Broadly speaking, the GOP bill would sharply reduce taxes on both individuals and corporations, potentially draining trillions of dollars from federal coffers over the next decade. The Republican budget, however, makes room for only $1.5 trillion in revenue reduction over that period. And fast-track Senate rules, designed to avoid a Democratic filibuster, say the bill can't add to the deficit beyond 10 years.
Republicans hope to offset some of the lost revenue from lower tax rates by eliminating tax breaks elsewhere in the code.
"With this plan, we are getting rid of loopholes for special interests and we are leveling the playing field," said House Speaker Paul Ryan, R-Wis.
But that's politically challenging. Two of the costliest tax breaks — for mortgage interest and gifts to charity — were declared off-limits at the outset, although the draft plan limits the mortgage deduction on future home purchases to loans of $500,000, down from the current $1 million. Efforts to curtail other popular breaks — for retirement savings and state and local taxes — have faced pushback from the White House and Republicans in high-tax states.
The draft bill released by the House Ways and Means Committee would reduce the number of individual tax rates from seven to four: 12 percent, 25 percent, 35 percent and 39.6 percent. The bill nearly doubles the standard deduction, which will make tax filing easier for some people. However, it eliminates personal exemptions, which could adversely affect larger families.
As expected, the corporate tax rate would drop from 35 percent to 20 percent. And the bill would establish a lower tax rate of 25 percent for so-called "pass through" businesses such as partnerships that currently pay taxes at their owners' individual rate.
President Trump suggested the reduced corporate tax rate would help to spur economic growth.
"At 20 percent, we're very, very competitive with the rest of the world," Trump said during a White House meeting to celebrate the bill's release. "You're going to see growth and you're going to see jobs and you're going to see really wages going up."
The bill also aims to encourage business investment by allowing companies to deduct those costs immediately, rather than spreading the deduction over a period of years. However, this provision is scheduled to sunset after five years.
Multinational corporations would no longer be taxed on profits earned overseas, although the plan would establish a minimum tax rate of 10 percent on foreign subsidiaries.
Democrats blasted the GOP plan as a giveaway to corporations and the wealthy.
"The American people deserve real, bipartisan tax reform that puts the middle class first, [creates] good-paying jobs and lowers the deficit," said House Democratic leader Nancy Pelosi of California. "This Republican plan doesn't do any of that."
Although House lawmakers floated the idea of limiting tax breaks for retirement savings, the draft bill unveiled today would preserve the deduction for 401(k)-style savings.
The bill would eliminate the deduction for state and local income taxes, a move that's particularly costly in high-tax states such as New York, New Jersey, and California. In an effort to mollify House Republicans from those states, drafters included a provision to allow taxpayers to deduct up to $10,000 in local property taxes.
But Democratic Senate leader Chuck Schumer of New York warned that the GOP push to limit tax breaks would leave some families paying more.
"Republicans are trying to argue that the middle class gets a tax break," Schumer said. "But what they won't tell you is that many, many, many middle-class families will see their taxes go up under this plan."
The lower limit on mortgage interest that's tax deductible is sure to invite opposition from the housing industry, a powerful player in Washington.
"Eliminating or nullifying the tax incentives for homeownership puts home values and middle-class homeowners at risk," said William E. Brown, president of the National Association of Realtors.
The Ways and Means Committee plans to take up the draft tax bill next week, with an eye toward a House vote before Thanksgiving. Trump is eager to sign a tax overhaul by December.