House Republicans rolled out a tax-reform plan on Friday that would reduce the number of individual rates to three, slash investment taxes and eliminate many deductions.
The 35-page blueprint lays out how Republicans intend to pursue overhauling the tax code next year.
“We want a tax code that works for taxpayers, not for tax collectors,” House Speaker Paul Ryan, R-Wis., said at a Capitol Hill news conference. “We want to make it simpler, flatter, fairer.”
The plan would streamline the current code's seven tax brackets to three — 33%, 25% and 12%. It would allow taxpayers to deduct half of investment income they earn, lowering rates on capital gains and dividends to 6%, 12.5% and 16.5%, depending on the individual tax rate that the investor pays. It also eliminates the estate tax and the alternative minimum tax.
The plan also would pare many existing special deductions but increases the standard deduction. It would maintain deductions for mortgages, charitable donations, children and higher education and preserve the earned-income tax credit as well as tax-deferred retirement saving.
House Ways and Means Chairman Kevin Brady, R-Texas, touted the simplicity of the plan.
“For the first time in modern history, [it would be] a tax code simple and fair enough to put on a post card,” Mr. Brady said at the press conference.
The blueprint has been developed by Mr. Brady and his committee colleagues over the past six months. Republicans will now seek public comment on their ideas and try to develop support during the election campaign.
“Tax reform only happens once a generation, and it can too easily be high-jacked by Washington and special interests,” Mr. Brady said. “It's time, Americans, for your voices to be heard.”
One of the reasons major tax reform is rarely undertaken is because it's a heavy legislative lift. The challenges were immediately apparent.
Sen. Ron Wyden, D-Ore. and ranking member of the Senate Finance Committee, said that comprehensive tax reform is necessary but that Republicans were taking the wrong approach.
“Any serious, bipartisan reform effort must help all hard working Americans get ahead,” Mr. Wyden said in a statement. “The House GOP's framework goes in the opposite direction, allowing the privileged few to push what they rightfully owe onto the backs of middle class families.”
Trade groups that represent financial advisers often worry that lawmakers will reduce retirement-savings tax breaks to generate revenue to pay for other parts of tax reform.
The GOP blueprint protects tax-deferrals for retirement savings but will try to streamline saving for post-work years.
“The Committee on Ways and Means will work to consolidate and reform the multiple different retirement savings provisions in the current tax code to provide effective and efficient incentives for savings and investment,” the blueprint states.
Mr. Brady said current deferrals are important for retirees and take pressure off of government entitlement spending.
“We haven't finished our work yet in that area,” Mr. Brady said in an interview after the Capitol Hill event. “We think we can make that part of the code even better and simpler. We're all in on savings.”