Policy

The Surprising Evolution of House Republicans on Taxes

Latest tax plan marks a departure from previous proposals

Texas Rep. Kevin Brady says the Republican's tax blueprint aims to make American corporations more competitive on the global stage. (Bill Clark/CQ Roll Call file photo)

House Republicans have been talking for years about bringing top individual and corporate tax rates down to 25 percent, but the tax overhaul plan they released on Friday offers a different approach.   

The corporate tax rate of 35 percent would drop to 20 percent and the top individual rate of 39.6 percent would go down to 33 percent under the GOP plan. And small businesses organized as pass-through entities like partnerships, LLCs and S-corporations would be taxed at a rate of 25 percent.   

The 35-page blueprint was the sixth and final policy paper released as part of the House GOP's "A Better Way" agenda . The tax plan follows similar ones on health care, the Constitution, regulations, national security and poverty released earlier this month.    

[ House Republicans Push 'Welfare to Work' Poverty Platform ]  

But of all six papers, the tax overhaul blueprint offers the most surprises.   

First, the dramatic shift on rates.  

Even before he took over as Ways and Means Committee chairman last fall after Paul D. Ryan was elected speaker, Texas Rep. Kevin Brady had been talking about lowering the corporate tax rate to 20 percent, instead of the 25 percent rate most Republicans had in mind as a reasonable goal.   

While the blueprint doesn't specify all the tax incentives that need to be eliminated to lower the highest corporate rate by 15 percentage points, it's significant that Brady has put his goal of a 20 percent rate in writing, in a document that is meant to represent a consensus view of the House Republican Conference.   

"We will now go from dead last among our global competitors into the lead pack," Brady said. "We’ve designed it so companies can compete and win and then bring those dollars home."  

[ Ways and Means Gavel Now Officially in Brady's Hands ]  

On the individual rate structure, Republicans took the opposite approach and have proposed a higher top rate of 33 percent, 8 percentage points higher than the maximum individual rate they'd been promising for years. They blame that in part on the 2012 fiscal cliff deal that raised the highest individual rate to 39.6 percent from 35 percent in the Bush era.   

"We start, thanks to Mr. Obama, at a different rate," Brady said.   

But another reason for the change is that the "Better Way" blueprint effectively disconnects tax rates for businesses organized as pass-through entities from the individual rates. Pass-through businesses would still file individual income tax forms but they'd be limited to the 25 percent bracket.   

This proposal has allowed Republicans to propose less drastic tax cuts on high-income earners.   

"This is different than what we’ve done in the past because you’re separating out wage and business," said California Rep. Devin Nunes.  

[ GOP Went Big With Tax Deal ]  

In addition to the rate changes, Republicans have proposed allowing full expensing, which would mean businesses could immediately write off the full cost of various capital assets rather than depreciate the cost over several years. The current tax code has a multitude of depreciation timeframes depending on the type of asset.  

The blueprint represents the first time this idea has been proposed as part of a broadly supported tax plan.  

The tax cuts Republicans have put forward don't come without cost, and so they're proposing to eliminate many tax incentives to help pay for the lower rates and faster write-offs.   

But they also argue for a different way to measure the costs, through an economic model commonly referred to as "dynamic scoring" that makes a variety of assumptions about the impacts the proposals will have on various sectors of the economy.  

[ For CBO, Dynamic Scoring Is the Battle of Evermore ]  

The Congressional Budget Office and the Joint Committee on Taxation, the offices that produce official cost estimates of congressional legislation, use a conventional economic model to measure costs, often referred to as "static scoring," that factors in limited predictions about changes in the economy.   

Republicans have long promised that any tax overhaul they implement will be revenue neutral, meaning the amount of taxpayer money flowing into the government coffers will remain the same. In the past, they've committed to meeting that standard through static scoring. But in this blueprint, revenue neutrality is achieved through dynamic scoring, Brady said.  

Static scoring is "just not real-life economics," Brady said. "There are real impacts from lowering tax rates, encouraging savings."

Contact McPherson at  lindseymcpherson@rollcall.com  and follow her on Twitter  @lindsemcpherson .

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