After a year of legislative inertia, Republicans need to show voters bold reform. On Thursday, after months of rumors, conjecture and delays, Congressional Republicans unveiled what turned out to be a rather milquetoast tax plan. It has some positives, but ultimately falls far short of campaign promises to simplify the tax code.
In what might prove to be a fatal blow for the bill, it’s just as difficult to calculate your tax burden under the new plan as it was with the old, so voters will have to rely on analysis by policy experts, or on the words of politicians. Republicans are claiming the bill will save the average family of four $1,182 on their yearly federal income tax bill. Republicans are also saying the bill will grow the economy and stimulate wage and job growth because it slashes corporate income taxes.
Democrats reached for their standard go-to line and immediately attacked the plan, claiming it mostly benefits the wealthy. “The American people deserve real, bipartisan tax reform that puts the middle class first,” Nancy Pelosi (D-Calif.) said. “This Republican plan doesn’t do any of that. In fact, it’s a giveaway to corporations and the wealthiest.”
In a variation on the “GOP only cares about rich people” talking point, Senate Democrats claimed Thursday that the plan raises taxes on the middle class. “On average, middle class families earning less than $86,000 would see a tax increase under the Republican ‘tax reform’ plan,” wrote Sen. Kamala Harris (D-Calif.) Sen. Robert Casey (D-Pa.) tweeted: “The average tax increase on families nationwide earning up to $86,100 would be $794.00.” Several others repeated this claim. The Washington Post rated the claim as false and gave it four Pinnochios. Apparently it came from a report put out by Democrats on the Joint Economic Committee that said, “If enacted, the Republican tax reform proposal would saddle 8 million households that earn up to $86,100 with an average tax increase of $794 — a substantial expense for working families.” The fact that this applied to just 8 million households in that salary range — and not all — appeared to get lost in translation as the factoid was communicated down the line.
Although the Democrat Senators were wrong, they have stumbled upon a pretty significant problem with the GOP plan. It’s difficult for the average person to calculate their tax burden now, and this plan does not make that process easier. The plan eliminates several deductions, including those for student loan interest, medical expenses, and state and local taxes. Even though 70 percent of taxpayers forego deductions, it’s tough to sell this as a benefit to people who were using those deductions — even if it does result in streamlining the process.
There are some good points in the bill, including cutting the corporate tax rate to 20 percent. The U.S. has the highest corporate tax rate in the world at 39.1 percent. In order to reduce their tax burden, many U.S. companies have headquartered in other countries, a move called corporate inversion. A reduction in the corporate rate would help stem the tide of companies evading U.S. taxes, thereby raising tax revenue and GDP.
The GOP plan doubles the standard deduction rate, and increases the child tax credit to $1,600, which should help low and middle income Americans.
Over a period of six years, the plan phases out the “death tax,” allowing families to keep inheritances. This is the most salient portion of the plan that fits the Democrat talking point of benefiting the rich. On the other hand, the plan also caps new home mortgage interest rates at $500,000 and eliminates deductions for second homes. It also streamlines the tax income brackets from the current seven to four.
Rather than the drastic, simple tax code that was promised, this plan tinkers around the edges of current policy, creating different winners and losers. Even if this saves the average voter a few hundred dollars, it hardly seems worthy of Congress’ singular legislative achievement, and the GOP will face an uphill battle selling a year’s worth of inertia with difficult and convoluted tax policy.