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In shift, Republicans to maintain top tax rate for wealthiest Americans

President Donald Trump during a meeting with business leaders where he spoke about tax policy in the Roosevelt Room of the White House, in Washington, Oct. 31, 2017. The mood was anxious and unsettled in Washington the day after the first indictments were announced in the investigation into Russian election interference. (Doug Mills/The New York Times)

WASHINGTON - House Republican leaders plan to propose preserving the top income-tax rate for very wealthy people, a last-minute adjustment to their plan to overhaul the tax code that they hope will assuage concerns that it will mainly benefit the rich, according to four people briefed on the planning Tuesday.

GOP leaders had planned to collapse the seven existing income tax brackets into three brackets, lowering the top rate from 39.6 percent to 35 percent, but now will retain the top bracket for people earning more than a certain threshold, perhaps $1,000,000, the people said.

The detail was one of several that emerged Tuesday as GOP leaders scrambled to put the final touches on their plan, widely seen as the last best chance for Trump and congressional Republicans to advance a major policy achievement this year. House Republicans decided late Tuesday to delay the rollout of their plan one day - now unveiling it Thursday - to give themselves more time to convince nervous lawmakers that the plan would work while resolving several remaining issues.

The bill, written by House Ways and Means Committee Chairman Kevin Brady, R-Texas, will aim to slash corporate tax rates, simplify taxes for individuals and families and lure the foreign operations of multinational firms back to the United States with incentives and penalties.

The decision to preserve a top rate signals that Republicans are eager to avoid the impression that their plan, which has already come under attack as doing little to boost the middle class, seeks only to reward wealthy Americans and corporations. And the move could attract the support of more moderate Republicans.

The House and Senate plan to work on separate tracks to pass legislation by Thanksgiving and send a bill to President Donald Trump for his signature by year's end, though many expect it will take longer than that, if the effort succeeds at all.

"It will be the biggest tax event in the history of our country," Trump promised on Tuesday during a meeting with business trade groups at the White House, a claim he has made repeatedly.

In a sign that House Republicans are willing to go only so far to mollify concerns about inequality, they plan to move ahead with a proposal to eliminate the estate tax, though it would be phased out over a number of years. They also will propose changes to tax-protected retirement savings plans, such as 401(k)s, in an effort to raise revenue. But Brady said Tuesday those changes remained in flux and that 401(k)s might ultimately be left alone.

Overall, House Republicans say their plan will reduce federal tax revenue by $1.5 trillion over the next decade. Keeping the tax rate for people earning over $1 million could reduce the impact on the deficit by about $200 billion over a decade, according to the Committee for a Responsible Federal Budget.

House Majority Leader Kevin McCarthy, R-Calif., said Tuesday that Brady's tax plan would lower the corporate tax rate from 35 percent to 20 percent, as demanded by Trump. A new wrinkle was emerging late Tuesday, however, with concern growing that the corporate tax reduction might not be able to be made permanent if it proves too costly.

Business leaders will fight hard to prevent Republicans from allowing the rate to go back up after several years, but the GOP could be hamstrung, because it cannot push into law a tax change that adds too much to the deficit.

Numerous details of the tax proposal came during a briefing that House Speaker Paul D. Ryan, R-Wis., had Tuesday afternoon with conservative activists. Grover Norquist, president of Americans for Tax Reform, is one of the people who confirmed the 39.6 percent rate would remain for the highest income.

"Overall, I'm very happy with the bill," said Adam Brandon, who is chief executive of FreedomWorks and attended the Ryan briefing. "My read is that everyone is going to be seeing a tax cut."

Currently, families pay the 39.6 percent rate on income above $470,700, so the proposal would still lower taxes for people who earn above the lower amount.

The implications of the changes envisioned by GOP leaders could be far-reaching, but numerous aspects remain uncertain.

Thousands of companies that pay their taxes through the individual income-tax code would see their rates lowered on top income from 39.6 percent to 25 percent. It's unclear whether there would be new provisions to prevent more-wealthy individuals from creating companies to pay the 25 percent rate on their income rather than the higher rate.

The new proposal is expected to include a new "minimum tax" that U.S. companies will be required to pay on certain foreign earnings as a way to prevent them from moving U.S. operations to low-tax countries. Businesses are watching carefully how the House bill deals with U.S. companies that produce goods overseas and then sell them back into the United States.

The House GOP plan would also allow companies to immediately expense capital investments, such as new equipment, for five years but cut back the ability to deduct interest payments.

Many businesses and the wealthy are expected to be the biggest beneficiaries, according to initial versions of the plan, while the impact on many in the middle class is disputed and less clear.

The proposal would roughly double the "standard deduction" that many Americans can claim to exempt a portion of their income from taxation, but it would also eliminate the "personal exemption," which tends to benefit families with multiple children. But the tax plan is expected to expand the child tax credit, something Ivanka Trump has said will help working families.

The House GOP plan would allow Americans to deduct the property taxes they pay from their income but prohibit, for the first time, Americans from deducting the state and local income taxes they pay from their federal taxable income, a simmering issue that threatens to rip apart the GOP coalition needed to approve the bill.

The plan would also abolish the alternative minimum tax, a system set up to ensure people do not claim so many deductions that they pay too little in taxes, McCarthy said.

The economic success of the package hinges on controversial economic theories that assume large tax cuts for businesses and the wealthy will lead to economic growth and wage gains for everyone else, a conclusion that economists and policymakers have debated for decades.

But Republicans have a rare lock of political power, controlling the White House, House and Senate, and are desperate to regain political footing lost after a number of missteps this year, particularly the failure to rewrite health-care policy.

"The speed with which they are doing this is more about politics than it is about policy," said Rep. Richard E. Neal (Mass.), the ranking Democrat on Brady's committee. "They don't want people to see what's in it, and I think they need a victory."

The tax package is expected to reduce revenue by more than $4 trillion over 10 years. Republicans hope to recoup some of that lost revenue by eliminating a number of tax breaks, but they have been careful not to identify all of these changes, in part because they expect a revolt from interest groups that would be affected.

"They've got $4 trillion worth of tax promises, and they basically at this point have got virtually no revenue in order to pay for it," Sen. Ron Wyden, D-Ore., said Tuesday. "So what they have done is basically made it clear that their promises to the middle class are really not worth the paper they are written on. They are false promises to the middle class."

White House officials and GOP congressional leaders have met for months to try to establish the framework for rewriting the tax code, but they agreed only on broad parameters. Big tests now loom for Brady and his Senate counterpart, Finance Committee Chairman Orrin G. Hatch, R-Utah, to craft legislation that can pass both chambers.

The government collects roughly $4 trillion a year in taxes and other revenue, a threshold that still falls short of how much money it spends.

Trump says the changes could lead to an immediate jolt in economic growth, saying on Tuesday that it could lead companies to bring more than $4 trillion in past foreign earnings back to the United States. He also said it would lead to a flood of companies moving back to the country, lured by big tax cuts and the threat that their foreign earnings will be subject to stricter taxation for the first time.

It is details such as those, though, that will be the focus of several intense weeks of negotiations in the House and Senate. GOP tax writers are also expected to have a much different approach to the taxation of profits overseas.

Resolving these differences will be crucial because Republicans have signaled they will try to push the tax cuts into law without any support from Democrats, testing the slim margin they control in the Senate and their balky caucus in the House.

"Given that they are trying to do this with a one-party approach, they don't have a lot of flexibility," said Alan Auerbach, director of the Burch Center for Tax Policy and Public Finance at the University of California at Berkeley.

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