On Thursday, Nov. 16, the House of Representatives passed its version of the "Tax Cuts and Jobs Act" by a vote of 227 to 205. No Democrats voted in favor of the Republican bill, which – if passed – would mark the most significant overhaul of the federal tax code since 1986. Thirteen Republicans voted against, most of them from high-tax states likely to be negatively impacted by the bill's provisions.

The House bill differs significantly from the version released by Republicans in the Senate Finance Committee on Nov. 9. and revised on Nov. 14, which would effectively repeal Obamacare's individual mandate and set an expiration date for all individual tax changes – though not corporate tax cuts. The Senate bill cleared the Finance Committee in a party-line vote on Nov. 17.

These disparities, born of the different political calculations facing Republicans in the two chambers, promise to turn reconciling the two proposals into a long, hard slog. The GOP, in short, may not meet President Trump's Christmas deadline for a signature-ready piece of tax legislation.

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Economic Impact
Whose Tax Cuts?
Can Tax Reform Be Done?
What's Wrong With the Status Quo?

Provisions

PERSONAL TAXES

Income Tax Rates

The biggest difference between the House and Senate versions of the Tax Cuts and Jobs Act lies in the ways they would alter personal income tax brackets. The House version would collapse the current seven brackets into four. The lowest marginal rate would rise from 10% to 12%, and the highest rate would remain 39.6%: 

House Version: Proposed Brackets, 2018
Single Filers
Taxable income over Up to Marginal rate
$0 $45,000 12%
$45,000 $200,000 25%
$200,000 $500,000 35%
$500,000 And up 39.6%
Married Couples Filing Jointly
Taxable income over Up to Marginal rate
$0 $90,000 12%
$90,000 $260,000 25%
$260,000 $1,000,000 35%
$1,000,000 And up 39.6%
Source: Joint Committee on Taxation.

Under the revised Senate version, there would still be seven brackets, though the rates and the income levels they apply to would change from current law. The top rate would fall from 39.6% to 38.5%, while the lowest rate would be unchanged at 10%:

Senate Version: Proposed Brackets, 2018
Single Filers
Taxable income over Up to Marginal rate
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $70,000 22%
$70,000 $160,000 24%
$160,000 $200,000 32%
$200,000 $500,000 35%
$500,000 And up 38.5%
Married Couples Filing Jointly
Taxable income over Up to Marginal rate
$0 $19,050 10%
$19,050 $77,400 12%
$77,400 $140,000 22%
$140,000 $320,000 24%
$320,000 $400,000 32%
$400,000 $1,000,000 35%
$1,000,000 And up 38.5%
Source: Joint Committee on Taxation.

Under both proposals, high-earning married couples earning would see a hefty cut on taxable income in the $480,050-$1,000,000 range, from a marginal rate of 39.6% to 35%. 

Standard Deduction

The House bill would raise the standard deduction to $24,400 for married couples filing jointly in 2018 (from $13,000 under current law), to $12,200 for single filers (from $6,500), and to $18,300 for heads of household (from $9,550).

The Senate version would raise the standard deduction to $24,000 for married couples filing jointly, $12,000 for single filers and $18,000 for heads of household. Under the revision released Nov. 14, these and all other changes to individual taxes would be reversed in 2025 in order to comply with reconciliation rules, though Republicans would ostensibly seek to renew the changes at a later date. 

Personal Exemption

Both the House and Senate bills would eliminate the personal exemption, which is currently set at $4,150 in 2018. The House would scrap the additional standard deduction for the blind and elderly; the Senate would retain it. The Senate's changes to the personal exemption would be reversed in 2025.

Healthcare Mandate

In a change made to their version of the bill on Nov. 14, Senate Republicans announced they would seek to end the individual mandate, a provision of the Affordable Care Act or Obamacare that provides tax penalties for individuals who do not obtain health insurance coverage. (While the mandate would technically remain in place, the penalty would fall to $0.) According to the Congressional Budget Office (CBO), repealing the measure would reduce federal deficits by around $338 billion from 2018 to 2027, but lead 13 million more people to lack insurance at the end of that period and push premiums up by an average of around 10%. Unlike other individual tax changes, the repeal would not be reversed in 2025.

