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Republican rollout of tax plan is delayed as talks continue

Donald Trump, Steve Mnuchin, Jay Timmons, Karen Kerrigan, Alfredo Ortiz
President Trump meets with business leaders at the White House on Tuesday.
(Evan Vucci / Associated Press)

Republicans delayed the long-awaited introduction of their tax-cut bill Tuesday as members continued to argue over key elements, including how fast to cut corporate rates, which state tax deductions to eliminate and whether to impose new caps on popular 401(k) retirement accounts, according to people familiar with the negotiations.

After promising that the bill would be released on Wednesday, the chairman of the tax-writing House Ways and Means Committee, Rep. Kevin Brady (R-Texas), announced late in the day that the unveiling would have to wait another day.

Although Republicans remained divided on some issues, particularly how to pay for the cuts they favored, other details were coming into focus.

At a private meeting with outside conservative groups Tuesday afternoon, House Speaker Paul D. Ryan said the plan would keep the current top tax rate of 39.6% for the most affluent Americans, but would make that bracket apply only to “substantially” higher incomes than the current $470,700 for couples, according to participants at the gathering.

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The plan will also delay the repeal of the estate tax — long sought by the GOP — for two to three years, the speaker told the group.

And Ryan said that though he wanted the House bill to immediately slash the corporate tax rate to 20% from the current 35%, the final version may phase in the cut.

“I can’t speak to what the Senate’s going to do,” he told the group.

Earlier Tuesday, when asked whether the corporate rate would be dropped in phases, President Trump said, “Hopefully not.”

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New limits were still being debated on 401(k) accounts, possibly reducing next year’s $18,500 annual cap, though not as low as the $2,400 limit previously discussed, according to those familiar with the negotiations.

Trump had said he opposed the idea of changing the rules for retirement accounts, and Ryan said the bill was closer to the president’s preference, but Republican bill drafters were frantically searching for revenue to offset the costs of sweeping cuts elsewhere.

Brady said caps on non-tax-deferred savings accounts, such as Roth individual retirement accounts, could be increased at the same time.

Another battle centers on deductions for state and local taxes. On Monday, GOP leaders appeared to reach a deal to maintain at least part of the individual deduction for property taxes but eliminate the deduction for state and local incomes taxes.

That came as a blow to California, which has the highest top state income tax rate in the nation but ranks in the bottom third by one measure for property taxes, thanks to Proposition 13, which was passed in 1978.

In 2014, Californians claimed $70 billion in federal deductions for state and local income taxes but only $27 billion in real estate, personal property and other taxes, according to the California Franchise Tax Board.

Other high-tax states, like New York and New Jersey, would fare slightly better since property taxes in those areas make up a larger share of the overall burden. So would Texas, which has no income tax.

But even that agreement appeared to be in flux as GOP leaders wanted assurances from wavering East Coast lawmakers. They met late Tuesday.

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Other popular federal deductions, including mortgage interest, charitable giving and tax-free employer-sponsored healthcare, will remain untouched, according to those familiar with the talks.

“Tax reform is hard, by definition,” said one conservative group member who attended Tuesday’s meeting. “Not everyone is pleased with everything. But overall, it’s going to be a pretty good tax bill.”

The cornerstone of the GOP proposal is a reduced corporate rate, slashed to its lowest since the 1930s, from 35% to 20%. So-called pass-through businesses, whose owners file individually, would see rates drop to 25%, as outlined in a draft blueprint between Trump and the Republican majority in Congress.

Companies could repatriate overseas profits, but not at a one-time low rate as first envisioned, but Ryan indicated it would be more likely at a 10% to 12% permanent rate, according to those at Tuesday’s meeting.

Businesses could also more swiftly write off investments, with full depreciation for five years, though some advocates had argued for longer.

Individual rates would be consolidated, to 12%, 25%, 35% and 39.6%, though income levels for each bracket have not been disclosed. In return for limiting individual itemized deductions, the standard deduction would be doubled to $12,000 for individuals or $24,000 for couples.

The child tax credit is expected to increase, and possibly double to $2,000.

For many tax filers, details about which income brackets will be applied to the new rates will be key to determining whether they are better or worse off under the Republican plan.

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Critics and several nonpartisan tax analysts have already predicted that the plan will mostly benefit corporations and the wealthy, though Trump has insisted his aim is to help the middle class.

Trump met with industry leaders at the White House on Tuesday in what has become the most substantial legislative undertaking this year by Republicans in Congress. The president wants House passage by Thanksgiving with a bill signing by year-end.

“It’ll be the biggest tax event in the history of our country,” Trump said at the White House.

“The Democrats will say our tax bill is for the rich, which they know it is not,” he said. “It’s a tax bill for the middle class. It’s a tax bill for jobs. It’s going to bring a lot of companies in. It’s a tax bill for business, which is going to create the jobs.”

Republicans have been working behind closed doors for weeks with the administration as they assemble legislation in a strictly partisan exercise without Democrat input, relying on special rules to allow for passage in the Senate with 50 votes, avoiding the possibility of a filibuster.

A key trouble spot has been figuring out how to pay for the tax cuts, which outside analysts estimate will cost more than $2.4 trillion in lost revenue over the decade.

Analysts are skeptical of Republican assertions that much of the costs will be offset by new revenue from economic growth. Republicans have allowed for $1.5 trillion in new deficit spending to cover the tax cuts, but were struggling to stay within that limit as rank-and-file lawmakers balked at proposals to limit deductions popular with voters and special-interest groups.

Democratic Govs. Jerry Brown in California and Andrew Cuomo in New York also pressured Republicans to back off the plan to eliminate state and local deductions, leading to this week’s compromise after New York lawmakers met with officials Monday at the White House.

The original GOP plan was to eliminate both property and state income deductions. But East Coast congressional Republicans threatened to withhold their votes for the GOP tax bill if their residents were not protected. While some California Republicans also raised concerns, they did not play a key role in talks.

House Majority Leader Kevin McCarthy (R-Bakersfield) insisted Tuesday that Californians would be better off under the Republican plan even with the new limits. It was not clear other state lawmakers agreed.

“I believe at the end of the day, when you look at the entire tax package … people will see there’s a savings,” McCarthy told reporters on a Tuesday conference call. “I think Californians win in this.”

Congress has not passed a substantial tax overhaul in 30 years, but Republicans, after the breakdown this year of efforts to repeal the Affordable Care Act, have made passage a top priority, especially as they head into next year’s midterm election.

Pressure runs high for Republicans to deliver on campaign promises now that they control the House, Senate and the White House, which is why some lobbyists and others say they have maintained such a closely-held process.

“Republicans need a win on policy, on a legislative level, and this is the best chance,” said one official from a major trade industry group familiar with the negotiations.

lisa.mascaro@latimes.com

@LisaMascaro

jim.puzzanghera@latimes.com

@JimPuzzanghera

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