On Tuesday, Senate Majority Leader Mitch McConnell (R-Ky.) said it was time for the Republicans to give up on health care and move on to tax reform.
On Wednesday, Republicans presented the first version of their tax reform proposal. Critics argue it will increase deficits and is too generous to the wealthiest Americans.
According to the Washington Post, the nine-page plan includes tax cuts while also protecting the home mortgage interest deduction and charitable deductions. Previous conversations around tax reform had suggested eliminating those deductions, but they are very popular with voters and ultimately Republicans decided it would be politically unwise.
The biggest unanswered question raised by the document is: if the deductions for mortgage interest and charity will remain in the code, then what deductions will be eliminated to make up for the lost revenue that comes from the tax cuts themselves?
Those proposed tax cuts include a reduction of the corporate tax rate from 35 percent to 20 percent. The seven individual income tax brackets would be reduced to three. The proposal would also keep certain deductions that encourage business investment and research. The standard deduction would also be doubled.
Political observers believe the Republicans are hesitant to name the specific deductions they would eliminate because doing so would anger key business constituencies.
According to The Committee for a Responsible Federal Budget, the plan would result in a $2.2 trillion net loss in revenue over the next decade, if Republicans are able to successfully eliminate some tax deductions. The proposal would also add $1.5 trillion to the national debt.
The Post’s sources said there was still a chance that Republicans would consider a higher tax rate for wealthy Americans to protect the middle class. However, many of the proposed changes are designed to benefit the richest Americans.
The tax reform bill would be brought up using the same reconciliation process Republicans attempted to use with health care reform. This means the bill would only require 51 votes to pass the Senate.
The challenge would come after the bill was passed. Legislators would then have to propose specific deductions for elimination.
While some business groups expressed support for general tax reform efforts, the National Association of Realtors condemned the proposal, saying it would make home ownership less appealing.
Democrats have rejected the proposal. They argue it provides unjustified benefits to the wealthiest Americans.