The Senate GOP tax bill raises taxes on everyone earning up to $75,000 by 2027, official analysis concludes
Sen. Orrin Hatch (R-Utah) got pretty worked up Thursday night, right before the Senate Finance Committee approved a massive tax package on a party-line vote, when Sen. Sherrod Brown (D-Ohio) said the bill benefits the wealthy at the expense of the middle class — a view widely embraced by Americans. White House Press Secretary Sarah Huckabee Sanders similarly insisted on Thursday that both the Senate and House version, which passed Thursday afternoon, will provide tax cuts to middle-class families, as President Trump has repeatedly promised.
Also on Thursday, the Joint Committee on Taxation, Congress' official nonpartisan tax scorekeeper, estimated that by 2027, everyone making $75,000 or less a year would pay higher taxes under the Senate plan than current law. The tax increases would begin in 2021 for households making between $10,000 and $30,000, and creep up until 2026, when the individual tax cuts — but not the deep cuts to corporate taxes — would expire.
I have covered lots of tax bills and have never seen a distribution like this. Imagine the attack ads..... pic.twitter.com/LncXFz9dk8
— Glenn Kessler (@GlennKesslerWP) November 16, 2017
The Senate bill is a big gamble that deep and sustained tax cuts for corporations will spur sharp economic growth, and that businesses will use their windfall on hiring, wages, and investment. But the bill also picks winners — states Trump won, beer brewers, private aircraft businesses, citrus growers, the heirs of the super wealthy — and losers.
Republicans argue that Congress won't actually let the individual tax cuts expire — a provision they added to conform to Senate rules that let them pass the bill with 50 votes if the bill doesn't increase the federal deficit by more than $1.5 trillion. But "middle-class families planning ahead can imagine two possible consequences from that decision," The New York Times notes: "Either an immediate increase in their taxes eight years from now, or an explosion in federal budget deficits, which could necessitate spending cuts to safety net programs like Social Security and Medicare." Peter Weber
Watch Trump's top economic adviser learn firsthand that CEOs won't react to tax cuts as Republicans hope
At a Wall Street Journal CEO Council forum on Tuesday, John Bussey, a WSJ associate editor, asked the gathered top executives to raise their hands if they planned to use the huge corporate tax cut hurtling through Congress to increase capital investment, a key selling point for the tax bills from the White House and congressional Republicans. Almost no hands went up. "Why aren't the other hands up?" asked President Trump's top economic adviser, Gary Cohn, sitting on stage. Gerard Baker, WSJ editor-in-chief, echoed the question.
1. Tax-overhaul backers say corporate rate cut will encourage investment by businesses
2. During #wsjceocouncil interview with Gary Cohn, WSJ asks CEOs to raise hands if they'll boost investment if rates cut
3. Few CEOS raise hands
4. Cohn asks: "Why aren't the other hands up?" pic.twitter.com/5PI60NlW0A
— Tim Hanrahan (@TimJHanrahan) November 14, 2017
"Maybe the CEOs were tired," The Washington Post speculates. "Maybe they didn't hear the question." But in fact, there are serious reasons to doubt that companies would plow their extra money into new factories and equipment, or new hiring. As Trump points out, stock indices are already at record highs and companies are pulling in record profits, and if they aren't investing now, why would they start after tax cuts?
Secondly, the Post notes, in a survey of more than 300 executives at large U.S. corporations over the summer, most said they would use a tax windfall to pay down debt, buy back stock, or merge, with capital investment low on this list. Third, interest rates are rising, dampening the effects of tax cuts. When Axios asked economists about the GOP tax proposals, "we found little confidence that either the House or Senate proposals would boost GDP growth and wages, the stated aims."