Inflation Gauge

Both the House and Senate bills would change the measure of inflation used for tax indexing. The Internal Revenue Service (IRS) currently uses the Consumer Price Index for all Urban Consumers (CPI-U), which would be replaced with the chain-weighted CPI-U. The latter takes account of changes consumers make to their spending habits in response to price shifts, so it is considered more rigorous than standard CPI. It also tends to rise more slowly than standard CPI, so substituting it would likely accelerate bracket creep. The value of the standard deduction and other inflation-linked elements of the tax code would also erode over time, gradually pushing up tax burdens.

This shift would be permanent under the Senate bill, rather than expiring in 2025.

Family Credits and Deductions

The House bill would raise the child tax credit to $1,600 from $1,000 and providing filers, spouses and non-child dependents with a temporary $300 credit. Only the first $1,000 of the child tax credit would be refundable initially, but this amount would rise to $1,600 with inflation. The $300 credit would end after five years.

The Senate would raise the child credit to $2,000 – originally $1,650 – with the first $1,000 refundable, and create a non-refundable $500 credit for non-child dependents. The credit would begin to phase out at $500,000 for married couples (not indexed to inflation), a significant increase from the current $110,000 (but a decrease from the original Senate version's $1,000,000). The Senate would also raise the age cap for qualifying children from 17 to 18. These changes would be reversed in 2025.

Head of Household

Trump's revised campaign plan, released in 2016, would have scrapped the head of household filing status, potentially raising taxes on a large number of single parents. The House and Senate bills would retain it, but the Senate version would require that paid tax preparers perform due diligence to determine clients' eligibility to file as heads of household, with a $500 penalty for each failure to do so.

Itemized Deductions

The House bill would scrap most itemized deductions, including those for medical expenses and student loan interest. The charitable giving deduction would be left unchanged, as would the mortgage interest deduction for existing homes. New mortgages would be subject to a lower cap: married couples can currently deduct interest on mortgages worth up to $1,000,000; that would fall to $500,000. 

The House bill would also cap the deduction for state and local property taxes at $10,000 and scrap the deduction for state and local income and sales taxes. The state and local tax (SALT) deduction disproportionately benefits high earners, who are more likely to itemize, and taxpayers in Democratic states. A number of Republican members of Congress representing high-tax states have opposed attempts to eliminate the deduction, however.

The Senate bill would almost entirely eliminate the state and local tax deduction. It would leave the mortgage interest deduction intact, however. A number of other itemized deductions would be eliminated, but the charitable giving deduction would stay.

Alternative Minimum Tax

Both the House and Senate versions would repeal the alternative minimum tax (AMT), a device intended to curb tax avoidance among high earners by making them estimate their liability twice and pay the higher amount.

Retirement Plans

Reports circulated in October that traditional 401(k) contribution limits might fall to $2,400 from the current $18,000 ($24,000 for those aged 50 or older); individual retirement account (IRA) contribution limits, currently $5,500 ($6,500 for 50 or older), may also have been considered for cuts. The House bill would leave these limits unchanged. The Senate would eliminate catch-up contributions to retirement plans by employees who earned wages of $500,000 or more in the previous year.

ESTATE TAX

The house bill would raise the estate tax exemption for single filers to $10 million from $5.6 million in 2018 and repeal the tax entirely after six years, along with the generation-skipping transfer (GST) tax. The Senate would raise the exemption to $11.2 million, but not repeal the tax.

BUSINESS TAXES

Corporate Tax Rate

Both the House and Senate bills would permanently lower the top corporate tax rate to 20% from its current 35% and repeal the corporate alternative minimum tax. The Senate bill would delay the rate cut for one year, however, until 2019.

Immediate Expensing

The House bill would allow businesses to immediately write off the costs of new equipment, rather than depreciating the value of these assets over time, but the provision would end after five years. The section 179 deduction, which allows small businesses to take a depreciation deduction for certain assets in the year they are bought, would be capped at $5 million, compared to the current $500,000, and the phaseout threshold would rise to $20 million.

