As we enter Year 2 of the New, Populist, Trump era of the Republican Party, the Senate GOP conference has released its tax plan. It sure is bold and innovative! The winners:
Corporations, broadly, are the focus of most of the tax cuts. According to the Joint Committee on Taxation’s analysis of the bill, cutting the corporate tax rate from 35 percent to 20 percent starting in 2019 costs nearly $1.3 trillion over 10 years. Corporations also in many cases gain new, more favorable treatment of income earned abroad, which is either not taxed or taxed at an even lower rate than 20 percent.
Wealthy, particularly ultrawealthy people, tend to earn a disproportionate share of their income from capital (like stock sales and dividends) and thus benefit from cuts to the corporate tax, which is largely a tax on capital. If the corporate tax also reduces wages, as some conservative economists allege, then corporate cuts still disproportionately help the wealthy, as a huge share of wages go to high earners, not low- or median-wage workers. Additionally, the pass-through tax cut could enable some wealthy people who either own pass-throughs or create new ones to shelter some of their income from high rates.
People making mid- to high six-figure incomes, who arguably should count as wealthy or rich too. Their top income tax rate is reduced from 39.6 percent to 35 percent, and they additionally benefit from other individual rate reductions for lower tax brackets. While many face lower tax deductions due to changes to how state and local taxes are treated, they will probably come out ahead overall.
Pass-through companies, like the Trump Organization, which get a new deduction reducing their tax burden. The Senate bill takes a simpler approach than the House bill and allows people with pass-through income to deduct 17.4 percent of it from taxes. That lowers the top rate they’d pay from 38.4 percent to only 31.8 percent.
Heirs and heiresses, as the estate tax’s exemption is doubled from $5.5 million to $11 million, meaning and even smaller share of the ultra-rich will pay the tax and even those who do pay will pay substantially less than under current law.
Blue state residents would pay higher taxes, as deductions for state and local taxes, be they income, sales, or property, are entirely eliminated. That said, wealthy people benefiting from these deductions will likely see this tax hike offset by the other tax cuts in the package.
Poor families were rumored to be getting a tax cut due to a change in the refundability formula for the child tax credit — but that didn’t make it into either the House or Senate bill. The credit only goes to families with $3,000 in earnings or more, and phases in slowly; some in Congress were pushing to lower the threshold to $0, but the bill instead lowers it to $2,500, a pretty mild change. The credit is expanded to children up to age 18, whereas now it ends after 16.
And it would increase the deficit; the Joint Committee on Taxation has reportedly scored both the House and Senate bills as costing $1.5 trillion over 10 years, about what the House/Senate budget allocated for the bill but still a sizable increase in the public debt.
How to summarize this? Well,
shorter verbatim Gary Cohn: “The most excited group out there are big CEOs, about our tax plan.”
Still, don’t kid yourself: that Trump pivot to the left is coming any day now.