The House passes its version of the TCJA. By a vote of 227 to 205, Republicans advanced a $1.5 trillion tax cut for individuals and businesses. The House’s Tax Cut and Jobs Act would reduce the number of individual income tax brackets from seven to four (plus a “bubble rate”) and repeal deductions for most state and local taxes, medical expenses, and some mortgage interest. It would cut the corporate income tax rate to 20 percent from 35 percent and trim the rate for some pass-through businesses to 25 percent from a top rate of 39.6 percent. It would establish a territorial tax system for US-based multinationals. The bill passed relatively easily though no Democrats and 13 Republicans—most from high-tax states—opposed it.
The bill also does quite a number on the national debt. TPC’s Eric Toder tells the story. TPC estimates that the House TCJA would increase the ratio of national debt to Gross Domestic Product (GDP) by 6 percentage points in 10 years, and by just over 10 percentage points in 20 years, to 123 percent of GDP.
Students would pay more for higher education under the House bill. TPC’s Kim Rueben and Gordon Mermin explain that while simplifying tax subsidies for higher education is a good goal, the House bill also would reduce tax incentives for higher education by $64 billion over 10 years. The bill retains the American Opportunity Tax Credit but eliminates other education tax credits, deductions, and other incentives—hitting graduate students and workers attending school part-time especially hard. Kim and Gordon conclude that the bill seems to “move in the wrong direction for a tax…proposal that claims to be focused on increasing worker wages… Research shows that a more direct pathway to higher wages and salaries is through encouraging education and increases in human capital rather than physical capital.”
But if you’re an heir to a very wealthy estate, you’re golden under the House bill. It would repeal the estate tax—which today applies to about 5,000 estates worth more than $5.49 million per person. But it would not touch a provision that “steps up” the tax basis of assets so that unrealized gains over a decedent’s lifetime are never taxed. TPC’s Rob McClelland explains “income from the increased value of assets that is passed on to heirs wouldn’t be taxed either as capital gains or as part of the estate. It simply wouldn’t be taxed at all,” creating a giant, inefficient and inequitable loophole for the very wealthy.
The Senate Finance Committee wrapped up its work on its version of the TCJA. The panel advanced the bill out of committee by a party line vote of 14 to 12. GOP leadership is aiming for a vote on the Senate Floor soon after Thanksgiving. It is unlikely the bill will pass with as much as ease as the House version. Senators Ron Johnson and Susan Collins remain unhappy. Bob Corker, John McCain, and Lisa Murkowski have been publicly silent. Top Finance Committee Democrat Ron Wyden predicts the bill will fail but Republicans remain confident they’ll round up the votes in the end.
The Senate TCJA would change taxpayers’ fortunes over time. Most of the individual tax provisions in the Senate bill would expire after 2025, except for one that would raise taxes by using a less generous way to index the tax code for inflation. As a result, the congressional Joint Committee on Taxation projected that by 2027 households earning less than $75,000 would pay higher taxes on average than under current law. By contrast, the highest income households would continue to receive a substantial tax cut. The JCT analysis includes the effects of the Finance panel’s plan to repeal the Affordable Care Act’s individual mandate.
A majority of Americans still don’t like this plan. In a new Harvard-Harris poll 54 percent of respondents oppose the Republican tax reform bill. And 54 percent say the plan is more likely to hurt them financially than help them—but there’s a split along party lines. Three out of four of Republicans say it will help them, while 77 percent of Democrats and 56 percent of independents say it will hurt them.
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