This week, House Republicans finally unveiled their tax cut package after months of stating vague principles, squabbling over details, and even delaying its release by a day. Even though the plan offered more information than Republicans had been willing to cough up previously, many families still likely have very little idea of whether they’ll be helped or hurt by the plan. That is, unless they’re rich.
Even without a full expert markup, it’s clear that low-income families get basically no relief at all in what Republicans propose. The rich, though, can rest assured that their tax bills would shrink if this grab bag were to become law.
Before the legislation was unveiled, Republicans and their critics had been trading volleys about whether their plan would keep the current system’s basic progressivity: levying more taxes on the wealthy, and offering more relief to those further down the income ladder. President Donald Trump promised that his tax plan wouldn’t help the rich “at all,” although Treasury Secretary Steve Mnuchin admitted that Republicans were finding it hard to not cut taxes for the well-off.
Much of the GOP’s potential defense rested on how much they would expand the Child Tax Credit. The current credit, which is claimed by low- and middle-income parents, is worth up to $1,000 per child. But families who make less than $3,000 a year can’t claim it at all, and those who do earn above that cutoff don’t always get the full amount. Instead, families who make less than $16,330 get just a partial credit. All of this makes the CTC ripe for expansion and reform, an idea with support from people in both parties.
But House Republicans want to increase the value of the credit to $1,600, far less than what their colleagues in the Senate, Marco Rubio and Mike Lee, have called for. Worse, the extra $600 is nonrefundable at first. Families who don’t owe federal income taxes because they make so little can’t get anything out of a nonrefundable credit, since it only counts to lower an existing tax bill. About 35 percent of taxpayers find themselves in this situation, so they’d have to wait until the extra money is gradually made fully refundable to get anything from it. That could be 21 years from now. Meanwhile, families earning less than $3,000 a year would still be shut out.
The plan also changes eligibility for the tax credit by requiring parents to have a Social Security number, not just a taxpayer ID, which would hurt many immigrants. The Center on Budget and Policy Priorities predicts that this would make about three million children newly ineligible, 80 percent of whom were born here.
House Republicans offered up a new $300 credit per each parent in a family, as well as for any dependents who aren’t children such as aging relatives. That could be a nice boost, handing those in the middle and the bottom a little more cash. Except that it just vanishes after five years. Thus the plan looks like it could give lower-income Americans a good deal, so long as you only focus on the near term.
The plan also repeals the personal exemption, which currently allows families to deduct $4,050 per person from their overall tax bill, taking away a big benefit. The expanded Child Tax Credit, as well as nearly doubling the standard deduction that 70 percent of Americans use to reduce their tax bills, is meant to help make up for such a painful change.
But those provisions only go so far. As New York University School of Law professor Lily Batchelder pointed out on Twitter, under the Republican plan, two married people with full-time minimum wage jobs raising two children get no additional benefit. Neither does a married couple that’s retired and living off less than $20,000 a year. Passing the tax package would do nothing for these families.
Meanwhile, the phase-out of the new $300 dependent credit neatly coincides with a big benefit for the ultra-rich. Currently, just the wealthiest 0.2 percent of estates pay any taxes when handing money down to their heirs; the Center on Budget and Policy Priorities calls the estate tax “the most progressive part of the tax code.”
But the Republican proposal would start raising the dollar amount at which families are subject to the estate tax, letting more and more escape it, until finally scrapping it altogether six years later. That represents a $20 million benefit for the 330 estates worth more than $50 million in this country. A year after the plan takes back a hundred-dollar credit for poorer families, it makes permanent a million-dollar giveaway to rich ones.
Other goodies for the wealthy also stay forever. They get the elimination of the Alternative Minimum Tax, which ensures the rich can’t completely game away their tax bill. They get a lower pass-through tax rate on businesses like law firms and real estate brokerages that, even with some guidelines in place, opens up a huge loophole for those with creative accountants. Corporations get the biggest reduction in their tax rate ever, which they keep in perpetuity.
Even the conservative Tax Foundation, which predicts a modest boost for most families after tax reform, acknowledges a much bigger benefit for people making $1 million or more.
And the tax changes aren’t the end of the story. The tax plan is estimated to cost $1.5 trillion. Once the deficit starts to bloat, some in the Republican Party are likely to start agitating for spending cuts to bring the budget back in line. If and when that happens, programs that the lowest-income Americans rely on will be first on the chopping block. The CBPP predicts that this will all end up leaving most children, people who rely on food assistance, and the elderly worse off. For them, the bargain of cutting taxes and then cutting spending is one that they will lose.
Nothing is yet set in stone. The tax package now heads to the Senate, where it will face some lawmakers who are skeptical of a number of provisions. Some business groups are already aligning themselves against this legislation. Everything could be up for debate all over again.
But the overall message House Republicans sent is crystal clear. This tax package is not about helping those who need it the most. It’s about significantly lowering taxes on the rich and offering a few crumbs to everyone else.