There are tough choices at the heart of the Republican tax bills speeding through Congress, and they make clear what the party values most in economic policy right now: deep and lasting tax cuts for corporations.
The bill that sailed through the House on Thursday chooses to take from high-tax Democratic states, particularly California and New York, and give to lower-tax Republican states that President Trump carried in 2016, particularly Florida and Texas. It allows for tax increases on millions of families several years from now, if a future Congress does not intervene, but not for similar increases on corporations.
The version of the bill that the Senate Finance Committee approved along party lines late Thursday chooses to give peace of mind to corporate executives planning their long-term investments. That comes at the expense of added anxiety for individual taxpayers, particularly those in the middle class, who could face stiff tax increases on Jan. 1, 2026.
A consistent conservative philosophy underpins all those decisions. So does a very large bet — economically and politically — on the power of business tax cuts to deliver rapid wage growth to United States workers.
There is also the appearance, to liberal critics in particular, of Republicans seeking to reward their prized constituencies first, while leaving others to bear the consequences if their most optimistic scenarios do not play out.
The tax plans have evolved rapidly since House leaders first introduced their bill at the beginning of the month. Amendments in the Ways and Means Committee restored some cherished tax breaks that had been targeted for elimination, including those for adoptive parents, and expanded the bill’s tax breaks for owners of businesses that are not organized as traditional corporations.
The Senate bill differed from the House version when it was introduced last week, and broke further away on Tuesday night, with a package of amendments that included repealing the Affordable Care Act’s mandate that most individuals buy health insurance. To comply with procedural rules that would allow Republicans to pass the bill on a party-line vote in the Senate, the amendment also set an expiration date — Dec. 31, 2025 — on all the individual tax cuts in the legislation.
In light of those changes, the congressional Joint Committee on Taxation projected on Thursday that Americans earning $30,000 or less would see their taxes increase, as a group, beginning in 2021, if the Senate bill becomes law, apparently as a function of the mandate repeal driving fewer Americans to claim tax subsidies for insurance.
The committee also projected that Americans earning $75,000 or below would face large tax increases in 2027, after the individual tax cuts expire. When only looking at individuals’ tax bills — and not the effects of corporate taxes on individuals’ incomes — the committee said Americans at all income levels would see tax increases in 2027, compared to what they would have been if the Senate bill had not passed.
Some individuals would see tax increases as a result of the Senate and House bills’ treatment of state and local tax deductions. The Senate would kill them entirely. The House would maintain them only for property taxes and cap the deduction at $10,000 a year. Economists generally say that those tax breaks are inefficient. But eliminating them, in the context of the House bill, would add up to a large geographic transfer of income, according to research by Carl Davis, the research director of the Institute on Taxation and Economic Policy in Washington.
The House bill would raise personal taxes on Californians and New Yorkers by a combined $16 billion in 2027, Mr. Davis found, while cutting personal taxes on Texans and Floridians by more than $30 billion in total.
His analysis finds so-called red states, which Mr. Trump carried in 2016, would receive more than twice as much in personal tax benefits under the plan than the blue states won by his Democratic rival, Hillary Clinton, when adjusting for the size of each state’s economy. Only one red state — Utah — would receive lower personal tax benefits under the bill than would be expected, given how much it contributes to the national income; the average blue state, by contrast, would receive lower benefits than expected.
“It’s not unusual for a tax bill to have varying impacts in different parts of the country,” Mr. Davis said. “But the degree to which this bill makes winners and losers out of different states is remarkable.”
Curtailing state and local deductions helps finance a core feature of both the House and Senate bills, which happens to be one of the few provisions Mr. Trump has called nonnegotiable in tax discussions: cutting the corporate income tax to a flat 20 percent rate, down from a top rate of 35 percent today. Republicans have kept those cuts permanent, even as the Senate applied an expiration date to the individual cuts and to a key tax credit for families preserved in the House bill. The Senate bill also sets an expiration date on breaks for so-called pass-through businesses, whose owners pay taxes on profits through the tax code for individuals.
