|This afternoon at the White House, President Trump made one last pitch for the Tax Cuts and Jobs Act. Up on the Hill, conferees met to continue trying resolve differences between the House and Senate bills. Even as the process is well underway, the conferees know that Americans have picked up on the fact that their promised tax cuts are turning out to be rebates that dwindle over ten years through a series of sunsets.
When will the initial tax cuts sunset? Who then gets the tax hikes that follow? How much does the middle class get in relief, averaged annually over the life of the law? How many middle class taxpayers are looking a tax hike? See below.
In other news: the Fed raised interest rates by 25 basis points to a range between 1.25 and 1.50 percent, as long expected, in line with the Fed’s plan to tighten the monetary supply gradually to allow the recovery to run its course.
And 49 cheers for Senator-Elect Jones…
Rebate and Switch
This afternoon, Republican tax negotiators from the House and Senate met to hash out differences in the GOP effort at sweeping reformation of the nation’s tax code. Unsurprisingly, the meeting was conducted behind closed doors. Republicans point to an ambitious timetable for keeping negotiations out of the public eye, but just as important is the tax bill’s overwhelming unpopularity.
Republicans made grand promises in their sales pitch to the middle class. Americans were told the average middle class family of four earning $59,000 per year would see a tax cut of $1,182 — more than $11,000 over ten years. Even today, President Trump repeated the claim that corporate rate reductions will generate $4,000 in new annual income per household. Simply put, the public is not buying it. As negotiations have worn on and details of the bill have emerged, public support for the bill has plummeted.
The bill would send trillions of dollars to the country’s largest corporations and wealthiest income earners. As of now, the nation’s top income earners would see their individual tax rate fall from 39.6 percent to 37 percent. Corporate taxes are slashed more severely, falling from 35 to 21 percent. Those in the middle and working classes would see their taxes increase.
As a result, the Republican tax plan is now less popular than the tax hikes passed under Presidents Clinton and H.W. Bush. That the GOP has managed to make tax cuts less popular than tax hikes is signal. The majority of Americans sees this Republican chicanery as a massive reverse transfer payment financed on the back of the middle class and generations to follow.
What the Middle Class Actually Gets: Sunsets
Republicans included a number of short-term provisions in order to improve their bill’s distributional optics, but most of these concessions are written in disappearing ink. While GOP lawmakers were sure to make corporate handouts permanent, many of the individual rate cuts and tax credits disappear by 2025.
The increased medical expense deduction disappears after 2018. The expanded Child Tax Credit, which Sens. Rubio and Lee loudly pushed for, expires after 2024. One of President Trump’s favorite provisions, the doubling of the standard deduction, also expires after 2024.
Bottom line: the average family will receive nowhere close to $11,820 in tax relief over the decade ($1,182 times ten). What starts out as a $1,182 cut in year one transforms into a tax hike as deductions expire and individual rates reset. By 2027, the wealthiest one percent of Americans will receive an average tax cut in excess of $27,000. That year, the bottom 60 percent of wage earners will face an average tax hike of $160.
In the end, an estimated 87 million families — almost 40 percent of taxpayers — will see their tax liability increase. Per the Institute on Taxation and Economic Policy, 19 states would pay more overall in taxes. In 14 states, over 1 million taxpayers will face a tax hike.
Indirect Hikes and Paygo Pain
To make matters worse, millions of Americans will see rising costs indirectly due to provisions in the tax bill unrelated to tax rates:
- The individual mandate penalty repeal alone is expected to increase premiums by 10 percent. This provision would also increase healthcare costs for the 13 million Americans who will lose health coverage as a result of mandate repeal.
- A new Chained-CPI measurement of inflation that would push filers into higher brackets more quickly.
And still worse; the deficit increase of $1.4 trillion has already initiated talks in GOP circles of automatic cuts to critical social programs — including $25 billion in Medicare cuts in 2018 alone. At first Republican leaders promised their cut bill would not trigger Paygo cuts, but they have recently changed their tune. Sen. Rubio, Ways and Means Chairman Kevin Brady, and Speaker Paul Ryan have all linked tax cuts with welfare reform in recent weeks.
Where provisions that help the middle class (the child tax credit, the doubled standard deduction, the rate cuts) are made temporary, provisions that hurt the middle class are made permanent.
Source: Tax Policy Center
Permanence for Corporations
The sunsetting of individual rate cuts and other middle class credits and deductions pave the way for permanent business tax cuts. The long-term winners are corporations were the long-term losers are the bottom 60 percent. Wealthy Republican donors will appreciate the long-term 21 percent corporate rate, while middle and low-income Americans will see a little to no difference in disposable income and maybe substantial cuts to the government programs they count on.
Look for the Conference Committee to conclude its work blending the House and Senate versions of the bill by Friday. The bill will then move to the Senate first for passage most likely on Monday in order to ensure compliance with Byrd Rule budgetary restrictions. The House is scheduled to take up the legislation the day after it passes the Senate. The GOP’s ultimate goal is to have the final bill on President Trump’s desk as early as December 20. Stay tuned.