The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, , is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs Act (TCJA),
that amended the
Internal Revenue Code of 1986
The Internal Revenue Code (IRC), formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 ...
. Major elements of the changes include reducing tax rates for businesses and individuals, increasing the
standard deduction and family tax credits, eliminating
personal exemptions and making it less beneficial to itemize deductions, limiting
deductions for state and local income taxes and property taxes, further limiting the mortgage interest deduction, reducing the
alternative minimum tax
The alternative minimum tax (AMT) is a tax imposed by the United States federal government in addition to the regular income tax for certain individuals, estates, and trusts. As of tax year 2018, the AMT raises about $5.2 billion, or 0.4% of all ...
for individuals and eliminating it for corporations, doubling the estate tax exemption, and cancelling the penalty enforcing individual mandate of the
Affordable Care Act
The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by Presid ...
(ACA).
The Act is based on tax reform advocated by congressional
Republicans and the
Trump administration
Donald Trump's tenure as the List of presidents of the United States, 45th president of the United States began with Inauguration of Donald Trump, his inauguration on January 20, 2017, and ended on January 20, 2021. Trump, a Republican Party ...
. The nonpartisan
Congressional Budget Office
The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.
Inspired by California's Legislative Analyst's Office that manages ...
(CBO) reported that under the Act individuals and
pass-through entities
A flow-through entity (FTE) is a legal entity where income "flows through" to investors or owners; that is, the income of the entity is treated as the income of the investors or owners. Flow-through entities are also known as pass-through entities ...
like partnerships and
S corporations would receive about $1.125 trillion in net benefits (i.e. net tax cuts offset by reduced healthcare subsidies) over 10 years, while
corporations
A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
would receive around $320billion in benefits. The CBO estimated that implementing the Act would add an estimated $2.289
trillion
''Trillion'' is a number with two distinct definitions:
* 1,000,000,000,000, i.e. one million million, or (ten to the twelfth power), as defined on the short scale. This is now the meaning in both American and British English.
* 1,000,000,000,0 ...
to the
national debt over ten years,
or about $1.891trillion after taking into account
macroeconomic feedback effects, in addition to the $9.8trillion increase forecast under the current policy
baseline and existing $20trillion national debt.
Many tax cut provisions, especially income tax cuts, will expire in 2025, and starting in 2021 will increase over time; by 2027 this would affect an estimated 65% of the population and in that same year the law's provisions are set to be fully enacted, but the corporate tax cuts are permanent. The Senate was able to pass the bill with only 51 votes, without the need to defeat a
filibuster
A filibuster is a political procedure in which one or more members of a legislative body prolong debate on proposed legislation so as to delay or entirely prevent decision. It is sometimes referred to as "talking a bill to death" or "talking out ...
, under the
budget reconciliation process.
The House passed the penultimate version of the bill on December 19, 2017. The Senate passed the final bill, 51–48, on December 20, 2017. On the same day, a re-vote was held in the House for procedural reasons; the bill passed, 224–201. The bill was signed into law by President
Donald Trump
Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who served as the 45th president of the United States from 2017 to 2021.
Trump graduated from the Wharton School of the University of Pe ...
on December 22, 2017. Most of the changes introduced by the bill went into effect on January 1, 2018, and did not affect 2017 taxes.
Supporters argued that the law would increase
GDP
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
growth, increase levels of business investment, increase wage and salary income for households, that the tax cuts would pay for themselves, and that the law would simplify tax codes.
Opponents argued that the law would result in adverse impacts, including a higher budget deficit,
higher trade deficit,
greater income inequality,
and lower healthcare coverage and higher healthcare costs,
and a disproportionate impact on certain states and professions. Critics also argued that advocates misrepresented the law.
Some of the reforms enacted by the Republicans have become controversial within key states, particularly the $10,000 cap on state and local tax deductibility, and were challenged in federal court before being upheld.
According to an aggregation of polls from
Real Clear Politics
RealClearPolitics (RCP) is an American political news website and polling data aggregator formed in 2000 by former options trader John McIntyre and former advertising agency account executive Tom Bevan. The site features selected political ...
, 34% of Americans were in favor of the new plan, 39% not in favor, and 28% unsure.
According to a 2017 report by Tax Policy Center, taxes would be reduced by about $1,600 on average in 2018 and 2025. The top 20% of Americans by income were projected to receive roughly 65% of the tax savings. In the two years since the Act was passed, it has failed to pay for itself through increased economic growth, according to
Maya MacGuineas
Maya MacGuineas (born February 21, 1968) is president of the Committee for a Responsible Federal Budget. She is a frequent commentator on issues such as the federal budget, national debt, taxes, the economy, retirement policy, government reform, ...
, president of the
Committee for a Responsible Federal Budget
The Committee for a Responsible Federal Budget (CRFB) is a non-profit public policy organization based in Washington, D.C. that addresses federal budget and fiscal issues. It was founded in 1981 by former United States Representatives Robert Gia ...
. According to
Bloomberg Bloomberg may refer to:
People
* Daniel J. Bloomberg (1905–1984), audio engineer
* Georgina Bloomberg (born 1983), professional equestrian
* Michael Bloomberg (born 1942), American businessman and founder of Bloomberg L.P.; politician and m ...
, the Act has simplified the tax code for some, but not others, lowered corporate debt, led investment to temporarily increase before then declining, and brought money back from overseas, but did not bring back business activity.
Plan elements
Individual income tax
![US tax rates 2018](https://upload.wikimedia.org/wikipedia/commons/b/bb/US_tax_rates_2018.jpg)
Under the law, there are numerous changes to the individual income tax, including changing the income level of individual
tax bracket
Tax brackets are the divisions at which tax rates change in a progressive tax system (or an explicitly regressive tax system, though that is rarer). Essentially, tax brackets are the cutoff values for taxable income—income past a certain point ...
s, lowering
tax rate
In a tax system, the tax rate is the ratio (usually expressed as a percentage) at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, and effective. These rates can also be p ...
s, and increasing the
standard deductions and family
tax credit
A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state. It may also be a credit granted in recognition of taxes already paid or a form of state "dis ...
s while
itemized deduction
Under United States tax law, itemized deductions are eligible expenses that individual taxpayers can claim on federal income tax returns and which decrease their taxable income, and is claimable in place of a standard deduction, if available.
Mos ...
s are reduced and the
personal exemptions are eliminated.
Most individual income taxes are reduced, until 2025. The number of income tax brackets remain at seven, but the income ranges in several brackets have been changed and most brackets have lower rates. These are marginal rates that apply to income in the indicated range as under current law (i.e., prior Public Law 115-97 or the Act), so a higher income taxpayer will have income taxed at several different rates.
A different inflation measure (
Chained CPI The United States Chained Consumer Price Index (C-CPI-U), also known as chain-weighted CPI or chain-linked CPI is a time series measure of price levels of consumer goods and services created by the Bureau of Labor Statistics as an alternative to the ...
or C-CPI) will be applied to the brackets instead of the Consumer Price Index (CPI), so the brackets increase more slowly. This is effectively a tax increase over time, as people move more quickly into higher brackets as their income rises; this element is permanent.
The standard deduction nearly doubles, from $12,700 to $24,000 for married couples. For single filers, the standard deduction will increase from $6,350 to $12,000. About 70% of families choose the standard deduction rather than itemized deductions; this could rise to over 84% if doubled. The personal exemption is eliminated—this was a deduction of $4,050 per taxpayer and dependent, unless it is in an estate or trust.
The
child tax credit
A child tax credit (CTC) is a tax credit for parents with dependent children given by various countries. The credit is often linked to the number of dependent children a taxpayer has and sometimes the taxpayer's income level. For example, in t ...
(CTC) is doubled from $1,000 to $2,000, $1,400 of which will be refundable. There is also a $500 credit for other dependents, versus zero under current law. The lower threshold for the high-income phaseout for the CTC changes from $110,000 AGI to $400,000 for married filers.