The Senate bill would also allow full expensing of capital investments for five years and shorten the depreciation schedule for real property to 25 years. Section 179 expensing would be capped at $1 million, and the phaseout threshold would rise to $2.5 million.

Pass-through Income

The House would create a top pass-through rate of 25%. Owners of pass-through businesses – which include sole proprietorshipspartnerships and S-corporations – currently pay taxes on their firms' earnings through the personal tax code, meaning the top rate is 39.6%.

The House bill would introduce rules to prevent abuse of this new low rate rate, assuming that 70% of a pass-through entity's income is compensation subject to personal income tax rates, while 30% is business earnings subject to the pass-through rate. Businesses can prove otherwise, and certain industries – law, health, finance, performing arts – must "prove out" business income in order to qualify for the pass-through rate on any earnings.

The Senate bill would create a 17.4% deduction for pass-through income, subject to phase-out. Certain industries – such as health, law and financial services – are excluded, unless household income is below $500,000 (for married couples filing jointly).

Net Interest Deduction

The House bill would limit the net interest expense deduction on future loans to 30% of Ebitda with a five-year carry-forward. Firms with at least $25 million in revenues would be exempt from the cap, as would real estate companies and some utilities.

The Senate bill would limit the net interest deduction to 30% of earnings before interest and taxes (EBIT) – not EBITDA.

Net Operating Losses

The House bill would limit the deduction of net operating losses (NOL) to 90% of taxable income in a given year, but allow NOLs to be carried forward indefinitely – the current limit is 20 years – while eliminating carrybacks, with exceptions for disasters.

The Senate bill would scrap net operating loss carrybacks and cap carryforwards at 90% of taxable income, falling to 80% in 2024.

Corporate Tax Breaks

The House bill would eliminate a number of business credits and deductions, including the section 199 (domestic production activities) deduction, the new market tax credit, the orphan drug credit and like-kind exchanges.

The Senate bill would eliminate the section 199 deduction.

Cash Accounting

The House bill would extend eligibility to use the cash accounting method to small businesses with up to $25 million in annual gross receipts, from $5 million under current law.

The Senate bill would cap eligibility at $15 million in annual gross receipts.

Foreign Earnings

Both the House and Senate bills would enact a deemed repatriation of overseas profits. Under the House bill, the rates would be 12% for cash and equivalents and 5% for reinvested earnings. Under the Senate bill, they would be 10% for cash and equivalents and 5% for reinvested earnings. Goldman Sachs estimates that U.S. companies hold $3.1 trillion of overseas profits. As of Sept. 30 Apple Inc. (AAPL) alone holds $252.3 billion in tax-deferred foreign earnings, 94% of its total cash and marketable securities.

Both bills would introduce a territorial tax system. Under the House bill, repatriated dividends and earnings would not be subject to U.S. tax, but 50% of foreign subsidiaries' excess returns (greater than 107% of the short-term applicable federal rate) would count towards U.S. shareholders' gross income. A 20% excise tax would be applied to payments made to foreign subsidiaries. Proponents of these measures argue that – together with the lower corporate tax rate – they will increase American businesses' competitiveness and discourage corporate inversions.

OTHER PROVISIONS

The House bill would alter the rules governing tax-exempt groups such as religious organizations, potentially allowing them to support or oppose political candidates without giving up their tax-exempt status.

Economic Impact

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The Tax Foundation, a non-partisan, right-leaning think tank, estimates that the original (Nov. 9) Senate version of the Tax Cuts and Jobs Act would increase the size of the economy by 3.7% of gross domestic product (GDP) over the long run; an exact time frame is not given. The House bill would increase long-run growth by an estimated 3.5%.

The Penn Wharton Budget Model comes up with a much less optimistic projection: GDP would be from 0.33% to 0.83% higher in 2027 under the House bill, compared to projections under current law. That boost would fade as the costs of servicing a higher national debt piled up, perhaps even lowering GDP relative to current-law projections in 2040. 

Whose Tax Cuts?

