Yesterday, the House passed its Republican tax plan, while the Senate’s Finance Committee today cleared their version of a tax bill to be looked at by the full Senate. That doesn’t mean the GOP’s tax plan is a done deal, since the House and Senate bills are very different and will have to be reconciled. But this is the one piece of legislation that the GOP is hopeful it can pass during this session. Yet it’s also one with a clear winner and a clear loser. The clear winner? The very rich. The clear loser? Pretty much everybody else.
Here are the biggest goodies the very rich get, under the House plan:
- A big business tax cut: Currently, corporations are supposed to pay a 35% corporate tax. Both bills would reduce that rate to 20%. Keep in mind, currently the effective tax rate, that is, what companies actually pay once it all comes out in the wash, is about 18%. The GOP’s argument is that it will benefit small businesses, which is true. But it’ll also hike the deficit by $1.4 trillion.
- A repeal of the estate tax by 2024: In other words, the very rich can pass on all their money to their kids, like Donald Trump Jr. and Jared Kushner. In the meantime, the deduction will be doubled.
- “Pass-through” income gets a tax cut: To explain, the vast majority of business in the U.S. are built so that their income “passes through” a private individual’s hands, and thus is subject to personal tax law, not corporate tax law. In other words, the people who are already avoiding some taxes get to avoid these taxes even harder. Also … those who believed that the rich pay personal taxes may be surprised.
- A host of other tax loopholes, like for private jets and golf courses: Yes, the Senate wants to make it easier to own a private jet and a tax loophole for golf course owners is preserved. And the children of the rich will get a less espensive ride at private schools.
Here’s what you’ll lose to pay for all this:
- Pretty much the entire concept of itemized deductions. People are most angry that the GOP wants to limit what you can deduct from state and local taxes from your federal return, but that’s not even the worst of it. You won’t be able to deduct medical account contributions or alimony payments. Small business will no longer be able to deduct the cost of making their businesses accessible to people of all levels of ability, which is required under the law. Graduate students will see their income taxes quadruple. Businesses won’t be able to deduct what they pay to get their employees parking. Even how inflation is measured will be less generous.
- It will repeal the individual mandate under the Affordable Care Act. In other words, de facto, if you get sick, you have to pay more to be sick. Oh, and it will also cut Medicare by $25 billion by 2018.
- You’ll have to do more paperwork to get your deductions. The whole pitch of this is to “simplify” your taxes. But the devil is in the details. Much of the GOP’s plan reflects other priorities. So, for example, to get the child tax credit they’re expanding, you have to prove your child has a real Social Security number. In order to get other tax credits, you’ll need to prove you have a real Social Security number. Contrary to what Paul Ryan is talking about, you’re never going to be able to fit your taxes onto a postcard. It will also, thanks to changes in credits and deductions, make it harder to do everything to buy a house to adopt a child.
- Anything the rest of us get also benefits the rich. For example, the standard deduction will be doubled, but that applies to everybody. And, as we’ve already laid out, those increases quickly get wiped out by the loss of deductions.
The big question you’re probably asking is, why is the GOP doing this? Their argument is that more wealth at the top will flow down to the rest of us, offsetting the tax increases with higher wages, expanding businesses, and the like. But that’s already been put to the test. The GOP tax plan is extremely similar to what Sam Brownback passed in Kansas, and Brownback’s tax law was a disaster that the state’s GOP is rapidly disassembling as a failed experiment.
It’s not clear any tax reform bill will pass. The Senate’s bill is far more contentious and can afford to lose just one vote: Ironically, Ron Johnson is opposed to the bill because it doesn’t benefit the rich enough. Even if the Senate does manage to pass a bill, it will still need to be reconciled with the House’s bill. In other words, they need to pass something that both the House and Senate finds palatable, which may be tricky. And then the final version needs to arrive on Trump’s desk for him to sign, also not a given considering the bill is essentially a giant financial gift to Trump himself.
The plans also may fall afoul of the process the GOP is using to pass them without Democratic votes, to boot. But no matter how you slice it, the GOP tax plan is unlikely to help your wallet.