Mortgage interest deduction for newly purchased homes (and second homes) was lowered from total loan balances of $1million under current law to $750,000. Interest from home equity loans (aka second mortgages) is no longer deductible, unless the money is used for home improvements.
The deduction for state and local income tax, sales tax, and property taxes ("
SALT deduction") will be capped at $10,000. This has more impact on taxpayers with more expensive property, generally those who live in higher-income areas, or people in states with higher rates for state tax.
The act zeroed out the federal tax penalty for violating the individual mandate of the
Affordable Care Act
The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by Presid ...
, starting in 2019. (In order to pass the Senate under
reconciliation rules with only 50 votes, the requirement itself is still in effect). This is estimated to save the government over $300billion, because up to an estimated 13million fewer people will have insurance coverage, resulting in the government giving fewer tax subsidies. It is estimated to increase premiums on the health insurance exchanges by up to 10%.
It also expands the amount of out-of-pocket medical expenses that may be deducted by lowering threshold from 10% of adjusted gross income to 7.5%, but only for 2017 (retroactively) and 2018. Effective January 1, 2019, the threshold will increase to 10%.
No changes are made to major education deductions and credits, or to the teacher deduction for unreimbursed classroom expenses, which remains at $250. The bill initially expanded usage of
529 college savings accounts for both K–12 private school tuition and homeschools, but the provision regarding homeschools was overruled by the Senate parliamentarian and removed. The 529 savings accounts for K-12 private school tuition provision was left intact.
Taxpayers will only be able to deduct a casualty loss if it occurs in a federally declared disaster area.
Alimony paid to a former spouse will no longer be deductible by the payer, and alimony payments will no longer be included in the recipient's gross income. This effectively shifts the tax burden of alimony from the recipient to the payer, increases the amount of tax collected on the income transferred as alimony, and simplifies the audit trail for the IRS. This provision is effective for divorce and separation agreements signed after December 31, 2018.
Employment-related moving expenses will no longer be deductible, except for moves related to active-duty military service.
The miscellaneous itemized deduction, including tax-deductions for tax-preparation fees, investment expenses, union dues, and unreimbursed employee expenses, are eliminated.
Fewer people will pay the
Alternative minimum tax
The alternative minimum tax (AMT) is a tax imposed by the United States federal government in addition to the regular income tax for certain individuals, estates, and trusts. As of tax year 2018, the AMT raises about $5.2 billion, or 0.4% of all ...
because the act increases the exemption level from $84,500 to $109,400 for married taxpayers filing jointly and from $54,300 to $70,300 for single taxpayers.
The act repeals the ability to
recharacterize Roth Roth may refer to:
Places
Germany
* Roth (district), in Bavaria, Germany
** Roth, Bavaria, capital of that district
** Roth (electoral district), a federal electoral district
* Rhineland-Palatinate, Germany:
** Roth an der Our, in the district B ...
conversions.
The act exempts the discharge of certain
student loans
A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest r ...
due to the death or total permanent disability of the borrower from
taxable income Taxable income refers to the base upon which an income tax system imposes tax. In other words, the income over which the government imposed tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. Th ...
. This provision applies only to debt discharged during tax years 2018 through 2025.
The act now taxes survivors benefits that were allocated to the children of a deceased military service member as if they were for a trust or estate, which can subject them to an income tax rate of up to 37%.
Estate tax
For deaths occurring between 2018 and 2025, estates that exceed $11.2million are subject to a 40% estate tax at time of death, increased from $5.6million previously. For a married couple aggregating their exemptions, an estate exceeding $22.4million is subject to a 40% estate tax at time of death.
Corporate tax
The corporate tax rate was changed from a tiered tax rate ranging from 15% to as high as 39% depending on taxable income to a flat 21%, while some related business deductions and credits were reduced or eliminated. The Act also changed the U.S. from a global to a territorial tax system with respect to corporate income tax. Instead of a corporation paying the U.S. tax rate for income earned in any country (less a credit for taxes paid to that country), each
subsidiary
A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company or having a s ...
pays the tax rate of the country in which it is legally established. In other words, under a territorial tax system, the corporation saves the difference between the generally higher U.S. tax rate and the lower rate of the country in which the subsidiary is legally established. ''
Bloomberg Bloomberg may refer to:
People
* Daniel J. Bloomberg (1905–1984), audio engineer
* Georgina Bloomberg (born 1983), professional equestrian
* Michael Bloomberg (born 1942), American businessman and founder of Bloomberg L.P.; politician and m ...
'' journalist Matt Levine explained the concept, "If we're incorporated in the U.S.
nder the old global tax regime we'll pay 35 percent taxes on our income in the U.S. and Canada and Mexico and Ireland and Bermuda and the Cayman Islands, but if we're incorporated in Canada
nder a territorial tax regime, proposed by the Act we'll pay 35 percent on our income in the U.S. but 15 percent in Canada and 30 percent in Mexico and 12.5 percent in Ireland and zero percent in Bermuda and zero percent in the Cayman Islands."
[Levine, Matt (August 25, 2014).]
Burger King May Move to Canada for the Donuts
. ''Bloomberg''. In theory, the law would reduce the incentive for
tax inversion, which is used today to obtain the benefits of a territorial tax system by moving U.S. corporate headquarters to other countries.
[Korving, Stephen (January 2, 2018).]
How tax cuts and job act will affect you and your business
. ''Inside Business''. The Hampton Roads Business Journal.
One-time repatriation tax of profits in overseas subsidiaries is taxed at 8%, 15.5% for cash. U.S. multinationals have accumulated nearly $3trillion offshore, much of it subsidiaries in tax-haven countries. The Act may encourage companies to
bring the money back to the U.S. at these much lower rates.
The
Corporate Alternative Minimum Tax was eliminated.
[
The law also eliminated the net operating loss carryback, a procedure by which a company with significant losses could receive a ]tax refund
A tax refund or tax rebate is a payment to the taxpayer due to the taxpayer having paid more tax than they owed.
By country
United States
According to the Internal Revenue Service, 77% of tax returns filed in 2004 resulted in a refund check, ...
by counting the losses as part of the previous year's tax return. They were considered important in providing liquidity during a recession. The provision was cut in order to finance the tax cuts in the act, and was one of the largest offsets in the law.
Additionally, the domestic production activities deduction
Domestic may refer to:
In the home
* Anything relating to the human home or family
** A domestic animal, one that has undergone domestication
** A domestic appliance, or home appliance
** A domestic partnership
** Domestic science, sometimes cal ...
was eliminated by the Tax Cuts and Jobs Act.
Churches and nonprofit organizations
Employee compensation
There is a 25% excise tax
file:Lincoln Beer Stamp 1871.JPG, upright=1.2, 1871 U.S. Revenue stamp for 1/6 barrel of beer. Brewers would receive the stamp sheets, cut them into individual stamps, cancel them, and paste them over the Bunghole, bung of the beer barrel so when ...
on compensation paid to certain employees of churches and other tax-exempt organizations.[Davis, Kelly (April 19, 2019).]
IRS Guidance Clarifies New Excise Tax on Nonprofit Executive Compensation
. ''CliftonLarsonAllen LLP
CliftonLarsonAllen LLP (known as CliftonLarsonAllen or CLA) is a professional services network and the eighth-largest[501(c)
A 501(c) organization is a nonprofit organization in the Law of the United States#Federal law, federal law of the United States according to Internal Revenue Code (26 U.S.C. § 501(c)) and is one of over 29 types of nonprofit organizations exe ...](_blank)
or 501(d), a Section 521(b)(1) farmer's cooperative, Section 527 political organizations, and organizations that have Section 115(1) income that is earned by performing essential government functions.[Notice 2019-09]
. ''Internal Revenue Service''. December 31, 2018.