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Speaking at a rally in Indiana shortly after the release of a preliminary Republican framework in September, President Trump repeatedly stressed that the "largest tax cut in our country's history" would "protect low-income and middle-income households, not the wealthy and well-connected." He added the plan is "not good for me, believe me." That last claim is hard to verify, because Trump is the first president or general election candidate since the 1970s not to release his tax returns. The reason he has given for this refusal is an IRS audit; the IRS responded that "nothing prevents individuals from sharing their own tax information."

Both versions of the Tax Cuts and Jobs Act would cut the corporate tax rate, benefiting shareholders (who tend to be higher earners), but the Senate version would only cut individuals' taxes for a limited period of time. The bills would eliminate the alternative minimum tax, which requires high earners to calculate their liabilities twice and pay the higher amount; scrap the estate tax; reduce the taxes paid on pass-through income (70% of which goes to the the highest-earning 1%); and cut the rate married couples pay on income from $480,050 to $1 million. Neither version would close the carried interest loophole. (Under the Senate bill personal tax changes would be temporary.) The Senate would scrap the individual mandate, driving premiums up on Obamacare exchanges.

While it is not certain what form an eventual unified bill would take, these provisions are likely to benefit high earners disproportionately. Yet Senate majority leader Mitch McConnell (R-K.Y.) said on Nov. 4 that no one in the middle class would experience a tax hike:

On Nov. 10 he told the New York Times he "misspoke": "You can't guarantee that absolutely no one sees a tax increase, but what we are doing is targeting levels of income and looking at the average in those levels and the average will be tax relief for the average taxpayer in each of those segments."

According to a JCT analysis released Nov. 16, the revised Senate bill would raise taxes on households making from $20,000 to $30,000 by 13.3% in 2021 and 25.4% in 2027, compared to current law:

The Estate Tax

The House bill would roughly double the estate tax deduction to $10 million, indexed to inflation, and eliminate the tax entirely in six years. Speaking in Indiana in September, Trump attacked "the crushing, the horrible, the unfair estate tax," describing apparently hypothetical scenarios in which families are forced to sell farms and small businesses to cover estate tax liabilities; the 40% tax only applies to estates worth at least $5.49 million. According to TPC, 5,460 estates are taxable under current law in 2017. Of those, just 80 are small businesses or farms, accounting for less than 0.2% of the total estate tax take.

The estate tax mostly targets the wealthy. The top 10% of the income distribution accounts for an estimated 67.2% of taxable estates in 2017 and 87.8% of the tax paid. 

Opponents of the estate tax – some of whom call it the "death tax" – argue that it is a form of double taxation, since income tax has already been paid on the wealth making up the estate. Another line of argument is that the wealthiest individuals plan around the tax anyway: Gary Cohn reportedly told a group of Senate Democrats earlier in the year, "only morons pay the estate tax."

Carried Interest

Neither bill would eliminate the carried interest loophole, though Trump promised as far back as 2015 to close it, calling the hedge fund managers who benefit from it "pencil pushers" who "are getting away with murder." Hedge fund managers typically charge a 20% fee on profits above a certain hurdle rate, most commonly 8%. Those fees are treated as capital gains rather than regular income, meaning that – as long as the securities sold have been held for a certain minimum period – they are taxed at a top rate of 20% rather than at 39.6%. (An additional 3.8% tax on investment income, which is associated with Obamacare, also applies to high earners.) 

Both bills would, however, extend the minimum holding period from one year to three. That change would have no effect on most private equity firms.

Corporate Taxes

In his Indiana speech Trump said that cutting the top corporate tax rate from 35% to 20% would cause jobs to "start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven't seen in many years." The "biggest winners will be the everyday American workers," he added.

The next day, Sept. 28, the Wall Street Journal reported that the Treasury Department had deleted a paper saying the exact opposite from its site (the archived version is available here). Written by non-political Treasury staff during the Obama administration, the paper estimates that workers pay 18% of corporate tax through depressed wages, while shareholders pay 82%. Those findings have been corroborated by other research done by the government and think tanks, but they are currently inconvenient for the institution that produced them. Treasury Secretary Steven Mnuchin sold the Big Six proposal in part through the assertion that "over 80% of business taxes is borne by the worker," as he put it in Louisville in August.

