The House Ways and Means Committee on Thursday approved the House Republicans’ bill to rewrite the tax code on a party-line vote. GOP tax bill clears hurdle, heads to House floor:
The only changes made to the bill during the markup were from amendments offered by Ways and Means Committee Chairman Kevin Brady (R-Texas).
Thursday afternoon, Brady made a number of changes to the bill which included restoring the adoption tax credit, additional tax relief for pass-through businesses and higher tax rates on repatriated foreign earnings.
Republicans and Democrats argued during the markup over whether the bill would help the middle class. GOP lawmakers pointed to estimates from the Joint Committee on Taxation that showed that on average every income group would get a tax cut in 2019.
“It was established over and over again that the Joint Committee on Taxation says taxpayers at every quintile will pay less taxes under this plan,” said Rep. Tom Rice (R-S.C.).
But Democrats cited Joint Committee on Taxation estimates that showed some middle-class taxpayers would still see their taxes go up, particularly in later years.
“This bill will raise taxes on the middle class. It will raise taxes on the middle class. It will raise taxes on the middle class,” said Rep. Joseph Crowley (D-N.Y.).
So who is right? As one should surmise, it’s not the GOP bait-and-switch tax scammers. Paul Waldman of the Washington Post reports, The GOP tax plan will raise taxes on lots of people. A new analysis shows how many.
Republicans have always been good at spin, but right now they’re facing one of the most extraordinary PR challenges they’ve ever confronted: Can they sell a bill that raises taxes on tens of millions of Americans as a glorious tax cut for everyone?
It would be an extraordinary trick if they managed to pull it off, but distracting from the facts will be no easy task.
[L]et’s start with a new analysis of the House bill released by the nonpartisan Tax Policy Center, which has lots of detail on exactly how many people will see their taxes go down and how many will see them go up.
We should note that even though the rich are the big winners — by 2027, the top 1 percent of income earners get nearly half the tax benefits — it’s also the case that since there are so many changes to so many different provisions, there are winners and losers at every level.
For the moment, let’s focus only on those who are going to lose. I used the TPC’s figures (from tables 3 and 4 here) to calculate numbers they didn’t detail specifically: exactly how many people’s taxes will go up if this bill is passed. And it’s a lot — a quarter of all households by 2027.
The following graph shows the number of households in each income quintile that will see a tax increase in 2018 and in 2027:
Since we spend so much time talking about the middle class, let’s look at the middle quintile of the income range. This year that includes households with incomes between $48,600 and $86,100. In 2018, more than 3 million of these households will see their taxes go up. By 2027, the figure rises to more than 11 million households. The average amount that these people will see their tax bills increase is more than $1,000.
But that’s just the beginning. If you add up everyone getting a bigger tax bill, it comes out to 12.8 million households in 2018, and 47.5 million in 2027, or a quarter of all households.
If you had said a year ago that Republicans would produce a bill that raises taxes on a quarter of all American households, no one would have believed you. It isn’t just that there are many particular groups who stand to get huge tax increases — graduate students, parents who adopt children, people with large medical expenses — it’s also that they’re raising taxes on such broad swaths of the population.
So how are they going to spin it? They only have two choices. The first is just to deny it, to say that everyone is wrong and in fact no one is getting a tax increase … The other choice Republicans have is to admit that the bill raises taxes on tens of millions of people, but say that it doesn’t matter because the situation is only temporary. Once the corporate tax cuts kick in, all Americans will ride a rocket to prosperity powered by the magical fuel of trickle-down economics.
” To sum up, the GOP’s two spin options are the outright lie (nobody will get a tax increase) or the absurd and dishonest baloney (people’s taxes will go up now, but they’ll get it back later).”
The Post’s fact checker Glenn Kessler weighs in, Paul Ryan’s repeated claim that ‘everyone’ will get a tax cut:
House Speaker Ryan has been quite a booster for the House GOP tax plan. Look at the words he has used in a series of interviews: “every single person, every rate payer, every bracket person gets a rate cut”; “everyone enjoys a tax cut across the board”; “it’s a tax cut for everybody.”
