The final legislative text of the federal tax bill was released Friday, December 15th. The U.S. House and Senate both passed this bill on Tuesday, December 19th, with the House voting again on Wednesday, December 20th to fix procedural errors. It is headed to President Trump’s desk before the end of the week.
All in all, it is nothing more than an expensive giveaway to major corporations and wealthy households that offers little or nothing to most families and ultimately hurts many. It is no surprise that this is the most unpopular tax legislation in three decades.
Here is what the winners – the super wealthy and corporations – get this holiday season:
- Permanent corporate tax cuts. The biggest tax cut in the bill is the reduction in the corporate income tax rate from 35 percent to 21 percent. The corporate tax cut will mainly benefit those who own shares in American corporations. While some middle-income people own shares, high-income Americans and foreign investors own most. This is the largest one-time rate cut in U.S. history for the nation’s largest companies.
- Reduction in the top personal income tax rate. The final plan lowers the top tax rate for top earners. Under current law, the highest rate is 39.6 percent for married couples earning over $470,700. The GOP bill would drop that to 37 percent and raise the threshold at which that top rate kicks in, to $500,000 for individuals and $600,000 for married couples. This amounts to a significant tax break for the very wealthy, a departure from repeated claims by Trump and his top officials that the bill would not benefit the rich.
- Estate tax. Another break that favors the wealthy is the bill’s provision to double the amount of assets that can be left to heirs without triggering the estate tax from $11 million for a married couple to $22 million. Under current law only 0.2 percent of estates are taxed, which means reducing the estate tax can only benefit the very wealthiest families.
- Pass-through business benefits. The bill includes a 20 percent deduction, with certain limits, for income from pass-through businesses, which are businesses with profits subject to the personal income tax instead of the corporate income tax. Most pass-through income flows to the richest one percent of Americans.
- No corporate Alternative Minimum Tax (AMT): The final GOP bill gets rid of the corporate AMT, a big relief to the business community. This is a separate tax calculation, used to make sure that businesses are forced to pay at least a base level of federal taxes and can’t totally avoid taxes by taking various deductions and credits.
Here is what the losers – the rest of us – get:
- Temporary tax relief with tax hikes down the road. While corporations are gifted permanent tax breaks as outlined above, the rest of us will see our taxes increase in 2027. Eighteen percent of taxpayers who earn less than $69,860 annually will see a tax hike in ten years from now. The tax plan would go into effect in 2018 but the provisions directly affecting families and individuals would all expire after 2025, with the exception of one provision that would raise their taxes.
- Token increase in the Child Tax Credit. The last-minute changes to the Child Tax Credit (CTC) in the final tax bill do not change the fundamental fact: low-income working families still would largely miss out on the full CTC increase from the current $1,000 per child to $2,000.
- An imploding individual health insurance market. The health insurance market is almost certain to implode next year, and rates are likely to skyrocket for many, because of the repeal of the individual mandate. The Congressional Budget Office estimates that this change alone will lead to 13 million more uninsured Americans a decade from now.
- Getting deeper into debt. The final bill costs $1.46 trillion, and there is no realistic scenario in which these tax cuts generate enough economic growth to pay for themselves.
- Cuts to programs that help families of limited means afford food, housing, health care, and other basic needs. It’s increasingly clear that the tax bill is the first step of a likely two-step plan: pass costly tax cuts for the wealthy and corporations that drive up deficits by $1.4 trillion, then use higher deficits to justify calls for program cuts mainly affecting low- and middle-income families. On the heels of a tax bill that is a giveaway to the wealthy at the expense of everyone else, this would be a one-two punch for working families, children, seniors and people with disabilities.