A Treasury spokeswoman told the Journal, "The paper was a dated staff analysis from the previous administration. It does not represent our current thinking and analysis," adding, "studies show that 70% of the tax burden falls on American workers." The Treasury did not respond to Investopedia's request to identify the studies in question. The department's website continues to host other papers dating back to the 1970s. 

Can Tax Reform Be Done?

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The Republican push to overhaul the tax code has proceeded at a slower rate than the Trump administration initially promised. Mnuchin said in February that a bill would be passed and signed before Congress' August recess. In September he shifted that target to the end of the year. Trump has called on the House to pass a bill by Thanksgiving and wants to sign a bill by Christmas. Given that the Senate bill differs significantly from the version being considered by the House, that timeline may not be realistic.

Byrd Is the Word

A string of efforts to repeal and – ideally – replace Obamacare set the GOP's tax reform push back in a number of ways. The White House and congressional Republicans decided to pursue healthcare legislation first in part because, by cutting funding for premium and cost-sharing subsidies and programs such as Medicaid, they could create some room to introduce tax legislation that is not strictly revenue-neutral: the Senate's Better Care Reconciliation Act, for example, would have shaved an estimated $321 billion from the federal deficit over a decade.

Fiscal prudence aside, Republicans felt a procedural need to balance the books, since they control only 52 of 100 seats in the Senate. Without the 60 seats needed to defeat a Democratic filibuster, they will have to use a fast-track process called reconciliation, which only requires 50 votes (plus Vice President Pence's tie-breaker). Reconciliation must be authorized by a budget resolution; the Senate passed one on Oct. 19, and the House, in an unusual move, voted on the same resolution rather than drafting its own. The resolution passed the lower chamber on Oct. 26 by a narrow margin, 216 votes to 212. No Democrats supported the resolution, and 20 Republicans voted "no" to signal their opposition to plans (since abandoned) to entirely eliminate the state and local tax (SALT) deduction.

Bills passed through reconciliation must also comply with the 1985 Byrd Rule, which limits the budget effects fast-tracked bills can have over a 10-year period. The budget resolution authorizes the Senate Finance Committee to draft a bill that would raise the deficit by $1.5 trillion over that period (the deadline to present a bill is Nov. 13). In order to comply with these strictures, the Senate has placed an expiration date of 2025 on individual tax cuts, but not corporate ones.

According to the JCT, the House bill would add $1.4 trillion to the deficit by 2027 (see chart below). Building on that estimate, the CBO forecasts that increased debt service costs would push the deficit increase to $1.7 trillion in the same year. According to the Penn Wharton Budget Model, the debt would rise by as much as $2.1 trillion, including debt service costs.

The Byrd Rule also prevents bills passed through reconciliation to raise the deficit in any year outside of the 10-year window; according to the CRFB, the House bill violates this provision, raising the deficit by an estimated $155 billion in 2028 alone. If that forecast is correct, the legislation may not survive its "Byrd bath," a line-by-line analysis by the Senate parliamentarian (the process is not all-or-nothing, as individual provisions can be struck without killing the whole bill). Suspending the Byrd Rule requires a probably-unobtainable 60 votes in the Senate.

Traditionally – if not always empirically – the party of fiscal responsibility, Republicans are taking pains to pay for their proposals. The budget resolution instructs the Senate Energy and Natural Resources Committee to achieve $1.0 trillion in savings; the committee voted on Nov. 15 to allow oil and gas drilling in the Arctic National Wildlife Refuge, which is located in committee chair Sen. Lisa Murkowski's (R-Alaska) home state. (Murkowski voted against multiple Obamacare repeal bills over the summer.)

The GOP is also arguing that well-designed tax reform would more than pay for itself. Mnuchin told NBC's "Meet the Press" at the beginning of October:

"On a static basis our plan will increase the deficit by a trillion and a half. Having said that, you have to look at the economic impact. There's 500 billion that's the difference between policy and baseline that takes it down to a trillion dollars, and there's two trillion dollars of growth. So with our plan we actually pay down the deficit by a trillion dollars and we think that's very fiscally responsible."