So Cohn finding few takers for investment in a public forum might have been as telling as it was awkward. But at least he didn't ask them to clap. Peter Weber
On Tuesday night, Senate Finance Committee Chairman Orrin Hatch (R-Utah) released the latest version of the Senate tax bill, to be debated Wednesday morning in his committee. Along with eliminating the Affordable Care Act's individual mandate — which would free up more than $300 billion but also raise premiums by an average of 10 percent and result in 13 million fewer people with health insurance, according to the Congressional Budget Office (CBO) — the new version of the bill permanently cuts the corporate tax rate to 20 percent, from 35 percent, while setting a 2026 expiration date on all tax cuts for individuals.
For the next eight years, the child tax credit would rise to $2,000 per child, from $1,000 now and $1,650 in an earlier version of the tax bill, and trim rates for upper-middle-income people by 0.5 or 1 percentage point. The bill would also trigger $25 billion in immediate Medicare cuts as well as $85 billion to $90 billion in other spending cuts, the CBO estimated, unless Congress votes separately to negate those cuts. The benefits for individuals expire at the end of 2025 so that Congress won't pay for the tax cuts with more than $1.5 trillion in deficit spending, to conform with Senate rules.
It's unclear how the changes will affect the bill's chances. Conservative Republicans will be pleased with zeroing out the individual mandate, but "the attack on former President Barack Obama's signature legislative achievement is likely to rule out the already slim possibility of support from Democrats, and the prospect of adding millions to the ranks of the uninsured could trouble moderate Republicans who voted down previous repeal efforts," The Washington Post reports. "Senators concerned about restraining national debt — long one of the top goals for the GOP — may also raise howls about the plan to sunset the individual income tax cuts in 2025. Congress is unlikely to allow a large tax increase on taxpayers at that point, which could mean a big hit to the deficit over the long run." Peter Weber
President Trump says, dubiously, that Republicans are preparing to pass the largest tax cut in U.S. history, but even if that's not quite true, it is incontrovertible that Republicans are trying to push through major tax overhauls at breakneck speed, at least by congressional standards. Neither of the bills are finalized, though House Republicans plan to pass their bill Thursday or Friday, and Trump publicly made suggested changes as recently as Monday. The Congressional Budget Office said Monday that the official congressional tax analysts at the Joint Committee on Taxation haven't had enough time to analyze the full economic impact of the bills.
"The rush to 'get it done' — particularly on the business side, where the most sweeping changes are planned — is alarming tax specialists who warn that new and unforeseen complexity, loopholes, and glitches could come back to haunt tax collectors and taxpayers," says The New York Times, pointing out several "loopholes and tax dodges spotted so far — whether unintended or not." The loopholes could allow small and medium businesses to take advantage of offshore tax shelters, wealthy hedge fund investors could claim lower tax rates intended for pass-through businesses, and other provisions, anodyne on their own, would open up new tax dodges.
"There is not a single advantage this has, except for students of people like me, who will get paid more to figure out how to game the system," Steven Rosenthal at the nonpartisan Tax Policy Center, formerly with the Joint Committee on Taxation, tells The New York Times about one of the provisions. The Tax Policy Center estimates that half of the net tax cuts would go to the top 1 percent of earners. Supporters of the tax bills say the legislation will be imperfect but can be fixed once enshrined in law. Peter Weber
On Thursday afternoon, Senate Republicans released the framework for their tax overhaul, delaying a steep cut in corporate taxes for a year and eliminating deductions for state and local taxes — for individuals, not businesses — among other differences with the House bill. The Senate version also leaves seven tax brackets, versus the House proposal's four brackets, lowering the top rate for wealthy individuals to 38.5 percent from 39.6 percent. Also on Thursday, the House Ways and Means Committee approved an amended version of their tax plan, sending it to the House floor.
According to the Joint Committee on Taxation, which analyzes congressional tax plans, the Senate bill would add $1.495 trillion to the federal deficit over 10 years while the latest House version would add $1.457 trillion. The plans can add no more than $1.5 trillion under rules Senate Republicans passed to allow them to approve the bill with just 50 votes.
