The GOP House leadership released its new tax plan last Thursday. Following the Obamacare repeal fiascos of the spring and summer, this bill, known as the “Tax Cuts and Jobs Act,” marks the latest attempt by Republican lawmakers to prove they are capable of governing effectively in the wake of President Donald Trump’s inauguration.
The main features of the current plan include:
1) lowering the corporate income tax from 35 to 26 percent.
2) consolidating the seven current tax brackets into three brackets of 12, 25, and 35 percent.
3) doubling the standard deduction and expanding the child tax credit while eliminating most other individual deductions.
4) gradually abolishing the death tax over six years.
At first glance, this plan appears beneficial — cleaning up and simplifying a messy tax code while also lowering the corporate tax rate to a more reasonable level with respect to other industrialized Western countries (Germany’s national rate is only 15 percent). Upon closer inspection, however, the White House’s claim that these will be the “largest tax cuts in history” rings hollow.
This bill is more of a deduction cut rather than a tax cut. Although most Americans will have their tax rates reduced, they will end up paying more in taxes overall because of the loss of many important personal deductions.
Under the proposed tax plan, as prepared by the House Ways and Means Committee Majority Tax Staff, the simplified rates and doubling of the standard deduction will reduce federal revenues by $921 billion over 10 years. But at the same time, by eliminating most of the personal deductions currently available, revenues will increase by $1.5 trillion over that same period — nearly a $600 billion increase.
A possible explanation for such an increase is a desire by Republicans to “pay” for the corporate tax cut by increasing personal tax revenue. Even if this explanation is inaccurate, the Republican congressional leadership, while pretending to be interested in cutting taxes, seems decidedly disinterested in cutting government spending.
A few particular examples illustrate how the elimination of most deductions will harm American taxpayers, particularly those in the middle to lower income ranges.
First, the new bill will eliminate medical deductions. If elderly persons or couples living on fixed incomes are forced to move into assisted living which costs $50,000 a year, they are able to write most or all of that off on their tax return. Under the new plan, no such deduction will be available.
Second, the current proposal caps the property tax deduction at $10,000, which means people living in high-value areas will be able to write off only a small portion of their property taxes. When Congress introduces this cap and the Federal Reserve raises interest rates — which looks increasingly likely — property values nationwide will likely be severely damaged. This, in turn, will incentivize more people to rent instead of buy because they are likely to get little return on investment by way of increased property values, damaging the sluggish real estate market.
Third, the tax plan will eliminate deductions for casualty losses. Currently, taxpayers can write off catastrophic losses, such as house fires or robberies, for anything above 10 percent of their income. Without this deduction, people who lose their home and do not have insurance will be left out in the cold.
Lastly, the suggested tax bill prohibits anyone from writing off Health Savings Accounts on their returns. This is intriguing because it directly conflicts with the Republicans’ supposed desire to repeal Obamacare. Rather than encouraging people to put money into one of the better alternatives to government-subsidized healthcare, the Republican plan actually disincentivizes spending on private healthcare.
By proposing a reform package that eliminates necessary deductions for millions of middle-income and lower-income families, the Republicans, whether through sheer incompetence or willful intent, are causing Americans to pay more in spite of lower rates. If this bill is what is required to show that Republicans can govern, as some normally-conservative mouthpieces have argued, then it is perhaps time for voters to consider whether or not the cost is too high.
This violation of trust on behalf of Republicans toward their base should not be taken to mean they are cozying up to the rich at everyone else’s expense. In fact, the proposed plan actually raises taxes on the rich by leaving the door open to a new additional rate of up to 46 percent (an increase from the current max rate of 39.6 percent) for individuals making upwards of $1 million and couples making upwards of $1.2 million. These top earners include not only the Warren Buffets and Hollywood elites of the world, but also a large number of American small business owners, whose enterprises provide collectively more than half of our country’s jobs.
In addition, this rate does not include state income tax, meaning that small business owners in states like California or New York could be paying well over 50 percent of their income to state and federal governments. Rather than cutting taxes across the board for everyone to drive growth — as happened during the Reagan years — Republicans intend to raise taxes on the richest Americans, which is both harmful to the economy and inconsistent with the party’s declared opposition toward “tax policies that deliberately divide Americans or promote class warfare” in the 2016 GOP platform.
While there are good elements to the tax plan — most notably the slashed corporate tax rate — there is no excuse for the Republican-controlled legislature and executive branch to not separately pass the good parts. The reason all of this is being bundled together into a behemoth-sized piece of legislation is because Republicans want to hide from the American people their refusal to reduce the size of government.
This is not tax reform; it is giving with one hand and taking with another. Republicans want to clean up the tax code around the edges rather than fundamentally change the way it operates.
By cutting the corporate income tax in an attempt to return American businesses to our shores and jump-start the economy, Republicans simultaneously have taken no substantive action to address bloated government spending and the massive debt. This is not going to work. If the President and the Republican establishment in Congress really want to have the “biggest tax cuts in American history,” they need to quit with the smoke and mirrors.
Joshua Waechter is a sophomore studying history.