The excise tax applies to compensation paid to certain employees in excess of $1,000,000 during the year. The employees covered under this rule are the organization's five highest-compensated employees and any employees who previous had this status after 2016.[ Compensation is exempt from the excise tax if the compensation is paid to medical doctors, dentists, veterinarians, nurse practitioners, and other licensed professionals providing medical or veterinary services. Compensation includes all current compensation, qualifying deferred compensation, non-qualifying deferred compensation without substantial risk of forfeiture, income under Section 457(f), and severance payments, but excluding Roth retirement contributions.][
An organization may also be subject to the 21% excise tax if an organization has a deferred compensation plan in which benefits are spread over several years and then vest all at once.][Moran, Christopher N.; Lewin, Cynthia M.; Constantine, George E. (April 24, 2019).]
New Excise Tax on Nonprofit Compensation Casts Wide Net
. ''Venable LLP
Venable LLP is an American law firm headquartered in Washington, D.C. It is the largest law firm in the state of Maryland. Founded in 1900 by Richard Venable in Baltimore, today Venable has 10 offices across the United States and 800 attorneys w ...
'' Severance payments exceeding triple an employee's average salary during the last five years may also be subject to the 21% excise tax.[
]
University investment tax
There is a 1.4% excise tax
file:Lincoln Beer Stamp 1871.JPG, upright=1.2, 1871 U.S. Revenue stamp for 1/6 barrel of beer. Brewers would receive the stamp sheets, cut them into individual stamps, cancel them, and paste them over the Bunghole, bung of the beer barrel so when ...
on investment income of certain private tax-exempt colleges and universities. The excise tax applies only if the institution has at least 500 tuition-paying students and more than half the students are located in the United States. The excise tax applies if the institution and its related organizations have an endowment with an aggregate fair-market value at the end of the preceding tax year of at least $500,000 per full-time student, excluding assets used directly in carrying out institution's tax-exempt purpose.["Update on Tax Reform and the Impact on Tax-Exempt Organizations". ''Gelman, Rosenberg & Freedman CPAs''. July 10, 2018.]
This provision has been referred to as an endowment tax
Endowment tax is the taxation of financial endowments that are otherwise not taxed due to their charitable, educational, or religious mission. Endowments can be up to several billion dollars at some universities, some charitable foundations, and ...
, and it has been estimated that it applies to around 32 universities.
Some provisions from the earlier House bill were dropped that would have taxed graduate student tuition waivers, tuition benefits for children and spouses of employees, and student loan interest. A Senate Parliamentarian
The Parliamentarian of the United States Senate is the official advisor to the United States Senate on the interpretation of Standing Rules of the United States Senate and parliamentary procedure. Incumbent parliamentarian Elizabeth MacDonough ...
ruling on December 19 changed the exemption threshold from 500 tuition-paying students to 500 total students. Endowment funds used to carry out a college's tax-exempt purpose are excluded from the asset threshold, but Internal Revenue Service has not issued regulations specifically defining this term.
In addition, a tax deduction is now disallowed entirely for charitable contributions if the donor receives rights to receive seats to college athletic events.[ Formerly, 80% of the charitable contribution was considered to be a tax-deductible charitable contribution.][
]
Parking and public transportation provided to employees
Unrelated business income is now increased by the amount a church or other tax-exempt organization pays or incurs for qualifying parking or qualifying transportation benefits for its employees. This type of unrelated business income includes only tax-free transportation benefits provided to employees, not transportation benefits that are included in the employee's taxable wages.[Notice 2018–99]
. ''Internal Revenue Service''. December 10, 2018.
Unrelated business income does not result if the employer provides free parking for employees, the majority of the parking spaces are available to the general public during the organization's normal business hours, and none of the parking spots reserved for its employees.[ If some parking spots are reserved for employees, then unrelated business income results from a portion of the total parking expenses, based on the percentage of parking spots that are reserved for its employees.][
The Internal Revenue Service has clarified that the employer should use a reasonable method to determine the value of parking benefits provided to its employees.][ The value of the parking spaces should include repairs, maintenance, utility costs, insurance, property taxes, interest, snow and ice removal, leaf removal, trash removal, cleaning, landscape costs, parking attendant expenses, security, and rent or lease payments, but not depreciation expense.][
A church or other tax-exempt organization would need to file Form 990-T and pay unrelated business income tax if its total unrelated business income exceeds $1,000 during the fiscal year.][ Netting the unrelated business income from transportation with other unrelated business income in order to reduce or eliminate the amount of tax due is allowed.][
Some states and jurisdictions require all employers to provide these benefits to their employees, which may result in an organization being required to choose between paying unrelated business income tax to the federal government or being in noncompliance with state and local laws.][
]
Unrelated business income
Unrelated business income is now separately computed for each trade or business activity of the church or other tax-exempt organization. Losses on one trade or business can no longer be used to offset gains on another trade or business for unrelated business income purposes. Net operating loss Under U.S. Federal income tax law, a net operating loss (NOL) occurs when certain tax-deductible expenses exceed taxable revenues for a taxable year. If a taxpayer is taxed during profitable periods without receiving any tax relief (e.g., a refund ...
es generated before January 1, 2018, and carried forward to other tax years are not affected and can be used to offset gains from any trade or business activity. Some affected organizations are considering incorporating for-profit subsidiaries and then moving all unrelated business income to the for-profit subsidiaries, which might make all the unrelated business income count as the same category of trade or business activity, namely "income from for-profit subsidiaries".[ Unrelated business taxable income from transportation benefits is not considered a trade or business activity and will be applied after totaling all of the organization's unrelated business income overall.][
Net operating losses are now limited to 80% of taxable income for tax years beginning after December 31, 2017.][ ]Unrelated business income tax
Unrelated Business Income Tax (UBIT) in the U.S. Internal Revenue Code is the tax on unrelated business income, which comes from an activity engaged in by a tax-exempt 26 U.S.C. 501 organization that is not related to the tax-exempt purpose of ...
is now assessed at the flat rate of 21%, rather than at a graduated tax rate, except for unrelated business income earned on or before December 31, 2017.[ Net operating losses for tax years ending after December 31, 2017 may now be carried forward to future tax years indefinitely.]["Not-For-Profit Tax Update". '']Cherry Bekaert LLP
Cherry Bekaert (formerly Cherry, Bekaert & Holland L.L.P.) is an accounting firm based in Raleigh, North Carolina
Raleigh (; ) is the capital city of the state of North Carolina and the seat of Wake County in the United States. It is the ...
''. August 29, 2018.
Charitable contributions
More individuals will choose to take the standard deduction rather than itemize their tax deductions because of the increase in standard deduction and limitation on itemized deduction for state and local taxes. As a result, these individuals will not see a tax savings from donations to churches or other eligible nonprofit organizations, and churches and other organizations may receive fewer charitable contributions.[
The indexed estate tax exemption was doubled, which means that people may not need to include charitable contributions being written into their will in order to reduce the estate tax paid, which is expected to reduce the amount of charitable contributions given to churches and nonprofit organizations overall.][
]
Tax credit for paid family and medical leave
The Tax Cuts and Jobs Act of 2017 allows a tax credit for employers that provide paid family and medical leave to employees. A 501(c)(3) organization is not eligible for the tax credit.[Notice 2018–71]
. ''Internal Revenue Service''. September 24, 2018.
Miscellaneous tax provisions
The Act contains a variety of miscellaneous tax provisions, many advantaging particular special interests.[Sam Petulla & Jennifer Hansler]
CNN (November 16, 2017). Miscellaneous provisions include:
* Internal Revenue Code section 1031
Under Section 1031 of the United States Internal Revenue Code (), a taxpayer may defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property, a process known as a 1031 exchange. In 1979 ...
, which allowed the deferment of capital gains taxes on so-called "like-kind exchanges" of a wide array of real, personal, and business property, was maintained for real property but repealed for other types of property.