On the other differences, "as leaders in each chamber grapple with difficult trade-offs on tax rates, deductions, and deficits, the House is making decisions the Senate won't accept and the Senate is doing the same to the House," The Washington Post reports. Among those differences, the Senate would narrow the pool of multimillionaires who would have to pay the estate tax while the House phases the tax out entirely, and the Senate retains deductions for medical expenses and mortgage interest. Both versions would nearly double the child tax credit and keep the adoption credit. The Senate's decision to cut the top corporate tax rate to 20 percent, from 35 percent, in 2019 instead of next year sent the stock market lower.
Senate leaders and White House officials called the plan historic and necessary, but as you can see below, reporters were mostly interested in what Senate Republicans thought about the allegations that Alabama Senate nominee Roy Moore fondled a 14-year-old girl when he was 32. Peter Weber
The Senate is scheduled to release its tax overhaul package on Thursday, and Rep. Kevin Brady (R-Texas) says he will release an updated version of the House bill, but Republicans on Wednesday couldn't agree whether Tuesday's electoral beating would help focus congressional Republicans on passing a tax bill or hurt the effort. Complicating their political calculus are a series of nonpartisan analyses of the House tax plan that find some middle class families would actually pay more in taxes next year, and the number of beneficiaries would shrink dramatically by 2017.
An analysis released Wednesday by the nonpartisan Tax Policy Center, for example, found that 9 percent of middle income taxpayers (earning $48,600 to $86,100 a year) would get a tax hike next year and 31 percent of that bracket would face higher taxes in a decade. A 76 percent majority of all U.S. taxpayers would get a tax cut in 2018, with middle class families averaging a $800 boost, the Tax Policy Center found, but "the largest cuts, in dollars and as a percentage of after-tax income, would accrue to higher-income households." The Joint Committee on Taxation, the nonpartisan tax analysis organ for Congress, predicted similar results earlier this week.
— NYT Graphics (@nytgraphics) November 8, 2017
Republicans are still tinkering with their plans, but the "changes made to the House bill since it was released last week have largely benefited corporations at the expense of individuals," The Washington Post reports. One change approved Monday to eliminate a proposed corporate tax blew a $74 billion hold in the plan, pushing it up to a $1.57 trillion addition to the federal deficit over the next decade; to pass the Senate with a bare majority, the bill can't raise the deficit by more than $1.5 trillion. Peter Weber
House Ways and Means Committee Chairman Kevin Brady (R-Texas) said Republicans will "definitely" release their tax bill on Thursday, "no question," after postponing its release to wrangle with other Republicans over issues like whether to scrap deductions for state and local taxes. A last-minute tweak they made to the bill left them hundreds of billions of dollars short, Politico reports, and they had to find revenue elsewhere in the bill to make up for that, and President Trump suggested on Twitter that the bill try to dismantle the individual mandate in the Affordable Care Act. Republicans are also reportedly arguing over what to call the bill, with Trump pushing for "The Cut Cut Cut Act." Tax cuts are the GOP's No. 1 legislative priority, and the White House warned Brady that the bill has to be released before Trump leaves for Asia on Friday. Peter Weber
Sen. Susan Collins (R-Maine) said Monday she hopes "very much to be able to support a tax reform package," but laid out some specific things she wants to see in the legislation. "I do not believe that the top rate should be lowered for individuals who are making more than $1 million a year," Collins told Bloomberg News. "I don't think there's any need to eliminate the estate tax." House Republicans are unveiling their tax bill on Wednesday, and the Senate bill, expected a week later, will be more tailored to win over moderates like Collins and maybe a few Democrats.
The Senate bill is expected to tinker with the trigger points for the estate tax, raising it from $5.49 million for an individual and $10.98 million for couples, but not fully repeal it, Axios reports, citing congressional aides and an administration official. The Senate bill is also expected to differ from the House version in that it might fully scrap state and local tax deductions and will not tinker with 401(k) contributions. Both bills could include four tax brackets, leaving the 39.6 percent rate for the wealthy intact and phase in the sharp reduction in corporate taxes. Passing a tax cut bill is the top GOP legislative priority, and with 52 Republican senators, there isn't much margin for error. Peter Weber