brandon/Reuters/Rick Wilking/AP/J. Scott Applewhite/Photo montage by Salon)
Mitch McConnell; Donald Trump; Paul Ryan (AP/Alex Brandon/Reuters/Rick Wilking/AP/J. Scott Applewhite/Photo montage by Salon)

The tax framework that the White House and Republicans in Congress have crafted over several months of private negotiations has already come under heavy criticism from multiple directions, greatly reducing the chance that the GOP will be able to create a large tax code rewrite and instead have to settle for something less ambitious.

Making sweeping changes to the federal tax code has proven extremely difficult for elected officials, primarily because eliminating various deductions invariably provokes anger from people and groups who benefit from them. The last time lawmakers were able to pull it off was in 1986 under then-president Ronald Reagan.

To make things easier for themselves, Republicans appear to have decided to mostly make their reform effort a strictly partisan affair. They also have deliberately left out some of the details about the legislation, particularly the areas where taxes will be increased.

One of the most politically risky aspects of the GOP proposal --- raising the bottom tax rate from 10 percent to 12 percent in an effort to offset the larger standard deduction --- is making President Donald Trump worry, according to a report from Axios writer Jonathan Swan. In response to rumors that the president might not be fully committed to the plan, Republicans are now fearing a repeat of what happened on health care repeal when Trump called the bill which the House passed "mean," potentially harming the Senate GOP's efforts to pass a measure of their own.

Many people have already registered opposition to Republicans' plan, including residents of expensive, high-tax states like California and New York who would be harmed by a provision which makes it so that state and local taxes cannot be deducted from federal income tax liabilities.

Kevin de León, the Democratic leader in California's senate, accused Trump and the GOP of deliberately trying to harm his state.

“Republicans in Washington have once again zeroed in on California to punish us and make our state the single biggest loser in their reckless tax scheme,” he said, referring to provisions in the final, failed GOP health care bill which would have taken some money from the mostly Democratic states which had expanded Medicaid under the Affordable Care Act  and given it to the Republican-leaning states which had not.

The tax code revision has also come under attack from people affiliated with the housing industry who have argued that a provision which expands the standard amount that taxpayers can deduct will lead to fewer people purchasing houses. While the plan explicitly calls for keeping the existing mortgage interest deduction, real estate agent groups say they fear it will make filers less interested in explicitly claiming a mortgage deduction.

“We have always said that tax reform — a worthy endeavor — should first do no harm to homeowners,” William E. Brown, president of the National Association of Realtors, said in a statement.

Gary Cohn, the administration's top economic adviser, strongly disputed that the proposed revision would discourage home purchases in a Thursday news conference.

"People don't buy homes because of the mortgage deduction," he said. "The No. 1 reason why people buy homes is they're excited and optimistic about the economy."

The GOP plan has also come under fire from some business lobbyists who argue that one of its provisions which would prohibit corporations from deducting interest on loans would discourage investment. That tax increase is designed to offset another provision of the bill which lowers the corporate income tax rate from 35 percent to 20 percent.

While the administration is marketing this combination as a way to make the tax code simpler and more fair for smaller businesses who cannot afford to hire large teams of accountants to find loopholes, another provision of the code which lowers the tax rate for limited liability companies is likely to lead to even greater benefits for extremely wealthy businesses since they can restructure themselves to be taxed at the lower rate for LLCs.

"There has always been talk of how to carve out 'good' pass-through income from 'bad' pass-through income," Seth Hanlon, a tax research fellow at the Center for American Progress, told CNBC. "The problem is it's exceedingly hard to do and there is no way to draw clear lines that won't be manipulated."

That provision is one of several that left-leaning and centrist groups have said will disproportionately benefit wealthy Americans. According to an analysis from the Tax Policy Center, nearly 80 percent of the tax cuts contained in the Republican proposal would go to the top 1 percent of income earners.

Further complicating the GOP's plans is the reality that making a large tax cut that primarily benefits wealthier people is unpopular, even among people who vote for Republicans.

All of the criticisms against the many pieces of the tax reform plan (which will only increase as the GOP starts to formally debate what increases it will push to make the legislation revenue neutral) may mean that the administration and Congress will have to abandon plans to make permanent changes and instead push a smaller proposal which would automatically expire after 10 years.

That's exactly what happened to a 2014 proposal by then-Rep. Dave Camp, a Republican tax expert who proposed his own tax reform idea which never went anywhere. Former president George W. Bush also had to resort to a smaller measure shortly after he came into office in 2001.

By Matthew Sheffield

Matthew Sheffield is a national correspondent for The Young Turks. He is also the host of the podcast "Theory of Change." You can follow him on Twitter.

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Related Topics ------------------------------------------

Dave Camp Donald Trump Home Mortgage Deduction Tax Reform Taxes