GOP senators fear bill will be cast as gift to rich

Some Senate Republicans are pushing for changes to the party’s tax-reform bill, fearing it will be portrayed as a handout to the rich that hurts the poor.

A group of GOP lawmakers want to leave the lowest tax bracket where it is, rather than raising it from 10 percent to 12 percent. Some senators also support creating a fourth tax bracket to limit the size of the tax cut for millionaires.

{mosads}Both ideas are controversial, but the senators pushing for changes have leverage, as only three defections in the upper chamber would be enough to prevent the bill from passing.

“The optics don’t look very good, taking 10 percent to 12. If you’re a 10 percent payer, you’re really going to zero [under the bill], but the optics are that it looks like you’re going from 10 to 12. The same thing with 39.6 going to 35,” said Sen. David Perdue (R-Ga.), referring to the joint framework released in September by senior administration officials and GOP leaders in Congress.

Under the framework Republicans are using, the seven tax brackets now in the tax code — including the lowest 10 percent bracket and the highest 39.6 percent bracket — would be collapsed into three, taxing people at 12 percent, 25 percent and 35 percent, depending on their income levels.

The Trump administration and the heads of the Senate and House tax-writing panels say low- and middle-income taxpayers would get a net tax cut because the plan would also double the standard deduction to $12,000 for individuals and $24,000 for couples.

But Republican senators fear it will be difficult to explain to voters why they’re raising the tax rate for low- and middle-income Americans while cutting the tax rate for the wealthiest.

The 10 percent bracket covers the first $9,325 of income, while the 39.6 percent bracket hits income in excess of $418,400.

“I understand why there’s a move to 12 percent and it can be explained, but it’s difficult to explain, and I’m not sure the flame’s worth the candle. We’re talking about just going back to the 10,” said Sen. John Kennedy (R-La.).

Democrats have driven down public support for President Trump’s tax plan by framing it as a giveaway to wealthy individuals, families and corporations, a message they reiterated on Tuesday.

“At the risk of using a Halloween pun, we’re sure that the Republican tax plan will be full of tricks for the middle class and full of treats for the wealthiest Americans and the biggest corporations,” Senate Democratic Leader Charles Schumer (N.Y.) said at a press conference.

A Reuters-Ipsos poll released last week found that less than a third of Americans support Trump’s tax plan.

The survey found that 63 percent of Republicans said deficit reduction is more important than tax cuts for corporations, and 75 percent said it was more important than tax cuts for the wealthy.

Schumer said the GOP’s tax plan is “sinking” like its proposal earlier this year to repeal and replace ObamaCare.

“Thirty percent, and it’s going to get lower,” he said of public support for the framework.

Republican senators such as Sen. Deb Fischer (Neb.) raised concerns about the ability to convincingly sell the GOP tax package as relief for the middle class when Trump met with them at the Capitol last week.

“I’ve talked about keeping the 10 percent bracket,” she said. “I think that’s important. We want to make sure we target working people and target the middle class.”

Fischer said she did not propose specific bracket breakdowns when she shared a table with Trump at the lunch, but pressed him on ensuring that the bill would help middle-income families.

She thinks the Senate Finance and House Ways and Means committees will eventually expand the number of brackets to address criticisms that too much of the bill’s tax relief will go to the rich. 

“I think we’ll end up maybe with more than four brackets. We’ll see. That’s not set in stone,” Fischer said.

Sen. Susan Collins (R-Maine), who helped sink the Obama-Care repeal bill, on Monday announced that she wants to keep the income tax rate for people earning $1 million or more at 39.6 percent.

On Tuesday, Collins added that she agrees with colleagues who want to keep the 10 percent bracket from moving up to 12 percent.

“There’s widespread support for making sure that tax relief goes to middle-income working families and small businesses as well as lowering the C-corp rate,” she said, referring to the U.S. corporate tax rate, which now stands at 35 percent.

“I just don’t see a justification for lowering the top rate for those who are earning more than $1 million a year,” she added.

But Senate Republicans are divided on the rates. Some are eager to reduce the top tax rate to 35 percent, or maybe lower it even further.

“I never thought anybody should pay over 25 percent,” said Sen. Richard Shelby (R-Ala.). “People with money save money, create jobs, create risk. People with no money — I’ve been there — create nothing. You’re trying to live, to survive.”

Republicans are wrestling with other tough questions, including how to handle tax rates for so-called pass-through companies, which currently pay taxes at individual rates. They want to cut taxes for these entities, which include a majority of businesses.

Right now, lawmakers are leaning toward a proposal that would classify 70 percent of pass-through income as revenue from labor and thus tax it at individual rates; the remaining 30 percent would be classified as return on capital subject to a new 25 percent rate.

“If you use a 70-30 rule, it’s a rule that goes back to about the 1920s,” said Senate Republican Conference Chairman John Thune (S.D.), a member of the Finance Committee.

Capital-intensive businesses such as manufacturers say such a breakdown is unfair because a large share of their income comes from capital investment. They would prefer a ratio closer to 50-50.

Thune said an accommodation might be found for them.

“If you’re a pass-through that thinks you have more of your return on a return on capital and less in the form of wages, I think there will be some way of proving that,” he said.