That’s quite a piece of legislation. Normally every major bill has winners and losers[.]
Then, a funny thing happened after we contacted Ryan’s office on the evening of Nov. 8 and asked how he could keep saying this. His language suddenly changed.
“When you take the thing all in its totality, what the analysis shows us, whether it’s analysis from JCT [Joint Committee on Taxation], from the Tax Foundation, or even TPC [Tax Policy Center], that the average households at every income level see a tax cut.”
— Ryan, remarks to reporters, Nov. 9
What’s going on here? AshLee Strong, Ryan’s spokeswoman, acknowledged he misspoke.
There’s obviously a big difference between “every single person” and “average taxpayer in all income levels.” Ryan, when he is speaking more precisely, is referring to distributional tables like this one produced by the Joint Committee on Taxation.
You will note that in 2019, every income category shows a decline in federal taxes. Now, for some income levels (such as $30,000 to $40,000), it shows an increase in later years. We’ll explain that in more detail below.
But claiming every taxpayer gets a tax cut is simply wrong. Let’s look at another distribution table, this time produced by the Tax Policy Center. It shows the winners and losers more clearly. In 2018, it shows 7 percent of taxpayers would have an average tax increase of more than $2,000. That’s at least 10 million people. (In fact, almost 30 percent of the top 0.1 percent would experience a tax increase.)
It gets even worse in 2027, when 25 percent of taxpayers would face a tax increase. That’s mainly because certain tax provisions for the middle class expire midway through the 10-year period covered by the tax cut. Strong said it was “bogus” to focus on that because Republicans are certain that these tax provisions would be extended. (Republicans are ending this tax cut to make the tax cut look less expensive and thus fit in the $1.5 trillion box created by the budget resolution.)
As Ryan put it to Rush Limbaugh: “It’s just a sunset in five years of some provisions that we never, ever intend to be removed. … The reason we did that is to conform with the budget rules so that we can make sure that this thing cannot be filibustered in the Senate.”
Well, there’s no guarantee the tax provisions will be extended, of course. A lot depends on the makeup of the Congress when the provisions expire in 2022.
The Pinocchio Test
[O]n at least three occasions over three days, Ryan spoke in sweeping terms that flatly stated every taxpayer would get a tax cut. That’s wrong and misleading, and ordinarily worthy of Four Pinocchios. Even if one assumes that all of the tax provisions remain in place — a big assumption — millions of Americans will still see a tax hike, even if the average person in their income range might receive a tax cut.
In the case of married families with children — whom Republicans are assiduously wooing as beneficiaries of their plan — about 40 percent are estimated to receive tax hikes by 2027, even if the provisions are retained. That would be a nasty surprise for folks who had heard Ryan’s less-precise spin.
The Hill continues:
The bill now heads to the House floor, where GOP lawmakers are optimistic that it will pass without much difficulty.
Most of the GOP lawmakers who have come out against the bill so far are from blue states that would be hurt by the bill’s treatment of the state and local tax deduction. The bill would repeal the deduction for state and local income taxes while capping the property tax deduction at $10,000.
However, other GOP lawmakers from New York, New Jersey and California are expected to vote “yes” — including Rep. Tom MacArthur (R-N.J.), who voted against the budget over state and local tax deduction concerns.
Rep. Walter Jones (R-N.C.), who often bucks GOP leadership, has also said he’ll vote against the bill because it adds to the deficit.
And it is possible that as a floor vote approaches, more GOP lawmakers could come out against the measure over concerns with various provisions.
House Republicans are expected to make additional changes to the bill before it is brought to the floor but are not expected to allow amendments on the floor.
Complicating matters is that Senate Republicans on Thursday released a tax bill that has significant differences with the House bill. Senate Tax Plan Diverges From House Version, Highlighting Political Pressures:
Senate Republicans outlined their vision on Thursday for overhauling the tax code, proposing a one-year delay in President Trump’s top priority of cutting the corporate tax rate while reinstating some prized tax breaks used by middle-class families.
