This week the Explainer is looking at the Republican Tax plan: what it is, how it may be passed and possible effects.
From the beginning, it’s important to state that the plan seems very unlikely to pass without some significant changes. The documents that are out now have left many senators, most democratic and a handful of republican, opposing the bill.
The standard deduction, basically the amount of your income you can set aside from any taxes, is proposed to be almost doubled; $24,000 for married couples and $12,000 for individuals.
Because of raises to the standard deductions, and some new expansion around child tax credits that won’t apply to most students, personal exemptions are being eliminated. These allowed you to claim more untaxable income based on the number of people existing within the same financial base.
The biggest change proposed is a shrinking of the tax brackets from seven down to three. In the new system, there would be 12, 25, and 35 percent brackets. The exact income ranges for each bracket have not yet been announced, but this would be the base amount owed out of your yearly income depending on the amount you made.
A caveat here; the legislation does provide for a fourth, unannounced tax rate that has not been revealed. Many speculate this would be a higher rate to help the tax plan maintain at least some semblance of balance with the current status quo, but there hasn’t been any evidence of that yet.
Besides these two, there are a number of very large changes coming to corporate tax law, but virtually none of those will apply to students.
All told, these changes look to lower every American’s taxes in the short run. In the chart accompanying this piece you will find the projected savings by Americans as done by the Tax Policy Center. It shows the significant cuts for the highest portion of earners, and an actual increase in taxes for the relatively small upper middle class by 2027.
All together, the changes have one significant problem that push it from a likely pass to a likely fail as it begins circulating around Congress, it drastically increases the deficit. Altogether, the plan would cost $2.4 trillion in revenue over the next ten years.
While Trump administration spokespeople have claimed the massive cost will be recouped by subsequent economic growth, there is little evidence of such tax cuts generating quite that amount in the past.
Now, legislators are waiting on a report from the Joint Committee on Taxations report to find out just how much economic growth may offset the cost as they dynamically score the bill.
Until then, the lack of clarity on a number of proposals has led to a few key senators to back away, such as Rand Paul.
In any other session, normal process would see the many murky points of the legislation clarified and rehashed throughout the congressional process, but that normal mode of operating has been disheveled in recent months.
Between petty spats and significant issues, the tax reform bill has a long way to go, but the longer it takes the better it might turn out.