* A tax break for citrus
''Citrus'' is a genus of flowering plant, flowering trees and shrubs in the rue family, Rutaceae. Plants in the genus produce citrus fruits, including important crops such as Orange (fruit), oranges, Lemon, lemons, grapefruits, pomelos, and lim ...
growers, allowing them to deduct the cost of replanting "citrus plants lost or damaged due to causes like freezing, natural disaster or disease."
* The extension of "full expensing," a favorable tax treatment provision for film and television production companies, to 2022. The provision allows such companies "to write-off the full cost of their investments in the first year." The Joint Committee on Taxation
The Joint Committee on Taxation (JCT) is a Committee of the U.S. Congress established under the Internal Revenue Code at .
Structure
The Joint Committee is composed of ten Members: five from the Senate Finance Committee and five from the House ...
estimates that the extension will lead to the loss of about $1billion in federal revenue per year.
* A provision ending a corporate tax exemption for certain international airlines with commercial flights to the United States (specifically, in cases where "the country where the foreign airline is headquartered doesn't have a tax treaty with the U.S., and if major U.S. airliners make fewer than two weekly trips to that foreign country"). This provision is seen as likely to disadvantage Gulf airlines (such as Etihad
Etihad Airways ( ar, شَرِكَة ٱلْاِتِّحَاد لِلطَّيْرَان, sharikat al-ittiḥād li-ṭ-ṭayarān) is one of two flag carriers of the United Arab Emirates (the other being Emirates). Its head office is in Khalifa ...
, Emirates
Emirates may refer to:
* United Arab Emirates, a Middle Eastern country
* Emirate, any territory ruled by an emir
** Gulf emirates, emirates located on the Persian Gulf
** Emirates of the United Arab Emirates, the individual emirates
* The Emirat ...
and Qatar Airways
Qatar Airways Company Q.C.S.C. ( ar, القطرية, ''al-Qaṭariya''), operating as Qatar Airways, is the state-owned flag carrier airline of Qatar. Headquartered in the Qatar Airways Tower in Doha, the airline operates a hub-and-spoke netw ...
); major U.S. airlines have complained that the Gulf states provide unfair subsidies to those carriers.
* Reductions in excise tax
file:Lincoln Beer Stamp 1871.JPG, upright=1.2, 1871 U.S. Revenue stamp for 1/6 barrel of beer. Brewers would receive the stamp sheets, cut them into individual stamps, cancel them, and paste them over the Bunghole, bung of the beer barrel so when ...
es on alcohol for a two-year period.[Aaron Smith]
Cheers! Senators propose lowering alcohol tax
CNN (November 16, 2017). The Senate bill would reduce the tax on "the first 60,000 barrels of beer produced domestically by small brewers" from $7 to $3.50 and would reduce the tax on the first 6million barrels produced from $18 to $16 per barrel. The Senate bill would also extend a tax credit on wine production to all wineries and would extend the credit to the producers and importers of sparkling wine
Sparkling wine is a wine with significant levels of carbon dioxide in it, making it fizzy. While the phrase commonly refers to champagne, European Union countries legally reserve that term for products exclusively produced in the Champagne regi ...
as well. These provisions were supported by the alcohol lobby, specifically the Beer Institute
Beer Institute is a national trade association, headquartered in Washington, D.C. representing companies which produce and import beer sold in the United States.
Beer Institute was organized in 1986 from the United States Brewers' Association The ...
, Wine Institute, and Distilled Spirits Council.
* Exempts private jet management companies from the 7.5% federal excise tax that is levied on tickets for commercial flights.
* A late change to the bill created what came to be called the "grain glitch", which altered an existing deduction for U.S. production in a way that allowed farmers to deduct 20% of their total sales to agricultural cooperatives. According to ''The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'', this "caused an uproar among independent agriculture businesses that say they can no longer compete with cooperatives." This glitch was corrected by the Consolidated Appropriations Act, 2018
The Consolidated Appropriations Act, 2018 () is a United States omnibus spending bill for the United States federal government for fiscal year 2018 enacted by the 115th United States Congress and signed into law by President Donald Trump on M ...
.
* Because of a drafting error, businesses making renovations or other improvements must now use a 39-year depreciation schedule for the cost of these improvements instead of the intended 15-year period, which reduces allowable business tax deductions each year.
* The creation of opportunity zone An Opportunity Zone is a designation and investment program created by the Tax Cuts and Jobs Act of 2017 allowing for certain investments in lower income areas to have tax advantages. The purpose of this program is to put capital to work that would ...
s, allowing for tax advantages for investments in low-income areas.
Arctic National Wildlife Refuge drilling
The Act contains provisions that would open in the Arctic National Wildlife Refuge
The Arctic National Wildlife Refuge (ANWR or Arctic Refuge) is a national wildlife refuge in northeastern Alaska, United States on traditional Gwich'in lands. It consists of in the Alaska North Slope region. It is the largest national wildli ...
to oil and gas drilling. This major push to include this provision in the tax bill came from Republican Senator Lisa Murkowski
Lisa Ann Murkowski ( ; born May 22, 1957) is an American attorney and politician serving as the senior United States senator for Alaska, having held that seat since 2002. Murkowski is the second-most senior Republican woman in the Senate, after S ...
.[Scott Detrow]
Senate May Approve Drilling In Alaskan Wilderness With Tax Bill
NPR (November 18, 2017). The move is part of the long-running Arctic Refuge drilling controversy
The question of whether to drill for oil in the Arctic National Wildlife Refuge (ANWR) has been an ongoing political controversy in the United States since 1977. As of 2017, Republicans have attempted to allow drilling in ANWR almost fifty time ...
; Republicans had attempted to allow drilling in ANWR almost 50 times. Opening the Arctic Refuge to drilling "unleashed a torrent of opposition from conservationists and scientists." Democrats and environmentalist groups such as the Wilderness Society criticized the Republican effort.
Legislative history
The bill was introduced in the United States House of Representatives
The United States House of Representatives, often referred to as the House of Representatives, the U.S. House, or simply the House, is the Lower house, lower chamber of the United States Congress, with the United States Senate, Senate being ...
on November 2, 2017 by Congressman Kevin Brady, Republican
Republican can refer to:
Political ideology
* An advocate of a republic, a type of government that is not a monarchy or dictatorship, and is usually associated with the rule of law.
** Republicanism, the ideology in support of republics or agains ...
representative from Texas
Texas (, ; Spanish language, Spanish: ''Texas'', ''Tejas'') is a state in the South Central United States, South Central region of the United States. At 268,596 square miles (695,662 km2), and with more than 29.1 million residents in 2 ...
. On November 9, 2017, the House Ways and Means Committee
The Committee on Ways and Means is the chief tax-writing committee of the United States House of Representatives. The committee has jurisdiction over all taxation, tariffs, and other revenue-raising measures, as well as a number of other program ...
passed the bill on a party-line vote, advancing the bill to the House floor. The House passed the bill on November 16, 2017, on a mostly-party line vote of 227–205. No Democrat voted for the bill, while 13 Republicans voted against it.[House Passes Historic Debt Increase](_blank)
(press release), House Passes Historic Debt Increase (November 16, 2017). On the same day, companion legislation passed the Senate Finance Committee
The United States Senate Committee on Finance (or, less formally, Senate Finance Committee) is a standing committee of the United States Senate. The Committee concerns itself with matters relating to taxation and other revenue measures generall ...
, again on a party-line vote, 14–12. On November 28, the legislation passed the Senate Budget Committee
The United States Senate Committee on the Budget was established by the Congressional Budget and Impoundment Control Act of 1974. It is responsible for drafting Congress's annual budget plan and monitoring action on the budget for the Federal G ...
, again on a party-line vote.[Seung Min Kim, Colin Wilhelm and Bernie Becker]
Senate GOP gets breathing room as tax plan advances
''Politico'' (November 28, 2017). In the early morning hours of December 2, 2017, the Senate passed its version of the bill by a 51–49 vote. Bob Corker
Robert Phillips Corker Jr. (born August 24, 1952) is an American businessman and politician who served as a United States Senator from Tennessee from 2007 to 2019. A member of the Republican Party, he served as Chair of the Senate Foreign Rela ...
