The GOP had the framework of a tax deal before the conference committee met. The GOP expects a vote next week, before Senator-elect Doug Jones of Alabama takes his seat and before the Joint Committee on Taxation can analyze the final version of the Tax Cuts and Jobs Act. According to multiple news reports, the tax deal would set the top individual tax rate at 37 percent and the corporate income tax rate at 21 percent. The compromise would eliminate the corporate alternative minimum tax but keep the individual AMT. It would limit the state and local tax deduction and cap the mortgage interest deduction at loan amounts of $750,000. It reportedly would preserve the medical expense deduction and continue to exclude graduate tuition waivers from taxation. Besides cutting the corporate rate to 21 percent instead of 20 percent, there was no word on how Congress would pay for all these extras. House Ways & Means Chairman Kevin Brady says details may be released tomorrow.
More on the TCJA’s effects on growth, this time from the Fed. In her final press conference, outgoing Fed chair Janet Yellen said the central bank was raising its growth estimate for 2018 to 2.5 percent from 2.1 percent, in part because of likely tax cuts. Yellen said tax cuts would likely stimulate spending and have "some potential" to boost productivity. However, she added that the magnitude of the effects on investment “remain uncertain." The Fed is likely to respond to faster growth by raising interest rates.
How would families do under the tax cuts? To help show the big differences among households, TPC created some representative examples. For instance, under the House bill, a married couple making $135,000 that itemizes but has no children might get a tax cut of more than $1,500 in 2018, or it might get less than $160, depending on what state they live in. Under the Senate bill, they may pay $600 less or $800 more, depending on their home state.
The Senate’s TCJA would give business owners three times the tax cut than workers would get. TPC’s Howard Gleckman explains that the Senate bill could reduce taxes by nearly three times as much for business owners in 2019 as for people who whose primary source of income is wages or salaries, according to a new TPC analysis.
Speaking of helping families… TPC’s Elaine Maag writes that the Senate’s proposed tax cuts do little to help families with children. In fact, neither the Senate nor the House would meaningfully reduce taxes for low- and moderate-income families with children. And if the expanded Child Tax Credit in the Senate bill expires as scheduled, those families would pay more in tax than under current law.
What will Senator Rubio do? The Florida Republican has been a leading proponent of expanding the CTC and said he’d have “problems” with the tax deal if it raised the corporate income tax rate and did not increase benefits for working low-income families. That is what may have happened yesterday, though President Trump hinted the final bill may sweeten the CTC a bit. Rubio has given no indication that he’ll oppose the bill, no matter what happens to the child credit.
As for some families in New Jersey… A school district in the state planned to build classrooms for overcrowded schools, but residents didn’t approve it. Why? Their property taxes are already high and they didn’t want to pay more. They’re worried, in part, about losing their ability to deduct some property taxes under the TCJA. Said one resident: “The Trump tax plan is definitely a factor… Trump is telling us that we people have to force our politicians to put a muzzle on public-sector spending.”
If you’d like to tell us about a new research paper or have any comments about the Daily Deduction, TPC’s summary of the day’s tax news, write Renu Zaretsky at [email protected]. You can sign up here to receive the Daily Deduction as an email newsletter every weekday morning (Mondays only when Congress is in recess) at 8:00 am.