Supply-side economics, an influential idea in the GOP, contends that tax cuts increase government revenue through the relationship described by the Laffer curve: lower taxes encourage higher rates of investment, spurring economic growth and ultimately increasing the government's tax take. The CBO, however, "doesn't always measure all the dynamic effects," Diana Furchtgott-Roth, a Trump transition team member and Labor Department chief economist under George W. Bush, told Fox Business in March. Even if it did, Congress' research arm would be unlikely to share Mnuchin's optimism. The CBO released a study of the budgetary effects of a hypothetical 10% across-the-board tax cut in 2005. It estimated that a shift in the economic growth rate would make up for perhaps 28% of the resulting budget shortfall or, in the worst-case scenario, exacerbate it by 3%. 

The Penn Wharton Budget Model estimates that the House bill would boost GDP by 0.33% to 0.83% in 2027, compared to forecasts under current law. That amounts to a boost of perhaps $231 billion – around 12% of the windfall Mnuchin promises.

Maya MacGuineas, president of the fiscally hawkish Committee for a Responsible Federal Budget (CRFB), doubts that the GOP's tax cuts can pay for themselves. In a statement emailed to reporters after the passage of the House bill, she wrote, "The House approved debt-financed tax cuts based on predictions of magical economic growth that defy history and all credible analyses."

Trump has repeatedly asserted that GDP growth could exceed 3% per year following a tax overhaul; during the campaign he went as high as 6%, and speaking in Indiana following the release of the Republican framework he predicted that "everything takes off like a rocketship."

GOP Divisions

The healthcare battle showed that the priorities of the GOP's moderate and Tea Party wings are difficult to reconcile, and proposals put forth by the leadership tend to alienate both camps – for diametrically opposed reasons. McConnell introduced the proposal to defang the individual mandate in order to win conservative Republican support, but risks turning tax reform into health care redux.

GOP factions clashed during the spring over border adjustment, a now-dead proposal that would have taxed imports and domestic sales but exempted exports. The fight pitted big importers, major Republican donors and the president – who all opposed the measure – against the House Republicans who proposed it and the prominent anti-tax crusader Grover Norquist, who supported it. The Big Six issued a statement in July saying they would drop border adjustment.

Since the release of the Big Six framework in September, a fight has been raging over the fate of the state and local tax deduction. According to a TPC analysis of IRS data, the ten jurisdictions where the highest share of returns claim the state and local tax deduction are Maryland, New Jersey, Connecticut, D.C., Virginia, Massachusetts, Oregon, Utah, Minnesota and California. Collectively they account for 35 Republican seats in the House – more than the GOP's 23-seat majority.

The Nov. 2 framework struck a compromise, allowing $10,000 in property tax deductions but scrapping other aspects of the state and local tax deduction.

House vs. Senate

The Senate Republicans' bill diverges significantly from the House's version on key points. It would delay the corporate tax cut for a year, until 2019. It would eliminate the state and local tax deduction entirely, rather than limiting it to $10,000 in property tax deductions; a solid contingent of House Republicans hails from high-tax states, but New Jersey, California and New York only send Democrats to the Senate. The tax brackets in the two bills are different, and the Senate's version wades into the healthcare debate – where the GOP took a beating over the summer.  

Congress vs. White House

A conflict is also brewing between Trump and Republicans in Congress. Sen. Bob Corker (R-Tenn.) is engaged in a full-blown feud with the White House, which he called an "adult day care center" in response to insults Trump tweeted in October. The spat has added acrimony to a policy disagreement: Corker said as the Big Six framework was released, "there is no way in hell I'm voting" for a bill that increases the deficit. Without Corker, the White House is left with one vote to lose. That vote could be Sen. Ron Johnson (R-Wis.), who said on Nov. 15 he would vote against the bill as it is currently written due to concerns over the treatment of pass-through businesses. Susan Collins (R-Maine), meanwhile, is pushing for a 22% corporate tax rate. Jeff Flake (R-Ariz.) shares Corker's deficit hawkishness as well as his personal aversion to Trump.