( R– TN) was the only Republican senator to vote against this version of the bill and it received no Democratic Party support.
Differences between the House and Senate bills were reconciled in a conference committee
A committee or commission is a body of one or more persons subordinate to a deliberative assembly. A committee is not itself considered to be a form of assembly. Usually, the assembly sends matters into a committee as a way to explore them more ...
that signed the final version on December 15, 2017. The final version contained relatively minor changes from the Senate version. The House passed the penultimate version of the bill on December 19, 2017. In the December 19 vote, the same Republicans who voted against the original House bill still voted against it (with the exception of Tom McClintock
Thomas Miller McClintock II (; born July 10, 1956) is an American politician serving as the U.S. representative for since 2009. His district stretches from the Sacramento suburbs to the outer suburbs of Fresno; it includes Yosemite National ...
, who voted in favor on December 19 after having voted against the original House bill). However, several provisions of the bill violated the Senate's procedural rules, which meant that the House of Representatives needed to re-vote with the objectionable provisions removed. The Senate passed the final bill, 51–48, on December 20, 2017; all Senate Republicans voted for the bill except Sen. John McCain, who was absent for health reasons. On the same day, a re-vote was held in the House; the bill passed, 224–201. President Trump then signed the bill into law on December 22, 2017.
Differences between the House and Senate bills
There were important differences between the House and Senate versions of the bills, due in part to the Senate reconciliation rules, which required that the bill impact the deficit by less than $1.5 trillion over ten years and have minimal deficit impact thereafter. (The Byrd Rule allows Senators to block legislation if it would increase the deficit significantly beyond a ten-year period.) For example:
*The House plan had four income tax brackets ranging from 12% to 39.6%, while the Senate bill kept seven brackets ranging from 10% to 38.5%.
*The House plan cut the corporate tax immediately, while the Senate plan delayed it until 2019.
*The House plan made both individual and corporate taxes "permanent" (i.e., no set expiration) while the Senate bill had most of the individual tax cuts expiring (but not the business cuts).
*The House plan did not repeal the health insurance individual mandate, while the Senate bill and final Act did.
*The House plan eliminated deductions for state, local, and sales taxes paid, and capped property deductions at $10,000. The Senate bill initially would have eliminated the state and local property tax deduction, but in the later Act, this was later changed back to a $10,000 mirroring the House version.
*The House plan allowed parents to put aside money for an unborn child's college education. The Senate bill did not include this provision.
*The House plan capped the deduction for mortgage interest to the first $500,000 mortgage debt versus the current $1million, while the Senate did not change it.
*The House plan repealed the Johnson Amendment
The Johnson Amendment is a provision in the U.S. tax code, since 1954, that prohibits all 501(c)(3) non-profit organizations from endorsing or opposing political candidates. Section 501(c)(3) organizations are the most common type of nonprofit or ...
. Neither the Senate version nor the final Act included a repeal of the Johnson Amendment.
*The House plan forbade the use of tax-exempt municipal bonds to fund professional sports stadiums. The Senate version and the final Act did not.
In final changes prior to approval of the Senate bill on December 2, additional changes were made (among others) that were reconciled with the House bill in a conference committee
A committee or commission is a body of one or more persons subordinate to a deliberative assembly. A committee is not itself considered to be a form of assembly. Usually, the assembly sends matters into a committee as a way to explore them more ...
, prior to providing a final bill to the President for signature. The Conference Committee version was published on December 15, 2017. It had relatively minor differences compared to the Senate bill. Individual and pass-through tax cuts expire after ten years, while the corporate tax changes are permanent.
Pre-conference vote
House of Representatives
Senate
Post-conference vote
House of Representatives
Senate
Impact
Financial impact
The tax cuts are expected to increase deficits thereby stimulating the economy, increasing GDP and employment, relative to a forecast without those tax cuts. CBO reported on December 21, 2017: "Overall, the combined effect of the change in net federal revenue and spending is to decrease deficits (primarily stemming from reductions in spending) allocated to lower-income tax filing units and to increase deficits (primarily stemming from reductions in taxes) allocated to higher-income tax filing units". The nonpartisan Joint Committee on Taxation
The Joint Committee on Taxation (JCT) is a Committee of the U.S. Congress established under the Internal Revenue Code at .
Structure
The Joint Committee is composed of ten Members: five from the Senate Finance Committee and five from the House ...
also estimated that the GDP
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
level would be 0.7% higher (in aggregate, not per annum) during the 2018–2027 period relative to the CBO baseline forecast, employment level would be 0.6% higher and personal consumption level would be 0.6% higher during the 2018–2027 period on average due to the Act. These are higher levels, not higher annual growth rates, so these are relatively minor economic impacts over 10 years.
The distribution of impact by individual income group varies significantly based on the assumptions involved and point in time measured. In general, businesses and upper income groups will benefit, while lower income groups will see the initial benefits fade over time or be adversely impacted. For example, the CBO and JCT estimated that:
* During 2019, income groups earning under $20,000 (about 23% of taxpayers) would contribute to deficit reduction (i.e. incur a cost), mainly by receiving fewer subsidies due to the repeal of the individual mandate of the Affordable Care Act. Other groups would contribute to deficit increases (i.e. receive a benefit), mainly due to tax cuts.
* During 2021, 2023 and 2025, income groups earning under $40,000 (about 43% of taxpayers) would contribute to deficit reduction, while income groups above $40,000 would contribute to deficit increases.
* During 2027, income groups earning under $75,000 (about 76% of taxpayers) would contribute to deficit reduction while income groups above $75,000 would contribute to deficit increases.
The Tax Policy Center
The Urban-Brookings Tax Policy Center, typically shortened to the Tax Policy Center (TPC), is a nonpartisan think tank based in Washington D.C. A joint venture of the Urban Institute and the Brookings Institution, it aims to provide independent ...
(TPC) estimated that the bottom 80% of taxpayers (income under $149,400) would receive 35% of the benefit in 2018, 34% in 2025 and none of the benefit in 2027, with some groups incurring costs. TPC also estimated 72% of taxpayers would be adversely impacted in 2019 and beyond, if the tax cuts are paid for by spending cuts separate from the legislation, as most spending cuts would impact lower- to middle-income taxpayers and outweigh the benefits from the tax cuts.
In 2018, companies spent a record-setting $1.1 trillion to buy back their own stock, and a majority of major firms (84%, as polled by the National Association for Business Economics) did not alter their hiring practice or their investment in their business in response to the tax cuts they received. This pattern was evident even in early 2018, when Bloomberg reported (based on an analysis of 51 S&P 500 companies) that an estimated 60% of corporate tax savings was going to shareholders, while 15% was going to employees. A Bloomberg Economics analysis found that, while business investment did increase in 2018, relatively little of that activity could be attributed to lower taxes. A study by the Federal Reserve Bank similarly found that corporations bought-back stock and paid down debt, rather than undertake either new capital expenditure or investment in research & development.
The law also impacts healthcare by repealing the ACA individual mandate, resulting in projections of up to 13million fewer persons covered by health insurance as some younger, healthier persons will likely choose not to participate. Those in the remaining less healthy pool will pay higher insurance costs on the ACA exchanges, which will result in additional persons dropping coverage.
Economy
The non-partisan Joint Committee on Taxation
The Joint Committee on Taxation (JCT) is a Committee of the U.S. Congress established under the Internal Revenue Code at .
Structure
The Joint Committee is composed of ten Members: five from the Senate Finance Committee and five from the House ...
of the U.S. Congress published its macroeconomic analysis of the final version of the Act, on December 22, 2017:
*Gross domestic product would be 0.7% higher on average each year during the 2018–2027 period relative to the CBO baseline forecast, a cumulative total of $1,895billion, due to an increase in labor supply and business investment.
