In the predawn dark of this first Saturday of December, the Senate passed their version of the tax bill. Here’s what you need to know about it.
H.R.1 – the so-called “Tax Cuts and Jobs Act”…
- Cuts the tax rate for corporations from 35% to 20%, beginning in 2019
- Reduces the highest-bracket tax rate from 39.6 percent to 38.5 percent and raises the threshold at which this bracket begins—from $418,000 to $480,000 for a single person and from $500,000 to a full $1,000,000 for married folk filing jointly
- Allows oil and gas drilling in the Arctic National Wildlife Refuge
- Allows parents to use 529 plans (tax-free college savings accounts) to pay for tuition at private and religious K-12 schools—up to $10,000 a year.
- Discusses, in the same section about tax benefits for private-school goers, the “TREATMENT OF UNBORN CHILDREN.”: “Nothing shall prevent an unborn child from being treated as a designated beneficiary or an individual under this section….For purposes of this paragraph—(i) IN GENERAL.—The term ‘unborn child’ means a child in utero. (ii) CHILD IN UTERO.—The term ‘child in utero’ means a member of the species homo sapiens, at any stage of development, who is carried in the womb.” As Slate writer Christina Cauterucci explains, “whenever Republicans have given fetuses rights in the past, it has only served as an excuse to punish the women who carry them.”
- Further woos the evangelical right by repealing the Johnson Amendment—this means that churches can now endorse or oppose political candidates. So much for the separation of church and state.
- Reduces state and local income tax deductions. This disproportionately hurts those living in blue states, where state and local taxes tend to be higher. Because constituents in these states can no longer deduct their state and local taxes, moreover, they will likely demand cuts at the state level, which will eventually limit government services in these states and reduce funding for public schools. (And, yes, rich parents sending their kids to private schools are meanwhile getting a $10,000-a-year tax break.)
- Taxes university endowments, which have always been tax-exempt and are the main source of scholarship funds for low-income and minority students.
- Expands the child tax credit by $1000, but not for those low-income families who do not end up owing any federal income taxes. Their credit will remain what it was before. As Forbes writer Tony Nitti puts it, “someone making minimum wage with two kids won’t benefit at all from the additional $1,000 child tax credit, but someone making $495,000 with two kids will. What a world.”
- Repeals the penalty for those who do not buy health insurance, eliminating the individual insurance mandate. Again, in the words of Tony Nitti: “…while not paying a penalty sounds like a good thing, by eliminating the financial penalty for not carrying insurance, millions of young, healthy individuals are expected to flee the insurance markets, raising premiums on those who remain behind.”
- Doubles the standard deduction but eliminates personal exemptions as well as most itemized deductions for individuals, including deductions for casualty-loss expenses, unreimbursed employee expenses, home office expenses, tax preparation expenses, etc. This hurts middle class folks as well as freelancers and small business owners.
- Allows businesses to completely expense any new equipment, but only for the next five years–then this benefit will be phased out.
- Reduces the highest tax bracket for pass-through entities from 39.6% to less than 30%, and allows pass-through owners to deduct 23% of their income when calculating their tax bracket. (Most United States businesses are set up as pass-throughs, meaning that rather than the business as an entity paying taxes on profits, those profits pass through to owners and shareholders, who pay taxes on them on their individual returns. The Trump Organization, for example, is a pass-through. Ahem.)
- Doubles exemption from estate taxes—to a whopping $11 million for individuals taxpayer and $22 million for married taxpayers filing jointly
- Helps the rich more than anyone else. The Atlantic notes, “The Tax Policy Center has found that the biggest benefits would go to families in the top 5 percent as of 2019, with the smallest benefits going to those in the lowest income quartile.”
- Helps Trump himself. Again, from The Atlantic: “Trump stands to benefit to the tune of hundreds of millions, if not billions, of dollars, according to tax analysts”
In case you need further proof that this bill is not focused on the middle class, The New York Times has created a tool to help you determine how people in your income bracket will be impacted. For example, while 38% folks making $10-20K a year will receive a tax cut in 2019, by 2027 only 3% will have such luck, and 23% will face significant tax increases. That is in part because all the tax cuts for individuals will expire at the close of 2025. Those for corporations, however, will stay in place. Because everyone knows that corporations deserve more security than measly individuals! Meanwhile, many middle class folks will experience an immediate increase in taxes in 2019 as a result of lost deductions. Oh, and while we’re on the subject of myths, the Joint Committee on Taxation noted that this bill, rather than pay for itself, will add $1 trillion to the deficit over the next decade, even when you consider the potential growth and revenue generated.
One glimmer of good news is that the Senate plan leaves the income tax exemption for tuition waivers in place—ergo grad school still remains a feasible option, even if you are not independently wealthy.
Note: With the Alabama special election right around the corner on December 12th, Republicans don’t want to risk having one more Democratic senator to contend with as the congressional conference committee works to reconcile differences between the Senate and House versions of the bill. This step of the process, then, is likely to move very fast. Take a moment to call your representatives now.
1. Ask your Representative to oppose the bill (adapted from Jen Hofmann’s Americans of Conscience Action Checklist)
- Call: Your 1 House Rep (look up)
- Script for red Reps: “Hi. I’m a constituent calling to strongly oppose the Republican tax plan which hurts low- and average-income Americans while helping the richest. Not only is it ill-conceived, I am angry that my tax dollar is paying for Rep. [name] to cater to his/her donors while shirking his/her obligation to observe regular order. S/he needs to show respect for the taxpayers who fund his/her salary. My future vote depends on Rep. [name] voting against this slapdash bill, should it go to a vote, and returning to regular order. If the bill goes to conference and Rep [name] is appointed to the committee to reconcile the bill, I hope he/she will at the very least work to [what you hope to see in the final version created by the conference committee—“keep the income tax exemption for tuition waivers in place”, “reinstate the individual insurance mandate”, “reinstate state and local income tax deductions”, etc.] Thank you.”
- Script for blue Reps: “Hi. I’m calling from [ZIP], and already know that Rep. [name] opposes the Republican tax plan–as do I. However, I am angry that my tax dollar is paying for Rep. [name]’s salary in Congress while s/he is tolerating Republicans’ refusal to observe regular order. I will count on Rep. [name]’s vote against this inhumane bill should it go to a vote. However, I also want Democrats to stop being doormats and get a spine. What will Rep. [name] do to restore regular order in Congress?”
2. Give constructive feedback to your Senators
- Call: Both of your Senators (look up)
- For those who voted against the bill (all Democrats + Bob Corker of TN), say thank you!
- For those who voted for the bill (all Republicans except for Bob Corker), express your disappointment and give specific reasons why you are dismayed (choose the issues most important to you from the list above). Mention what you hope to see in the final version created by the conference committee (for the income tax exemption for tuition waivers to remain in place, for the individual insurance mandate to be reinstated, for the Arctic National Wildlife Refuge not to be opened to drilling, etc.)