The deduction is a key incentive for people to buy homes, since it reduces their taxable income by the amount of interest paid on a mortgage. Real estate agents worry that doubling the standard deduction may provide a richer tax break than itemizing and claiming the mortgage deduction.
“We have always said that tax reform — a worthy endeavor — should first do no harm to homeowners,” said William E. Brown, president of the National Association of Realtors.
A proposal to limit the deductibility of corporate interest has prompted jockeying among powerful groups that rely on debt to help finance their operations, including real estate companies, private equity firms, financial companies and other businesses.
The Build Coalition, a group of associations from the telecommunications, manufacturing and agriculture industries that formed to protect the corporate interest provision, warned that Republicans would be acting counter to their promise to spur business investment by following through on the proposal. Businesses that rely heavily on debt to finance their investments will see costs go up, they say, driving down profitability, investment and job creation.
“Altering that would make it more difficult for American companies to compete in the global economy and harm job creation and long-term economic growth,” said Mac O’Brien, a spokesman for the group. “Fortunately, the discussion on tax reform is far from over.”
Similar concerns are emanating from Wall Street, with the American Bankers Association warning that a limitation on borrowers’ ability to deduct interest expenses could “adversely impact economic growth.”
Republicans have only slightly tipped their hand as to the overall structure of the tax rewrite. The plan would slash the corporate tax rate to 20 percent from 35 percent, and create a new 25 percent tax rate for “pass through” businesses such as partnerships, sole proprietorships and family farms.
It would also lower the top individual tax rate to 35 percent from 39.6 percent, while raising the bottom rate to 12 percent from 10 percent as it also doubles the standard deduction. The plan would eliminate many corporate “loopholes” and deductions, such as the state and local tax deduction. But it would also get rid of many provisions that are currently costly to the rich, like the estate tax and the alternative minimum tax.
The most politically fraught proposal is eliminating the state and local tax deduction, which allows taxpayers who itemize to write off their property, state and local taxes. The measure is particularly prized in blue states with high property taxes, but is also widely used in some Republican districts in Virginia, New Jersey and California.
Eliminating the deduction, which the real estate industry also opposes, would save more than $1 trillion over a decade and make room for the tax cuts. But Republican members of Congress in affected states have already expressed concern about the provision, and a plan that repeals the deduction could be impossible to pass.
“The state and local tax piece is very concerning, because we’re already a donor state to Washington, and this would exacerbate that problem,” said Representative John J. Faso, Republican of New York, referring to the amount the state pays in taxes. “And so I want to see — based on income categories — how a hypothetical family of four with a certain amount of income, with a $8,000 property tax and state income tax bill, how they are affected.”
Senator Orrin G. Hatch of Utah, the Republican chairman of the Senate Finance Committee, also expressed doubt on Thursday that the deduction would die easily.
“That’s been a long-heralded and expected set of tax rules, and it’s really, really tough to change that,” Mr. Hatch said.
Changes to core components of the tax plan could force Republicans to slim down the size of the tax cuts.
“Republicans from high-taxed states are, in our view, unlikely to go along with the elimination of the SALT deduction,” said Brian Gardner, an analyst at the investment banking company Keefe, Bruyette & Woods, referring to the state and local tax deduction. “Keeping the SALT deduction, or even merely reducing it, would ultimately result in smaller tax cuts or a larger budget deficit, which we think would be a tough sell to congressional budget hawks.”
Preliminary estimates of the tax plan found that it could cost as much as $2.2 trillion over 10 years. Progressive groups are already warning that the cuts will disproportionately benefit the rich, and that changes to the standard deduction could end up raising, not lowering, taxes on middle-class families.
“Our No. 1 concern is that this delivers massive, massive tax cuts to millionaires and corporations,” said Michael Linden, an adviser to the progressive Not One Penny campaign, which is fighting to make sure the tax overhaul is not a boon for the rich.
The group, which includes liberal organizations such as MoveOn, Tax March and the Working Families Party, has already spent more than $1 million advertising in congressional districts across the country to urge lawmakers from both parties to oppose tax cuts for the rich, and it expects to become more active.
“We’ll be ramping it up,” Mr. Linden added. “This campaign has been bubbling below the surface for the last several months, but now it’s going to take center stage.”
For its part, the Trump administration is maintaining that surging economic growth produced by the tax cuts will prevent the plan from adding to the deficit, and that it will benefit middle-class families.
However, Mr. Trump’s top economic adviser acknowledged in an interview with ABC News that it was too soon to make promises. It remains possible that some middle-class families could see their tax bills increase under the plan.
“There’s an exception to every rule,” said Gary D. Cohn, director of the National Economic Council. “I can’t guarantee anything. You can always find a unique family somewhere.”