*The Act would increase the total budget deficits (debt) by about $1trillion over ten years including macro-economic feedback effects. The effect of the tax cuts is only partially offset by incremental revenue due to the higher GDP levels. The initial deficit increase estimate without feedback effects of $1,456billion, less $384billion in feedback effects ($451billion less $66billion in higher debt service costs), results in a $1,071billion net debt increase over the 2018–2027 period. This increase is in addition to the $10trillion debt increase already in the CBO current law baseline projected over the 2018–2027 period, and the approximately $20trillion national debt that already exists.
*Employment would be about 0.6% higher each year during the 2018–2027 period than otherwise. The lower marginal tax rate on labor would provide "strong incentives for an increase in labor supply."
*Personal consumption, the largest component of GDP, would increase by 0.7%.
*Note that for GDP, employment, and consumption, these are higher levels, not higher annual growth rates, so these are relatively minor economic impacts over ten years. The Committee for a Responsible Federal Budget
The Committee for a Responsible Federal Budget (CRFB) is a non-profit public policy organization based in Washington, D.C. that addresses federal budget and fiscal issues. It was founded in 1981 by former United States Representatives Robert Gia ...
(CRFB) summarized several studies that indicated a boost to annual GDP growth rates would be about 0.01% each year rather than the Administration's claims of 0.4% per year. In other words, a 2.0% annual GDP growth rate typical during the Obama era would rise to 2.01%–2.02% and not 2.4% as claimed, other things equal. The CRFB estimated that the JCT analysis implied a 0.02% annual growth rate increase, to arrive at a cumulative 0.7% GDP increase.
The Tax Policy Center
The Urban-Brookings Tax Policy Center, typically shortened to the Tax Policy Center (TPC), is a nonpartisan think tank based in Washington D.C. A joint venture of the Urban Institute and the Brookings Institution, it aims to provide independent ...
(TPC) reported its macroeconomic analysis of the November 16 Senate version of the Act on December 1, 2017:
*Gross domestic product would be 0.4% higher on average each year during the 2018–2027 period relative to the CBO baseline forecast, a cumulative total of $961billion higher over ten years. TPC explained that since most tax reductions would benefit high-income households (who spend a smaller share of tax reductions than lower-income households) the effect on GDP would be modest. Further, TPC reported that: "Because the economy is currently near full employment, the impact of increased demand on output would be smaller and diminish more quickly than it would if the economy were in recession."
*The Act would increase the total budget deficits (debt) by $1,412billion, less $179billion in feedback effects, for a $1,233billion net debt increase (excluding higher interest costs).
*The lower marginal tax rates would increase labor supply, mainly by encouraging lower-earning spouses to work more. This effect would reverse after 2025 due to expiration of individual tax provisions.
The Penn Wharton Budget Model (PWBM) estimated relative to a prior law baseline that by 2027:
*The GDP level would be between 0.6% and 1.1% higher.
*Debt would increase by between $1.9 trillion and $2.2 trillion, including macroeconomic feedback effects. Analysis of first-year results released by the Congressional Research Service
The Congressional Research Service (CRS) is a public policy research institute of the United States Congress. Operating within the Library of Congress, it works primarily and directly for members of Congress and their committees and staff on a c ...
in May 2019 includes:
* "a relatively small (if any) first-year effect on the economy"
* "a feedback effect of 0.3% of GDP or less,"
* "pretax profits and economic depreciation (the price of capital) grew faster than wages"
* inflation-adjusted wage growth "is smaller than overall growth in labor compensation and indicates that ordinary workers had very little growth in wage rates"
* "the evidence does not suggest a surge in investment from abroad in 2018"
* "While evidence does indicate significant repurchases of shares, either from tax cuts or repatriated revenues, relatively little was directed to paying worker bonuses"
The tax cut was enacted three months into the 2018 fiscal year. Corporate tax receipts for the full fiscal year ended September 2018 were down 31% from the prior fiscal year, the largest decline since records began in 1934, except for during the Great Recession
The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...
when corporate profits, and hence corporate tax receipts, plummeted. Analysts attributed the fiscal 2018 decline to the tax cut.
The Council of Economic Advisers had estimated in October 2017 that the corporate tax cut of the TCJA would increase real median household income by $3000 to $7000 annually, but during the first year following enactment of the tax cut the figure increased by $553, which the Census Bureau characterized as statistically insignificant.
Budget deficits and debt
Fiscal year 2018 results
CBO reported that the budget deficit was $779billion in fiscal year 2018, up $113billion or 17% from 2017. The budget deficit increased from 3.5% GDP in 2017 to 3.9% GDP in 2018. Revenues fell by 0.8% GDP due in part to the Tax Act, while spending rose by 0.4% GDP. Total tax revenues in dollar terms were similar to 2017, but fell from 17.2% GDP to 16.4% GDP (0.8% GDP), below the 50-year average of 17.4%. Individual income tax receipts rose by $96billion as the economy grew, rising from 8.2% GDP in 2017 to 8.3% GDP in 2018. Corporate tax revenues fell by $92billion (31%) due primarily to the Tax Act, from 1.5% GDP in 2017 to 1.0% GDP in 2018, half the 50-year average of 2.0% GDP. Fiscal year 2018 ran from October 1, 2017 to September 30, 2018, so the deficit figures did not reflect a full year of tax cut impact, as they took effect in January 2018.
CBO forecast in January 2017 (just prior to Trump's inauguration) that revenues in fiscal year 2018 would be $3.60 trillion if laws in place as of January 2017 continued. However, actual 2018 tax revenues were $3.33 trillion, a shortfall of $270billion (7.5%) relative to the forecast. The CBO claimed that because of offsetting changes in different sources of revenue caused by the Act, the level of revenue for the fiscal year 2018 remained similar rather than declining, despite the fact that the CBO had also amended its forecasts to state that there would be $3.53 trillion in June 2017 (making the approximate shortfall $216billion) and annual tax revenues experienced a similar shortfall the previous year, when the CBO predicted $3.51 trillion in revenues,[ and a shortfall of $196billion occurred.] However, the CBO similarly revised its predictions for 2017 revenues in August 2016, making the shortfall $106billion for 2017.[
]
Ten-year forecasts
The non-partisan Congressional Budget Office
The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.
Inspired by California's Legislative Analyst's Office that manages ...
(CBO) estimated in April 2018 that implementing the Act would add an estimated $2.289trillion
''Trillion'' is a number with two distinct definitions:
* 1,000,000,000,000, i.e. one million million, or (ten to the twelfth power), as defined on the short scale. This is now the meaning in both American and British English.
* 1,000,000,000,0 ...
to the national debt over ten years, or about $1.891trillion after taking into account macroeconomic feedback effects, in addition to the $9.8trillion increase forecast under the current policy baseline and existing $20trillion national debt.
CBO reported on December 21, 2017, that: "Overall, the combined effect of the change in net federal revenue and spending is to decrease deficits (primarily stemming from reductions in spending) allocated to lower-income tax filing units and to increase deficits (primarily stemming from reductions in taxes) allocated to higher-income tax filing units."
The Joint Committee on Taxation
The Joint Committee on Taxation (JCT) is a Committee of the U.S. Congress established under the Internal Revenue Code at .
Structure
The Joint Committee is composed of ten Members: five from the Senate Finance Committee and five from the House ...
estimated the Act would add $1,456billion total to the annual deficits (debt) over ten years and described the deficit effects of particular elements of the Act on December 18, 2017:
Individual and Pass-Through (total: $1,127billion deficit increase)
*Add to the deficit: Reducing/consolidating individual tax rates $1,214billion; doubling the standard deduction $720billion; modifying the Alternative Minimum Tax $637billion; reduce taxes for pass through business income $415billion; modification of child care tax credit $573billion.
*Reduce the deficit: Repealing personal exemptions $1,212billion, repeal of itemized deductions $668billion; reduce ACA subsidy payments $314billion; alternative (slower) inflation measure for brackets $134billion.
