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Update 222: A (Last) Look at the House Tax Bill;
Under-the-Radar Deductions Eliminated in HR 1
This afternoon, the House Ways and Means Committee reported out HR 1, the Tax Cuts and Jobs Act favorably on a 24-16 party line vote. The bill goes to the House floor for consideration next week. Meanwhile, focus will shift to the Senate, where the Finance Committee is expected to release its own tax legislation by tomorrow.
Today, we examine a set of less noticed but significant provisions in the House bill that will make it, or stand a good chance of making it, into the Senate bill. We plan to write the bill up after its release.
Best,
Dana
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Republicans claim to provide structural reform that helps all Americans regardless of income level. But a closer look at the specifics of the House tax bill reveals countless petty tax increases aimed at a variety of low- and middle-income groups. Beyond satisfying the personal grudges and hobby horses of individual lawmakers, it is difficult to see any discernable rationale for these increases, and certainly not a compelling fiscal one in most cases.
With the forthcoming Senate bill promising to add a layer of complexity to the proceedings, it will not be easy for Democrats and opponents of the bill in the business and the broad public interest communities to follow the bill’s evolution and engage in the proceedings. But it is worthwhile since there are some opportunities to make a positive difference.
The GOP axes countless consequential provisions that have remained largely below surfaced in the tax debate to this point. These provisions hurt middle and low income students, educators, patients, parents, divorcees, and workers. These groups aren’t represented by lobbyists for clients with lavish accounts, or, or therefore, the attention of the media.
• Families
Personal Exemption — Under the tax bill, you can no longer claim a $4,050 personal exemption for yourself, your spouse, and each of your dependents. This means families with three or more kids would likely suffer a tax increase depending upon what other provisions affect them. According to JCT, the provision under which this exemption is repealed (alongside the standard deduction change) would reducerevenues by $818.8 billion over 2018-2027, and increase outlays by $102.6 billion over 2018-2027.
Moving Expenses — As of now, workers can deduct their moving expenses if they move more than 50 miles to take a new job. The Republican plan would eliminate this provision, making it more difficult for workers to seek out employment in higher-income areas. Repealing this deduction would add a meagre $10.6 billion in revenues over a decade.
Property and Casualty Losses — The House legislation repeals this deduction except for personal casualty losses associated with special disaster relief legislation. The provisions changing this deduction only generate $2.2 billion in revenues over the next ten years.
Tax Preparation Expenses — The House legislation actually punishes those who pay for assistance in filing their taxes by repealing the deduction for the cost of preparing tax expenses. This will punish not only accountants, but millions Americans who could deduct for the cost of paying taxes. The revenue gain from this change is so menial, JCT does not make an estimate about its individual revenue impact over the next decade, instead grouping it with other provisions that together raise just $1.3 billion.
Alimony Payments — HR 1 repeals the deduction a person can take for court-ordered payments to a spouse or former spouse. The provision would only raise an estimated $8.3 billion dollars over ten years. Eliminating the deduction would, however, make divorce settlements significantly more difficult, leading critics to say that Republicans have created a “divorce penalty” in the tax code. The JCT estimates this would add just $8.3 billion in revenue over the next ten years.
Adoption — The original version of the House bill repealed the adoption tax credit, which allows families to offset upwards of $13,570 for each child adopted from foster care. It also eliminated a deduction for financial aid to adoptive parents from an employer. This provision drew the ire of conservative advocacy groups and lawmakers who advocate adoption from an anti-abortion standpoint. This afternoon, Brady acquiesced and offered an amendment maintaining the adoption tax credit. The Senate bill is expected to preserve the deduction. If the provision were eliminated, it would only add $3.3 billion to federal revenues over a decade.
Education — The House legislation eliminates the student loan interest expense deduction, tax waivers for graduates, the deduction for teacher supplies, and more. Combined education changes would generate just $20 billion maximum in revenues over ten years. (See Update 220 for a full briefing.)
• Medical Expenses
Medical Deduction — The House bill eliminates deductions for medical expenses, hurting people with very high medical bills, those that rely on nursing home care, or anyone who needs to rely on out-of-network doctors. The tax bill also terminates the individual deduction or employer exclusion of contributions to medical savings accounts.
The JCT estimates that medical deduction expenses will cost the federal government $10 billion next year, far less than most deductions the GOP has already pledged to preserve.
The GOP has argued that medical savings accounts allow the government to spend less on health subsidies. Increasing taxes for these savings accounts punishes the savings activity the GOP hoped to incentivize with their failed health care plan. Eliminating medical expense deductions is just plain cruel and would anger constituents across the country. The Senate bill is expected to preserve these deductions in its tax bill.
• Environment
Renewable Energy — The Republican plan would cut tax subsidies for wind energy in half, and drastically reduce the output potential for the renewable energy industry. This is a divisive issue for Republicans. Unlike solar energy, the wind energy industry is prominent in wind-rich red states like Iowa and Texas. Senator Grassley and other have come out in support of the wind production tax credit in the past.
In all, changes in tax credits for green energy production would raise about $12.3 billion over ten years according to House Republicans.
Next Steps
Under the GOP banner or giving you your money back, House legislators have managed to propose eliminating critical tax benefits to some of our country’s least powerful and most vulnerable. The most recent analysis shows that 25 percent of Americans would pay higher taxes under the plan. Forty-five percent of the total cut goes to the benefit of households earning $1 million a year. Orphans, students, and the sick would finance tax cuts for millionaires and billionaires.
When the Senate bill is released tomorrow, we will see what new surprises are in store. Our analysis on the measure will be forthcoming when the Senate legislation is released.
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