The Senate bill differs significantly from the House version approved by the Ways and Means committee on Thursday: It would preserve some popular tax breaks, including ones for mortgage interest and medical expenses, and would maintain a bottom tax rate of 10 percent for lower earners. But it would also jettison the state and local tax deduction entirely and delay the enforcement of a 20 percent corporate tax rate until 2019, which could rankle the White House and mute the economic growth projections that Republicans are counting on to blunt the cost of the tax cuts.
The disparate bills show the competing pressures that Republican lawmakers are facing and the calculations that Senate and House leaders are making to ensure passage of the bills through their respective chambers. While both bills share the main priorities of cutting corporate and individual taxes, they diverge on matters of high political sensitivity, particularly for vulnerable House Republicans from high-tax states and for Senate Republicans concerned about adding to the federal budget deficit.
Senate staff members said their draft would require changes, likely major ones, to survive procedural rules that allow it to pass on a party-line vote. Those changes could include setting some of the tax cuts to expire after a period of years.
A retiring senator, Jeff Flake, Republican of Arizona, raised concerns that the legislation could add more to federal deficits. “I remain concerned over how the current tax reform proposals will grow the already staggering national debt,” Mr. Flake said, “by opting for short-term fixes while ignoring long-term problems for taxpayers and the economy.”
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The bill set for introduction in the Senate Finance Committee includes seven income brackets, scuttling some of the simplicity that House drafters used to sell their bill, which reduced the number of brackets to four.
It would keep the bottom tax bracket for individuals at 10 percent, which the House had raised to 12 percent, and would reduce the top rate for high earners to 38.5 percent, down from the current rate of 39.6 percent, which the House had maintained. Like the House bill, the Senate’s version plans to roughly double the standard deduction and expand the child tax credit.
The starkest example of the competing priorities is the state and local tax deduction, which is heavily used in high-tax states like New York, New Jersey and California, which are represented by Democrats in the Senate but have some Republican representatives in the House. The Senate completely eliminates the valuable tax break, which allows taxpayers to deduct state and local income, sales and property taxes. The House bill would still allow individuals to deduct property taxes up to $10,000.
Some House Republicans have already rejected that limitation as too strict and the Senate’s complete elimination could further spook those members, whose political future could be imperiled if they pass a plan that actually increases their constituents’ tax bills.
“Every state should be a winner in tax reform, and in my opinion, that would not be the case if the Senate view were to prevail,” said Representative Leonard Lance, Republican of New Jersey. “I’m not voting for the $10,000, so I’m certainly not voting for zero,” Mr. Lance said.
The bill would add $1.5 trillion to federal budget deficits over a decade, without accounting for additional economic growth it might spur, according to the Joint Committee on Taxation.
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In another significant departure from the House bill, the Senate would not create a special, lower top rate for so-called pass-through entities, which are businesses whose profits are distributed to their owners and taxed as individual income. Instead, the Senate would create a 17.4 percent deduction on income taxes for pass-through owners of all income levels, effectively cutting rates both on rich owners and on middle-class small-business owners who would not have benefited from the House’s original lower pass-through rate. For service-providing pass-throughs, it would phase out that benefit for individuals with income above $75,000 and for married couples with income above $150,000.
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The Senate is also including a provision to prevent large multinational corporations from stashing profits overseas. The bill will propose a new business tax on American and foreign companies — effectively a minimum tax on their income earned in the United States — while also levying a 12.5 percent tax on income that American companies receive overseas from their intellectual property.
Preliminary estimates indicate the provision would raise more than $130 billion in tax revenue over 10 years to help offset revenue lost from rate cuts, committee staff members said. The original House approach, which would have levied a 20 percent “excise tax” on payments between American and foreign companies that are affiliated with each other, would have raised an estimated $155 billion in revenue.
The Senate GOP tax bill is scheduled for markup on Monday.