New Republican tax plan

On Nov. 2, 2017 the Republican senate released a bill that could change the current tax plan from the Obama era. The 429 page “Tax Cuts and Jobs Act” could be the tax policy for the next 10 years. The bill is spearheaded by House Ways and Means Committee Chair Kevin Brady, House Speaker, Paul Ryan, and Senate Majority Leader, Mitch McConnell.

This bill has specific focus areas including: household tax rates, the standard deduction and child tax credit, state and local tax deductions, tax rates for businesses, and the corporate tax rate.

The Republican tax plan would lower the amount of tax brackets from 7 to 4, with the highest starting at $1 million from $480,050. The new brackets, at 12, 25, 35, and 39.6 percent, lower overall household taxes by combining the old brackets. While the lowest bracket would increase for low income families from 10 to 12 percent, the child tax credit would also increase, which is designed to help negate problems arising from it.

In the “Tax Cuts and Jobs Act”, the child tax credit increases from $1,000 to $1,600. The child tax credit is a credit that gives parents a certain dollar amount for each child they have under 17 years of age. The standard deduction, on the other hand, lowers for married couples with 2 children, while increasing for individuals and couples without kids. The average family with children will lose out an average $4,900 every year.

Another thing that this bill changes is the deduction for state and local taxes. Under this new regulation, people in mostly blue states will be able to deduct less from their federal taxes. The state and local tax deduction is in place in states like New York, New Jersey, and California because the states fund more things in the state than the federal government. This is bad for people in blue states because they end up paying even more in taxes. This won’t affect people in red states as much, where taxes tend to be lower.

Sole proprietorships, partnerships, and S corporations, commonly referred to as “pass-through” businesses, have a new taxing system as well.  Under the new bill there is a flat tax of 25 percent on these businesses, whereas before they paid the same tax rates as their owners. These “pass-through” businesses make up about 95 percent of all business, and they make up a large portion of the federal corporate tax revenue.

Corporations would also have a lower tax rate under the “Tax Cuts and Jobs Act”. Their rate drops from the 35 percent it was to 20 percent. Most corporate business deductions and credits will be removed, with the exception of research and development and low income housing.

Economic Policy Experts from The Tax Policy Center say this bill will not increase economic growth as President Donald Trump promised, and instead this bill will reduce federal income by $2.4 trillion in the next decade. Economic growth is projected for the first couple years, but it will more than likely slow down after that, and an increase to the federal deficit would reduce any progress previously made.

William Gale of The Tax Policy Center said that Presidents Trump’s attempts to revive the Reagan Tax Cuts of 1981 will not work. Trump says that the 1981 cuts, “unleashed the economic miracle of the 1980s” and promised his cuts would do the same. Gale says that Trump should reconsider those statements.

Overall experts say that this new bill would have negative economic effects in the long run. With an increase in the national deficit, less money in the middle class, and higher taxes in blue states.