The president has not so far displayed the political finesse that suggests he can work with a slim margin. His tweets in particular suggest he is fuzzy about the process ahead of him. The day after the Big Six proposal was released, he referred to the "great reviews" the "Tax Cut and Reform Bill" was receiving. There would not be a bill – at least one the public could see – for over a month.

The Voters

According to a Quinnipiac University poll conducted from Nov. 7 to 13, 52% of voters disapprove of the Republican tax plan, while 25% approve. Among Republican voters, 60% approve. Asked who would benefit the most from the plan, 61% say the wealthy, 24% the middle class, and 6% low-income people. Only 16% believed the plan would reduce their taxes.

"The sentiment from voters: The GOP tax plan is a great idea, if you are rich. Otherwise, you're out of luck," said Tim Malloy, the poll's assistant director.

Special Interests

In attempting to rework the tax code, Trump and Congress are picking their way through a minefield of vested interests. As the Economist put it, "Where once the passage of bills was smoothed by including federal money for pet projects in congressmen's districts, tax breaks are now the preferred lubricant."

This trend has created a difficult situation for would-be reformers of either party: while the overall benefits of an overhaul would be enormous, they would be diffuse, with each household and firm saving some money and some time. For a few interest groups, on the other hand, particular carve-outs and loopholes are essential, meaning they are willing to expend significant time and money lobbying against reform. The last sweeping tax reform to pass Congress was called the Lobbyists' Relief Act of 1986 in K Street circles; the New York Times reported in late September that companies and trade associations have submitted 450 filings to lobby on tax issues so far this year, far outstripping the total for 2016. In short, Trump's promises to "drain the swamp" and to overhaul the tax code may not be compatible. (See also, Goldman Reduces Buyback Forecast After Trump Tax Reform Delay.)

Topics that have already inspired intense lobbying efforts include the treatment of ports, car dealerships, stadium bonds, private jets and mortgages. One group is dependent not on any particular aspect of the complex tax system, but on the complexity itself: as NPR and ProPublica have reported, TurboTax maker Intuit Inc. (INTU) and H&R Block Inc. (HRB) lobby against bills that would allow the government to estimate taxes, saving much of the hassle on which the firms' business depends. In addition to bills aimed at simplifying the filing system, tax-preparation firms may also oppose bills aimed at simplifying the tax code itself.

The Pledge

As of the previous (113th) Congress, only 16 Republicans in the House and six in the Senate have failed to sign Norquist's pledge not to raise taxes. If Norquist decides that an aspect of Republicans' overhaul efforts violates the pledge – or Republicans decide to invoke it to avoid a showdown with special interests – the bill could be dead on arrival.

The Bulls Weigh In

Despite the obstacles facing the tax reform efforts – fiscal constraints, a slim Republican majority, intra-party rifts, the "swamp" and a potentially inconvenient pledge – the market is bullish. A Bank of America Merrill Lynch team led by chief investment strategist Michael Hartnett wrote in a note on Oct. 5 that equities are "starting to anticipate tax reform," which accounts for a string of all-time highs. On the other hand, the team notes, a correction "requires higher rates," which the Fed would only deliver if stubbornly low inflation were to perk up – or Congress delivered tax reform. 

What's Wrong With the Status Quo?

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People on both sides of the political spectrum agree that the tax code should be simpler. Since 1986, the last time a major tax overhaul became law, the body of federal tax law – broadly defined – has swollen from 26,000 to 70,000 pages, according to the House GOP's reform proposal. American households and firms spent $409 billion and 8.9 billion hours completing their taxes in 2016, the Tax Foundation estimates. Nearly three quarters of respondents told Pew in 2015 that they were bothered "some" or "a lot" by the complexity of the tax system. 

An even greater proportion was troubled by the feeling that some corporations and some wealthy people pay too little: 82% said so about corporations, 79% about the wealthy. According to TPC, 72,000 households with incomes over $200,000 paid no income tax in 2011. ITEP estimates that 100 consistently profitable Fortune 500 companies went at least one year between 2008 and 2015 without paying any federal income tax. ​There is a widespread perception that loopholes and inefficiencies in the tax system – the carried interest loophole and corporate inversions, to name a couple – are to blame.

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