Your top 4 questions about tax reform, answered
With Republican tax reform dominating headlines, many have unanswered questions about what the overhaul may mean for them and their families.
Lawmakers are pushing to pass the bill in question before Christmas; but if they succeed, how will the measure impact the average American?
Here are four things to know about the GOP's plan and its real-life implications:
1. WILL MIDDLE-CLASS AMERICANS SEE MORE MONEY IN THEIR POCKETS?
President Donald Trump has marketed the Republican party's plan for tax reform as a "Christmas present" to the middle class.
"Big winners will be the middle class," Trump tweeted Oct. 25.
Republicans have also touted benefits to the middle class as one of the bill's main accomplishments.
“I’m excited about the tax bill and what it’s going to bring to middle-class folks and lower middle-class folks, bringing relief,” said Rep. Darin LaHood, R-Ill.
LaHood specifically cited the doubling of the standard deduction, preservation of the mortgage interest deduction, and allowing deduction of property taxes up to $10,000 as provisions that will reduce the tax burden on the middle class.
However, some Democrats and experts argue that this is false advertising; though the vast majority of taxpaying families would receive a cut, under the version of the bill the House originally passed, at least 8 million families earning less than $87,000 annually would have faced an average tax increase of $794, according to an estimate by Democrats on Congress' Joint Economic Committee.
Analyses of the final bill have similarly found the benefits weighted toward the wealthy and corporations, though most middle class taxpayers will see some savings. Also, due to Senate procedural rules, the cuts for individuals would be set to expire in eight years, while the rate reductions for businesses would be permanent.
Democrats predict the shortfall in tax revenue created by the cuts will lead to slashed funding for social programs and entitlement programs that primarily benefit middle and lower-income families. House Speaker Paul Ryan has already spoken about plans to reduce spending on Medicare, Medicaid, and welfare programs in order to rein in deficits.
2. WILL THE REFORM HELP THE ECONOMY?
Lawmakers and experts alike are at odds over how the tax reform plan will benefit the economy.
Though the tax cuts mean that the federal deficit will swell significantly, the reduced regulation could pave the way for dramatic economic growth.
As Trump repeals more and more regulations, the U.S. has witnessed its fastest economic growth since 2014.
Republicans maintain this progress is a sign of confidence in the president's policies; an assurance that will grow should the tax reform bill pass.
“People want certainty and the Trump administration has given them certainty,” Rep. Steve Pearce, R-N.M., said. “That is that we’re going to make you follow the law, we’re going to make sure you follow regulations, but we’re also on your side in the matter.”
He pointed to the hundreds of regulations the White House and Congress have eliminated since January as a catalyst for new investment by companies that held back during the Obama administration.
“If we give the tax breaks in addition to the regulatory reforms that Congress has already passed, I think you’re going to see a dramatic increase in the economy,” he said.
Critics have warned the deficits incurred due to reduced tax revenue will hamper economic growth. Multiple independent analyses from across the ideological spectrum estimated the bill would tack between $400 billion and $1.5 trillion to the national debt over ten years.
The Treasury Department released a one-page statement last week claiming the tax cuts in conjunction with several policy changes that have not yet even been formally proposed will result in an increase in tax revenue, but many economists are skeptical.
3. WHAT ABOUT SALT?
State and local tax deductions -- also known as SALT -- became a major hurdle in the path of tax reform, but most GOP lawmakers appear to now be on the same page.
House Ways and Means Committee Chairman Kevin Brady, R-Texas, said in November that he cannot imagine the bill getting through the House without preserving the property tax deduction. Some Republicans from high-tax states like California and New York were mollified by the $10,000 property tax carve-out, but others have already jumped ship.
California GOP Reps. Dana Rohrabacher and Darrell Issa have announced they plan to vote against the final bill due to these concerns.
“While the Senate could adopt the House’s provision, the Senate would need to identify more base broadeners to satisfy the Byrd Rule,” Nicole Kaeding of the Tax Foundation said. “This is a difficult political choice for leaders of both chambers, but it is just one of many hurdles ahead to secure passage.”
Michael Leachman, director of state fiscal research for the Center on Budget and Policy Priorities, said the difference may be smaller than it seems, since the doubled standard deduction is intended to make the property tax deduction moot for most who currently claim it.
“The way it works is that, for one thing, most taxpayers who are using the property tax deduction now wouldn’t be able to use it anyway,” he said.
The larger problem is that eliminating the state income tax deduction has ramifications for state budgets, and a lower federal tax bill matters little if state taxes go up.
“If you take away the deduction, it makes it harder for states over time to raise the money that they need through the income tax,” Leachman said.
4. WILL IT EVEN PASS?
Yeah, probably. With a hard deadline to pass a must-do spending bill by Friday, Congress faces immense pressure to get tax reform passed.
GOP leaders plan to hold a vote on the measure on Tuesday in both houses.
And after Maine Republican Sen. Susan Collins said Monday she'll vote for the bill, all voting GOP senators are expected to back the measure-- enough to approve the $1.5 trillion package.