In Washington, Republicans have stressed that cutting corporate taxes will supercharge economic growth, accelerating job creation and raising wages in the process. By that theory, making such cuts permanent is essential.
The gamble is apparent. Polls show that voters want corporations to pay higher, not lower, taxes and that they doubt corporate rate cuts will show up in their own paychecks, as the White House has claimed. Perhaps not coincidentally, Republican leaders have pitched their bills largely as middle-class tax cuts, stressing the benefits for the typical American family during television appearances and news conferences.
“The policy expects that the corporate tax cuts will do the most for growth,” said Lanhee J. Chen, a research fellow at Stanford University’s Hoover Institution, who was the policy director for Mitt Romney’s presidential campaign in 2012. “On the other hand, they’re the hardest to explain.”
It is an especially tricky explanation in the context of the requests Republicans are making of individual taxpayers, particularly the middle class, to trust that any benefits they see from the bills will not vanish over a decade. The Senate bill is scheduled to deliver an individual tax increase on 137 million tax filers in 2027 if Congress does not intervene first, according to calculations by Ernie Tedeschi, an economist at Evercore ISI. Liberals warn the shock would be huge for low- and middle-income families.
Republicans are “making a choice as to which elements of their plan are permanent,” said Jacob Leibenluft, a senior adviser at the Center on Budget and Policy Priorities and a former economic aide under President Barack Obama, “and I think it’s worth starting with taking them at face value.”
Canceling those looming increases would further add to the federal budget deficit, if the move is not paired with spending cuts. Middle-class families planning ahead can imagine two possible consequences from that decision: 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.
“The bill reflects talking out of both sides of your mouth at the same time — neither of which is leading to good policy,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget.
Republican leaders in both chambers have said that they will not allow individual tax breaks to expire — and that their corporate cuts will yield enough growth and additional tax revenue to pay for themselves, or at least come close. Ms. MacGuineas and others fear the opposite could be even more likely: that growth will fall far short of those optimistic projections, and when the expiring tax provisions come up for reauthorization, budget deficits will be swelling. The result, they say, would be more hard choices — and predictable ones.
https://www.nytimes.com/2017/11/16/...ackage-region®ion=top-news&WT.nav=top-news
The bill that sailed through the House on Thursday chooses to take from high-tax Democratic states, particularly California and New York, and give to lower-tax Republican states that President Trump carried in 2016, particularly Florida and Texas. It allows for tax increases on millions of families several years from now, if a future Congress does not intervene, but not for similar increases on corporations.
The version of the bill that the Senate Finance Committee approved along party lines late Thursday chooses to give peace of mind to corporate executives planning their long-term investments. That comes at the expense of added anxiety for individual taxpayers, particularly those in the middle class, who could face stiff tax increases on Jan. 1, 2026.
A consistent conservative philosophy underpins all those decisions. So does a very large bet — economically and politically — on the power of business tax cuts to deliver rapid wage growth to United States workers.
There is also the appearance, to liberal critics in particular, of Republicans seeking to reward their prized constituencies first, while leaving others to bear the consequences if their most optimistic scenarios do not play out.
The tax plans have evolved rapidly since House leaders first introduced their bill at the beginning of the month. Amendments in the Ways and Means Committee restored some cherished tax breaks that had been targeted for elimination, including those for adoptive parents, and expanded the bill’s tax breaks for owners of businesses that are not organized as traditional corporations.
The Senate bill differed from the House version when it was introduced last week, and broke further away on Tuesday night, with a package of amendments that included repealing the Affordable Care Act’s mandate that most individuals buy health insurance. To comply with procedural rules that would allow Republicans to pass the bill on a party-line vote in the Senate, the amendment also set an expiration date — Dec. 31, 2025 — on all the individual tax cuts in the legislation.
In light of those changes, the congressional Joint Committee on Taxation projected on Thursday that Americans earning $30,000 or less would see their taxes increase, as a group, beginning in 2021, if the Senate bill becomes law, apparently as a function of the mandate repeal driving fewer Americans to claim tax subsidies for insurance.
