Analysis by Reporting San Diego
Nov 2, 2017 (San Diego) The Republican Conference has released the tax plan under consideration. These are some of the things that it does, according to the summary from Vox:
- The seven current individual income tax brackets would be consolidated to four: 12 percent (up from the current bottom rate of 10 percent), 25 percent, 35 percent, and 39.6 percent.
- Keeping the 39.6 percent top rate is a huge change from past Republican plans, which have focused heavily on cutting the maximum rate the richest households pay. However, the plan significantly reduces how many people pay the top rate: The threshold for the last bracket would increase from $470,700 for married couples today to $1 million.
- The 35 percent rate would cover some affluent households currently paying a marginal rate of 33 percent, potentially raising their taxes; and the 12 percent bracket would extend into the income range currently covered by the 25 percent bracket, lowering taxes for many middle- and upper-middle-class households.
- The thresholds for brackets will be adjusted according to chained CPI, a slower-growing measure of inflation than normal CPI, which is used currently; this change raises revenue over time by gradually pushing more and more people into higher tax brackets.
- De facto taxes on some corporate executives would go up: Performance pay and commissions above $1 million would no longer be deductible for the purposes of corporate taxes.
It sounds good. In fact, it is presented in such a way that it will help the average middle-class family. It will also raise the standard deduction to $24,000 from $12,000. The child credit goes up to $1600.
What this plan does is also get rid of the Alternative Minimum Tax (AMT) which benefits the top earners. The middle class has never paid the AMT.
This plan will negatively affect Californians, as it caps the mortgage deduction to $500,000 in newly purchased homes. This has led to rapid opposition by home builders. It will affect states with higher taxes, as the standard deduction will be greatly reduced. It is hardly a coincidence these are mostly blue states.
This bill will also eliminate medical deductions from your tax filing. These are critical for many middle and working-class families.
However, it raises the exceptions to the estate and gift taxes. As of 2015, this tax had to be paid on inheritances over $5.43 million. This will double it to over $10 million dollars, and the bill proposes to get rid of it in six years. This is hardly affecting middle-class income families.
There are no offsets to the lower level of taxes that will be raised. The expectation that this will be paid by more economic activity has not happened in the past, so there is no reason to expect this to happen again. Why at one time this was called voodoo economics.
Also, the taxes on businesses, effective tax rates, are among the lowest in advanced economies already. They will go down even further. This will punch a bigger hole in the Federal deficit. This is hardly ever pointed to as talking points. How big? The Joint Committee on Taxation has scored this at $1.51 trillion over ten years.
This will also make it next to impossible to fund the desperately needed infrastructure we need in this country.
This tax plan is a transfer of wealth from the working and middle class to the wealthy. It will also make funding the safety net increasingly difficult to do. It will increase the already high levels of income inequality in the United States.