GOP Tax Cut: Connecticut's Winners And Losers

WASHINGTON, DC — House Republicans briefed lawmakers Thursday on their plan to overhaul the tax code, the first rewrite of tax laws in a generation, and cut taxes by $1.51 trillion. The plan, to be formally rolled out later, preserves pre-tax contributions of up to $18,000 to 401(k) retirement plans, a key savings vehicle for many middle-income Americans, and also reduces the number of tax brackets, slashes corporate tax rates and sharply reduces a cherished deduction for mortgage interest.

A summary of the plan released Thursday follows months of internal debate, delays and conflict. It is far from a final product, and lobbyists are already lining up in opposition to some of the key provisions, including limits on the amount of mortgage interest homeowners can deduct and a sharp reduction in the corporate tax rate some conservatives argue could mean more overseas outsourcing of American jobs.

Connecticut residents could either benefit or be hurt by the proposed tax plan depending on their specific financial situation.

One item many Connecticut residents will dislike is a proposed limit on the deduction of local property taxes to $10,000. The deduction for state income taxes would be eliminated, which generated significant opposition from Republicans in high-tax states such as New York and New Jersey.

Connecticut U.S. Sen. Chris Murphy criticized the plan and said it shifts money from the poor to the rich and from Democratic states to Republican states while also increasing the deficit.

"At least GOP is unapologetic about the two goals of tax bill: (1) shift money from poor to rich; (2) shift money from D states to R states," Murphy said on his Twitter account. "Amendment: forgot 3rd goal of GOP tax bill: dramatically expand the deficit to force huge future cuts to education, roads, healthcare."

The plan would limit the deduction on mortgage interest for purchased homes at up to $500,000 while the current limit is $1 million. The National Association of Realtors is lobbying against that provision, warning in ads that could mean a tax increase for middle-class homeowners.

Gov. Dannel Malloy said the tax plan would hurt the middle class in the state.

"According to the non-partisan Government Finance Officers Association, the partial elimination of the personal income and sales tax deduction alone would increase taxes on middle-class Connecticut taxpayers by 13.5 percent, or more than $800 on average," he said. "The fact is, this proposal will raise taxes for significant portion of Connecticut residents, likely leading to cuts in state and local services, and cost the country over $1.5 trillion."

Connecticut Department of Revenue Services Commissioner Kevin Sullivan said that the plan amounts to political payback for blue states and will lead to a double-digit federal tax increase for many.

"It’s overwhelmingly a big tax break for the wealthiest one percent and little or nothing for everyone else," he said. "The $1.51 trillion tax cost will drive federal deficit spending for the next decade. And, repeal of the alternative minimum tax means President Trump will never pay federal income taxes – if he ever has.”

"Eliminating or nullifying the tax incentives for homeownership puts home values and middle-class homeowners at risk, and from a cursory examination this legislation appears to do just that," William E. Brown, president of the National Association of Realtors, told The New York Times. "We will have additional details upon a more thorough reading of the bill."

Jerry Howard, chief executive of the National Association of Homebuilders, told The Times the provision could create a recession in the housing market, and picks "rich Americans and corporations over small businesses and the middle class."

"It puts such severe limitations on home buyers ability to use the mortgage interest deduction that home values will fall," he said. "If a home seller takes a loss, that's money they were counting on for retirement."
The wealthy could benefit with an immediate doubling of the exemption for inheritance taxes and repeal of the tax after six years.

Tax cuts are a key priority for Republicans, who see passage as critical to protect the GOP caucus in the 2018 midterm elections. President Trump has set an ambitious timeline to pass the overhaul in the House by Thanksgiving and the Senate by Christmas, but some of the provisions in the plan are sure to draw fierce lobbying efforts.

The plan cuts the top corporate tax rate to 20 percent from 35 percent, a key sticking point for Trump, whose top economist, Kevin Hassett, has said would increase the size of the U.S. economy by $700 billion to $1.2 trillion over a decade, while also increasing average household income to surge by $4,000 annually within a decade. Democrats have claimed the forecast is overly rosy and that cutting corporate tax rates benefits the rich and won't help average Americans.

And the conservative group Americans for Prosperity and Freedom Partners said Thursday the cut could give corporations license to move jobs overseas.

"We strongly oppose adding a new tax that would raise prices on everyday goods while disproportionately hurting the poor and middle class," AFP President Tim Phillips told Politico. "In addition, any such tax would be an alarming departure from the vision outlined by the Trump Administration and the Big Six in the unified framework."

The Clinton-era 39.6 percent income tax rate for the wealthiest Americans was retained, but a minimum level of income to qualify for the bracket increases to $1 million for couples or families from the current $470,000, which would reduce tax revenue.
Among the details released Thursday:

• The plan increases the child tax credit from $1,o00 to $1,600, but repeals the $4,050 per child exemption. It also adds a $300 credit for parent and non-child dependents.
• The number of tax brackets would be reduced from seven to three or four with rates of 12 percent, 25 percent, 35 percent and a category that is yet to be determined. Most people would be able to file their taxes on a postcard-sized form under the simplified tax system outlined in the plan, Republicans said.
• The standard deduction used by most average Americans would nearly double — $12,000 for individuals and $24,000 for families.
• Deductions for medical expenses are eliminated in the plan, which Republicans said would be offset by an overall lowering of tax rates.

Beth Dalbey (Patch National Staff) and Associated Press contributed to this report.
President Donald Trump speaks during a meeting on tax policy with business leaders in the Roosevelt Room of the White House, Tuesday, Oct. 31, 2017, in Washington. (AP Photo/Evan Vucci)