*The pass through changes represent a net $265billion deficit increase, so the remaining individual elements are a net $862billion increase.
Business/Corporate and International (total: $330billion deficit increase)
*Add to the deficit: Reduce corporate tax rate to 21% $1,349billion; deductions for certain international dividends received $224billion; repeal corporate AMT $40billion.
*Reduce the deficit: Enact one-time tax on overseas earnings $338billion; and reduce limit on interest expense deductions $253billion.
In a November 2017 survey of leading economists, only 2% agreed with the notion that a tax bill similar to those currently moving through the House and Senate would substantially increase U.S. GDP. The economists unanimously agreed that the bill would increase the U.S. debt.
Federal corporate tax receipts fell from an annualized level of $409billion in Q1 2017 to $269billion in Q1 2018, a direct result of the Trump tax cuts.
''The New York Times'' reported in August 2019 that: "The increasing levels of red ink stem from a steep falloff in federal revenue after Mr. Trump’s 2017 tax cuts, which lowered individual and corporate tax rates, resulting in far fewer tax dollars flowing to the Treasury Department. Tax revenues for 2018 and 2019 have fallen more than $430 billion short of what the budget office predicted they would be in June 2017, before the tax law was approved that December."
Distribution
By income level
On December 21, 2017, the Congressional Budget Office
The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.
Inspired by California's Legislative Analyst's Office that manages ...
(CBO) released its distribution estimate of the Act:
*During 2019, income groups earning under $20,000 (about 23% of taxpayers) would contribute to deficit reduction (i.e., incur a cost), mainly by receiving fewer subsidies due to the repeal of the individual mandate of the Affordable Care Act. Other groups would contribute to deficit increases (i.e., receive a benefit), mainly due to tax cuts.
*During 2021, 2023, and 2025, income groups earning under $40,000 (about 43% of taxpayers) would contribute to deficit reduction, while income groups above $40,000 would contribute to deficit increases.
*During 2027, income groups earning under $75,000 (about 76% of taxpayers) would contribute to deficit reduction, while income groups above $75,000 would contribute to deficit increases.
CBO stated that lower income groups will incur costs, while higher income groups will receive benefits: "Overall, the combined effect of the change in net federal revenue and spending is to decrease deficits (primarily stemming from reductions in spending) allocated to lower-income tax filing units and to increase deficits (primarily stemming from reductions in taxes) allocated to higher-income tax filing units."
The Tax Policy Center
The Urban-Brookings Tax Policy Center, typically shortened to the Tax Policy Center (TPC), is a nonpartisan think tank based in Washington D.C. A joint venture of the Urban Institute and the Brookings Institution, it aims to provide independent ...
(TPC) reported its distributional estimates for the Act. This analysis excludes the impact from repealing the ACA individual mandate, which would apply significant costs primarily to income groups below $40,000. It also assumes the Act is deficit financed and thus excludes the impact of any spending cuts used to finance the Act, which also would fall disproportionally on lower income families as a percentage of their income.
*Compared to current law, 5% of taxpayers would pay more in 2018, 9% in 2025, and 53% in 2027.
*The top 1% of taxpayers (income over $732,800) would receive 8% of the benefit in 2018, 25% in 2025, and 83% in 2027.
*The top 5% (income over $307,900) would receive 43% of the benefit in 2018, 47% in 2025, and 99% in 2027.
*The top 20% (income over $149,400) would receive 65% of the benefit in 2018, 66% in 2025 and all of the benefit in 2027.
*The bottom 80% (income under $149,400) would receive 35% of the benefit in 2018, 34% in 2025 and none of the benefit in 2027, with some groups incurring costs.
*The third quintile (taxpayers in the 40th to 60th percentile with income between $48,600 and $86,100, a proxy for the "middle class") would receive 11% of the benefit in 2018 and 2025, but would incur a net cost in 2027.
The TPC also estimated the amount of the tax cut each group would receive, measured in 2017 dollars:
*Taxpayers in the second quintile (incomes between $25,000 and $48,600, the 20th to 40th percentile) would receive a tax cut averaging $380 in 2018 and $390 in 2025, but a tax increase averaging $40 in 2027.
*Taxpayers in the third quintile (incomes between $48,600 and $86,100, the 40th to 60th percentile) would receive a tax cut averaging $930 in 2018, $910 in 2025, but a tax increase of $20 in 2027.
*Taxpayers in the fourth quintile (incomes between $86,100 and $149,400, the 60th to 80th percentile) would receive a tax cut averaging $1,810 in 2018, $1,680 in 2025, and $30 in 2027.
*Taxpayers in the top 1% (income over $732,800) would receive a tax cut of $51,140 in 2018, $61,090 in 2025, and $20,660 in 2027.
In December 2019, CBO forecast that inequality would worsen between 2016 and 2021, due in part to the Trump tax cuts and policies regarding means-tested transfers. Their report had several conclusions:
*After taxes and transfers, the income of the top 1% would grow more than other income groups, continuing previous trends.
*Income of households in the bottom 99% percent would be higher than at any time in the past, adjusted for inflation, also continuing previous trends.
*For the top 1%, average federal tax rates would fall from 33% in 2016 to 30% (3 percentage points) in 2021. For the 81st to 99th percentiles, the rate would fall from 24% to 22%, and for the middle three quintiles, the rate would fall from 15% to 14%. These trends indicate worsening inequality, with larger tax reductions for higher incomes.
* The Gini index would rise, indicating slowed reduction of inequality, reversing a trend from the latter part of the Obama administration.
* Means-tested transfer programs would contribute less to reducing inequality in 2021 than they did in 2016.
Individual vs. business
According to the CBO, under the Senate version of the bill, businesses receive a $890billion benefit or 63%, individuals $441billion or 31%, and estates $83billion or 6%. U.S. corporations would likely use the extra after-tax income to repurchase shares or pay more dividends, which mainly flow to wealthy investors. According to the Center on Budget and Policy Priorities
The Center on Budget and Policy Priorities (CBPP) is a progressive American think tank that analyzes the impact of federal and state government budget policies. A 501(c)(3) nonprofit organization, the Center's stated mission is to "conduct resear ...
(CBPP), "Mainstream estimates conclude that more than one-third of the benefit of corporate rate cuts flows to the top 1% of Americans, and 70% flows to the top fifth. Corporate rate cuts could even hurt most Americans since they must eventually be paid for with other tax increases or spending cuts." Corporations have significant cash holdings ($1.9trillion in 2016) and can borrow to invest at near-record low interest rates, so a tax cut is not a prerequisite for investment or giving workers a raise. As of Q2 2017, corporate profits after taxes were near record levels in dollar terms at $1.77trillion annualized, and very high measured historically as a percentage of GDP, at 9.2%.
In 2017, the Congressional Budget Office
The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress.
Inspired by California's Legislative Analyst's Office that manages ...
(CBO) compared the U.S. corporate tax rates (statutory and effective rates) as of 2012 across the G20 countries:
*The U.S. federal corporate statutory tax rate of 35% (combined with state elements that add another 4% for a total of 39%), was the highest in the G20 countries. It was 10 percentage points higher than the average. While the U.S. made no changes in federal corporate tax rates between 2003 and 2012, nine of G20 countries reduced their rates.
*The U.S. average corporate tax rate of 29.0% (taxes actually paid as a share of income, after deductions and exemptions) was the third highest in the G20.
*The effective corporate tax rate of 18.6% (a measure of the percentage of income from a marginal investment) was the fourth highest in the G20.
''Bloomberg News'' reported in January 2020 that the top six American banks saved more than $32 billion in taxes during the two years after enactment of the tax cut, while they reduced lending, cut jobs and increased distributions to shareholders.
