On November 16, the House of Representatives passed the Tax Cuts and Jobs Act, set to enact $1.5 trillion in tax cuts. The bill was approved two weeks after it was unveiled despite objections by Democrats and even some Republicans. In the Senate, at the time of this writing, Republicans are quickly working towards voting on their own tax plan, which, although similar, differs from that of the House in several core aspects.
The House plan collapses the seven current federal income tax brackets to four: 12 percent, 25 percent, 35 percent, and 39.6 percent for millionaires. House Republicans claim that this decrease in the number of tax brackets contributes to their objective of simplifying tax code.
Wealthy Americans will benefit from the implementation of the House plan, according to The Guardian. Most notably, the law would see massive changes to the estate tax, a law taxing the estates of individuals who leave a fortune of or greater than $5.49 million dollars to their heirs. The House bill doubles this minimum amount until 2024, allowing people to bequeath a fortune of up to $11 million without the heirs’ paying any taxes on the money, and then completely eliminates the estate tax over the next decade, at a projected cost of $151 billion in that time. Steven Mnuchin, Trump’s treasury secretary, stated that “obviously, the estate tax, I will concede, disproportionately helps rich people.”
Mnuchin stated the estate tax is less of an economic issue and more of a philosophical issue. “People pay taxes once. Why should people have to pay taxes again when they die?” he told Politico in October.
Legislative opposition from the left has strongly condemned the tax plan, arguing that the plan would exacerbate the income divide. “At a time of massive wealth and income inequality, Trump’s tax plan is morally repugnant and bad economic policy,” Senator Bernie Sanders said in a statement.
The House tax plan also eliminates the alternative minimum tax (AMT). The AMT was created in 1969 to prevent taxpayers from evading fair tax payment through various tax loopholes. According to Donald Trump’s leaked 2005 tax return documents, the AMT law was responsible for increasing the amount President Trump paid in federal taxes from $5.3 million to $36.5 million on an income of over $150 million. According to the Tax Policy Center, the AMT law mainly affects people with incomes of over $500,000.
“[The tax plan is] going to be a job creator like we haven’t seen since Ronald Reagan,” President Trump stated. “It’s going to be a beautiful thing to watch. Companies will come. They will build. They will expand. New companies will start. And I look very, very much forward to doing it.”
However, this stance is disputed. According to the Economic Policy Institute, economic growth over the past sixty years has, instead, been consistent with higher tax rates. Corporate taxes also create significant revenue for the federal government (nearly 10 percent of total federal revenue in 2012).
After four days of debate, the Senate Finance Committee approved of a draft of their tax plan, 14 to 12. Analysts state that the Senate’s plan will significantly raise taxes on low-income Americans over the next several years. The proposed Senate bill also eliminates the individual mandate, a requirement for all American citizens to purchase health insurance in exchange for a tax rebate. Repealing this piece of legislation would leave 13 million people without health insurance, according to The Guardian.
The repeal of the individual mandate will likely be accomplished through cuts to social security and Medicare, according to The Hill. The Republican tax bill will also likely trigger over $136 billion worth of cuts from mandatory spending (legally mandated money for government-funded health-related programs) over the next year, including $25 billion from Medicare, the federal program providing people 65 and older with health insurance. These cuts would be triggered by the Pay As You Go or PAYGO Congressional law put into effect in 1990, which dictates that the White House Office of Management and Budget cut mandatory spending automatically if passed legislation exceeds the established budget by a certain amount.
The Senate tax plan will also likely add $2.2 trillion to the United States’ already immense debt, according to the Committee for a Responsible Federal Budget (CRFB), resulting in the country’s debt exceeding the size of its economy by 2028. The House has projected that the Tax Cuts and Jobs Act will cost $1.41 trillion overall, but CRFB analysts state that the calculated cost does not account for $515 billion in interest costs and other “gimmicks,” which mainly derive from the sudden expiration dates of major parts of the bill. The gimmicks and furtively masked additional costs will also likely cost the federal government trillions of dollars in the long term. Including gimmicks, the cost of the bill adds to $1.9 trillion, according to CRFB, and the initial interest of $280 billion on the bill and interest costs of $25 billion for gimmicks would add to a total of $2.2 trillion. According to The Washington Post, a potential addition of $2.2 trillion to national debt would lead to higher trade deficits, and further reasons to offshore jobs and production.
Once the House and Senate both pass a bill, representatives from each body will work on merging the legislation to resolve any differences between the proposals. Because this bill’s debate will occur on staunch partisan lines, any Republican tax bill that passes will likely do so with no Democratic votes.