GOP Tax Plan Could Eliminate Tax Breaks02/27 05:48
WASHINGTON (AP) -- When Republicans say they want to lower taxes and get rid
of loopholes to make up the lost revenue, they're talking about eliminating
some very popular tax breaks enjoyed by millions of people.
That's why making big changes to tax laws is so hard --- and why it hasn't
been done for 30 years.
Unless Congress simply cuts taxes for everyone, there will be winners and
losers, and the losers won't go quietly. If Congress does cut taxes for
everyone, lawmakers risk exploding an already large budget deficit.
Republican leaders in the House and Senate say they don't want a tax
overhaul to add to the national debt. That's what they mean when they say
"revenue neutral." The new system would raise the same amount of tax revenue as
the old one, after taking into account some broader economic effects.
President Donald Trump has said he will make public a tax proposal in the
coming weeks. Republicans in Congress are also working on plans, with the House
GOP taking the lead.
Last year, House Republicans released a blueprint that would lower income
tax rates and reduce the number of tax brackets. The gist of the plan is to
lower tax rates for just about everyone, and make up the lost revenue by
scaling back exemptions, deductions and credits.
A look at the biggest tax breaks enjoyed by individuals, along with The
Associated Press' assessment of how safe they are as Congress works to overhaul
taxes. All estimates are from the nonpartisan Joint Committee on Taxation, the
official scorekeeper for Congress.
Contributions to pension plans are tax-exempt, including defined benefit
plans and defined contribution plans, such as 401(k)s. This exemption saved
taxpayers $180 billion in 2016, making it the biggest tax break for individuals.
EMPLOYER-PROVIDED HEALTH INSURANCE
Nearly half of all those in the United States get their health insurance
from an employer. The value of those insurance policies is exempt from
taxation, saving taxpayers $155 billion in 2016.
Proposals to start taxing at least some health benefits are dividing House
Republicans as they struggle to replace President Barack Obama's health law.
Some see it as another version of Obama's "Cadillac" tax on high-cost health
insurance, which has been delayed until 2020.
RATING: In danger.
CAPITAL GAINS AND DIVIDENDS
Investors pay reduced tax rates on long-term capital gains and qualified
dividends, saving them $131 billion in 2016. The tax rate for investment income
is 15 percent for most investors, though the very wealthy pay a top rate of 20
percent. The top tax rate on regular income is 39.6 percent.
In 1986, President Ronald Reagan raised taxes on investments and used the
revenue to dramatically reduce tax rates for regular income. Today, few
Republicans embrace the idea of increasing taxes on investments.
RATING: Safe, as long as Republicans are in charge.
EARNED INCOME CREDIT
Nearly 30 million families claimed the earned income tax credit in 2016,
which targets low-income working families with children. They saved a total of
$73 billion. Republicans like the credit because it rewards work. Democrats
like it because it is one of the federal government's largest anti-poverty
RATING: Safe, but there could be changes.
STATE AND LOCAL TAXES
More than 43 million families deducted their state and local income, sales
and personal property taxes from their federal taxable income in 2016. The
deductions reduced their federal tax bills by nearly $70 billion. More than 90
percent of taxpayers who itemize take advantage of this deduction.
Nevertheless, the House Republican blueprint would repeal it to help pay for
lower tax rates.
RATING: In danger.
Nearly 34 million families claimed the mortgage interest deduction in 2016,
reducing their tax bills by $65 billion. Some economists say the deduction is
an inefficient way to promote home ownership. But it has strong support among
home owners and every industry associated with buying and building homes.
Recognizing the political peril of targeting this deduction, the House GOP
blueprint would keep it.
RATING: Safe, but it could get a haircut for high-priced homes.
Nearly 36 million families claimed deductions for charitable contributions
in 2016, reducing their tax bills by more than $57 billion. Most tax overhaul
proposals, including the House GOP blueprint, would spare this deduction.
CHILD TAX CREDIT
More than 35 million families claimed the $1,000-per-child in 2016. They
saved more than $54 billion.
RATING: Safe. Some proposals would increase it.
SOCIAL SECURITY AND RAILROAD RETIREMENT
Most Social Security and railroad retirement benefits are not taxed, saving
these people $40 billion in 2016. Individuals with a combined income below
$25,000 do not have to pay taxes on Social Security. The income threshold for
married couples is $32,000.
Nearly 35 million families deducted their taxes on their home or other real
estate from their federal taxable income in 2016. They saved a total of $33
billion. This deduction makes it easier for school districts to raise money
from property taxes. It is, however, targeted for elimination in the House GOP