Sneaky, Damaging Provisions in a Confusing Tax Bill

It’s been a week since House Republicans released their grand plan to reform the American tax code, and the frenzied analysis of the bill’s 425 pages of changes is pretty much complete. We can now read the highlights of the bill in a short New York Times article, but a cursory analysis could miss some of its most important, and potentially most damaging, provisions. 

As a quick overview, the bill will cost the federal government $1.5 trillion over the next 10 years. The majority of that—about $1 trillion—will be in tax cuts for corporations, mostly from slashing the corporate tax rate nearly from 35 percent to 20 percent. The other $500 billion will be in tax breaks for American families, seemingly across the socioeconomic spectrum, though it’s not totally clear. 

While drawing up the bill, Republicans came up with $2 trillion worth of tax cuts, but decided to cut net costs to $1.5 trillion to appeal to deficit-hawks in the party, among other reasons. To find that $500 billion, Republicans searched far and wide to cap or eiliminate deductions. This search for revenue created some of the most damaging, though less publicized, provisions of the bill—and one good piece of policy. Through all of the noise around the bill, it is important that voters pay attention to its sneakier provisions in order to hold their representatives accountable for their actions. 

One of Republicans’ talking points in selling the bill is that it expands the child tax credit from $1,000 to $1,600, which will help all families with children, particularly poor families for whom $600 might make a big difference. This, at face value, seems wholly positive.  But the provision also changes the paperwork required to claim the deduction in a way that will prevent as many as 3 million children of immigrants, 80 percent of whom were born in the US, from being claimed as dependents on their parents’ taxes. It does this by requiring a “work-eligible social security number” instead of just a taxpayer ID. 

House Republicans also scrapped some lesser known tax deductions, in an attempt to find revenue sources that the fewest number of people would protest losing. The plan eliminates a tax credit available to people whose medical bills exceed 10 percent of their income, which is claimed by 8.8 million people and costs the federal government $87 billion.  Of those that make use of this credit, more than 70 percent make $75,000 per year or less. This means that poor and middle class Americans with serious health problems will have to pay even more for their already excessively expensive medical treatment. 

It also gets rid of the adoption tax credit, which is pretty random, and in some ways antithetical to the pro-life views of the Republican party. The tax credit was $13,750 in 2017, and eliminating it will almost certainly disincentivize adoption in a serious way.  This will likely lead to a higher abortion rate, as putting a baby up for adoption is an alternative to abortion for parents that are unable or unwilling to raise a child. 

And, most relevant to students at CC, the bill gets rid of deductions for student loan interest payments. The deduction allows students to deduct up to $2,500 in taxable income to offset interest paid on their student loans. It is not a huge program, but for that reason it almost feels particularly cruel—eliminating it will save the federal government a measly $2.4 billion per year. 

Republicans did manage to, in their frenzied search for revenue, get one thing right.  Their plan caps the mortgage interest deduction (MID) at $500,000, instead of $1,000,000, which is what it is currently. The mortgage interest deduction makes, as one might expect, mortgage interest payments tax deductible. The provision costs the federal government over $70 billion annually, of which more than 80 percent goes to families making more than $100,000 per year.  The MID is welfare for the rich, and capping it is a step in the right direction. With that said, capping it in order to pay for a massive corporate tax cut isn’t really a step in the right direction at all, but we’ll take what we can get. 

Overall, the Republican tax plan is bad policy.  Unless the U.S. economy outperforms most economists’ predictions, it will add massively to the federal debt, without providing many tangible benefits to poor or middle class Americans.

But the bill will likely go through many changes before it comes time to vote. it is incumbent upon us to pay attention to the minutiae of the bill, because those lesser-talked about provisions could have real, lasting impacts on our lives.

Comments

comments

Leave a Reply

Your email address will not be published. Required fields are marked *