The committee also projected that Americans earning $75,000 or below would face large tax increases in 2027, after the individual tax cuts expire. When only looking at individuals’ tax bills — and not the effects of corporate taxes on individuals’ incomes — the committee said Americans at all income levels would see tax increases in 2027, compared to what they would have been if the Senate bill had not passed.
Some individuals would see tax increases as a result of the Senate and House bills’ treatment of state and local tax deductions. The Senate would kill them entirely. The House would maintain them only for property taxes and cap the deduction at $10,000 a year. Economists generally say that those tax breaks are inefficient. But eliminating them, in the context of the House bill, would add up to a large geographic transfer of income, according to research by Carl Davis, the research director of the Institute on Taxation and Economic Policy in Washington.
The House bill would raise personal taxes on Californians and New Yorkers by a combined $16 billion in 2027, Mr. Davis found, while cutting personal taxes on Texans and Floridians by more than $30 billion in total.
His analysis finds so-called red states, which Mr. Trump carried in 2016, would receive more than twice as much in personal tax benefits under the plan than the blue states won by his Democratic rival, Hillary Clinton, when adjusting for the size of each state’s economy. Only one red state — Utah — would receive lower personal tax benefits under the bill than would be expected, given how much it contributes to the national income; the average blue state, by contrast, would receive lower benefits than expected.
“It’s not unusual for a tax bill to have varying impacts in different parts of the country,” Mr. Davis said. “But the degree to which this bill makes winners and losers out of different states is remarkable.”
Curtailing state and local deductions helps finance a core feature of both the House and Senate bills, which happens to be one of the few provisions Mr. Trump has called nonnegotiable in tax discussions: cutting the corporate income tax to a flat 20 percent rate, down from a top rate of 35 percent today. Republicans have kept those cuts permanent, even as the Senate applied an expiration date to the individual cuts and to a key tax credit for families preserved in the House bill. The Senate bill also sets an expiration date on breaks for so-called pass-through businesses, whose owners pay taxes on profits through the tax code for individuals.
In Washington, Republicans have stressed that cutting corporate taxes will supercharge economic growth, accelerating job creation and raising wages in the process. By that theory, making such cuts permanent is essential.
The gamble is apparent. Polls show that voters want corporations to pay higher, not lower, taxes and that they doubt corporate rate cuts will show up in their own paychecks, as the White House has claimed. Perhaps not coincidentally, Republican leaders have pitched their bills largely as middle-class tax cuts, stressing the benefits for the typical American family during television appearances and news conferences.
“The policy expects that the corporate tax cuts will do the most for growth,” said Lanhee J. Chen, a research fellow at Stanford University’s Hoover Institution, who was the policy director for Mitt Romney’s presidential campaign in 2012. “On the other hand, they’re the hardest to explain.”
It is an especially tricky explanation in the context of the requests Republicans are making of individual taxpayers, particularly the middle class, to trust that any benefits they see from the bills will not vanish over a decade. The Senate bill is scheduled to deliver an individual tax increase on 137 million tax filers in 2027 if Congress does not intervene first, according to calculations by Ernie Tedeschi, an economist at Evercore ISI. Liberals warn the shock would be huge for low- and middle-income families.
Republicans are “making a choice as to which elements of their plan are permanent,” said Jacob Leibenluft, a senior adviser at the Center on Budget and Policy Priorities and a former economic aide under President Barack Obama, “and I think it’s worth starting with taking them at face value.”
Canceling those looming increases would further add to the federal budget deficit, if the move is not paired with spending cuts. Middle-class families planning ahead can imagine two possible consequences from that decision: 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.
“The bill reflects talking out of both sides of your mouth at the same time — neither of which is leading to good policy,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget.
Republican leaders in both chambers have said that they will not allow individual tax breaks to expire — and that their corporate cuts will yield enough growth and additional tax revenue to pay for themselves, or at least come close. Ms. MacGuineas and others fear the opposite could be even more likely: that growth will fall far short of those optimistic projections, and when the expiring tax provisions come up for reauthorization, budget deficits will be swelling. The result, they say, would be more hard choices — and predictable ones.
https://www.nytimes.com/2017/11/16/...ackage-region®ion=top-news&WT.nav=top-news