By state
An Institute on Taxation and Economic Policy
The Institute on Taxation and Economic Policy (ITEP) is a non-profit, non-partisan think tank that works on state and federal tax policy issues. ITEP was founded in 1980, and is a 501(c)(3) tax-exempt organization. ITEP describes its mission as ...
analysis indicated the Act has more of a tax increase impact on "upper-middle-class families in major metropolitan areas, particularly in Democratic-leaning states where taxes, and usually property values, are higher. While only about one-in-five families between the 80th and 95th income percentiles in most red states would face higher taxes by 2027 under the House GOP bill, that number rises to about one-third in Colorado and Illinois, around two-fifths or more in Oregon, Virginia, Massachusetts, New York and Connecticut, and half or more in New Jersey, California and Maryland..."
Financing of the tax cut
The scoring by the organizations above assumes the tax cuts are deficit-financed, meaning that over ten years the deficit rises by $1.4trillion relative to the current law baseline; or $1.0trillion after economic feedback effects. However, if one assumes the tax cuts are paid for by per-household spending cuts, the distribution would be more unfavorable to lower-and middle-income persons.
According to the Tax Policy Center
The Urban-Brookings Tax Policy Center, typically shortened to the Tax Policy Center (TPC), is a nonpartisan think tank based in Washington D.C. A joint venture of the Urban Institute and the Brookings Institution, it aims to provide independent ...
, the bill's effect on the financial well-being of taxpayers vary based on different financing assumptions.
* Assuming that each household pays the same dollar amount in added burden, approximately 72% of taxpayers would be worse off than current law, meaning benefits from tax cuts would be more than offset by reduced spending on their behalf
* Assuming that each household pays the same percentage of its income to cover the added burdens, approximately 64% of taxpayers would be worse off than under current law
* Assuming that each household pays the same percentage as their current income tax liability, approximately 17% of taxpayers would be worse off than current law
Vox journalist Dylan Matthews argued that the first scenario would be most likely because most direct government spending is directed towards low-income households, and higher income households tend to receive tax breaks rather than direct expenditures. Report from Tax Policy Center stated that the first two scenarios "appear to most closely resemble current Administration and Congressional budget proposals."
Republican politicians such as Paul Ryan
Paul Davis Ryan (born January 29, 1970) is an American former politician who served as the List of Speakers of the United States House of Representatives, 54th speaker of the United States House of Representatives from 2015 to 2019. A member o ...
have advocated for spending cuts to help finance the tax cuts, while President Trump's 2018 budget includes $2.1trillion in spending cuts over ten years to Medicaid, Affordable Care Act
The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by Presid ...
subsidies, food stamps, Social Security Disability Insurance, Supplemental Security Income
Supplemental Security Income (SSI) is a means-tested program that provides cash payments to disabled children, disabled adults, and individuals aged 65 or older who are citizens or nationals of the United States. SSI was created by the Social Se ...
, and cash welfare (TANF
Temporary Assistance for Needy Families (TANF ) is a federal assistance program of the United States. It began on July 1, 1997, and succeeded the Aid to Families with Dependent Children (AFDC) program, providing cash assistance to indigent Ame ...
).
Healthcare impact
The Senate bill repeals the individual mandate that requires all Americans under 65 to have health insurance or pay a penalty, effective starting in 2019. The CBO initially estimated that 13million fewer persons would have health insurance by 2025, including 8million fewer on the Affordable Care Act
The Affordable Care Act (ACA), formally known as the Patient Protection and Affordable Care Act and colloquially known as Obamacare, is a landmark U.S. federal statute enacted by the 111th United States Congress and signed into law by Presid ...
exchanges and 5million fewer on Medicaid. Fewer persons with healthcare means lower costs for the government, so CBO estimated over $300billion in savings. This allowed Republicans to increase the size of the tax cuts in the bill. Health insurance premiums on the exchanges could rise as much as 10 percentage points more than they would otherwise. CBO later revised this estimate in 2018 to 7million fewer insured by 2026.
Reception
Support
Leading Republicans supported the bill, including President Donald Trump
Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who served as the 45th president of the United States from 2017 to 2021.
Trump graduated from the Wharton School of the University of Pe ...
and Vice President Mike Pence
Michael Richard Pence (born June 7, 1959) is an American politician who served as the 48th vice president of the United States from 2017 to 2021 under President Donald Trump. A member of the Republican Party, he previously served as the 50th ...
, and Republicans in Congress, such as:
* Paul Ryan
Paul Davis Ryan (born January 29, 1970) is an American former politician who served as the List of Speakers of the United States House of Representatives, 54th speaker of the United States House of Representatives from 2015 to 2019. A member o ...
, Speaker of the United States House of Representatives
The speaker of the United States House of Representatives, commonly known as the speaker of the House, is the presiding officer of the United States House of Representatives. The office was established in 1789 by Article I, Section 2 of the U. ...
(R-WI)
* Mitch McConnell
Addison Mitchell McConnell III (born February 20, 1942) is an American politician and retired attorney serving as the senior United States senator from Kentucky and the Senate minority leader since 2021. Currently in his seventh term, McConne ...
, Majority Leader of the United States Senate
The positions of majority leader and minority leader are held by two United States senators and members of the party leadership of the United States Senate. They serve as the chief spokespersons for their respective political parties holding t ...
(R–KY)
* Kevin Brady, United States Congressman
The United States House of Representatives, often referred to as the House of Representatives, the U.S. House, or simply the House, is the lower chamber of the United States Congress, with the Senate being the upper chamber. Together they c ...
(R–TX)
* Kevin McCarthy
Kevin Owen McCarthy (born January 26, 1965) is an American politician, serving as House Minority Leader in the United States House of Representatives since 2019. A member of the Republican Party, he served as House Majority Leader under spea ...
, House Majority Leader
Party leaders of the United States House of Representatives, also known as floor leaders, are congresspeople who coordinate legislative initiatives and serve as the chief spokespersons for their parties on the House floor. These leaders are ele ...
(R–CA)
In the Senate, Republicans "eager for a major legislative achievement after the Affordable Care Act debacle ... have generally been enthusiastic about the tax overhaul."
A number of Republican senators who initially expressed trepidation over the bill, including Ron Johnson
Ronald Harold Johnson (born April 8, 1955) is an American accountant, businessman, and politician serving as the senior United States senator from Wisconsin, a seat he has held since 2011. A Republican, Johnson was first elected to the U.S. S ...
of Wisconsin, Susan Collins
Susan Margaret Collins (born December 7, 1952) is an American politician serving as the senior United States senator from Maine. A member of the Republican Party, she has held her seat since 1997 and is Maine's longest-serving member of Co ...
of Maine, and Steve Daines
Steven David Daines ( ; born August 20, 1962) is an American politician and former corporate executive serving as the junior United States senator for Montana since 2015. A Republican, he served as the U.S. representative for Montana's at-lar ...
of Montana
Montana () is a state in the Mountain West division of the Western United States. It is bordered by Idaho to the west, North Dakota and South Dakota to the east, Wyoming to the south, and the Canadian provinces of Alberta, British Columbi ...
, ultimately voted for the Senate bill.
The Trump Administration's Council of Economic Advisors
The Council of Economic Advisers (CEA) is a United States agency within the Executive Office of the President established in 1946, which advises the President of the United States on economic policy. The CEA provides much of the empirical resea ...
supported the bill claimed it would have significant economic benefits.
*The CEA claimed the drop in corporate tax rates from 35 to 20% and immediate full expensing of non-structure investments (e.g., IT investments) would increase GDP
Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
growth rates by 3 to 5 percentage points over the then-baseline projections of around 2%. This projection excluded other tax cuts in the Act.
*The CEA stated the mechanism for this increased growth would be higher business investment levels due to the additional after-tax income available.
*The CEA claimed this GDP growth would result in an average $4,000 annual increase in wage and salary income for households.
President Trump and Treasury Secretary Mnuchin claimed the tax cuts would pay for themselves. However, later analysis showed this to be false, with revenues actually declining.
President Trump's chief economic advisor Gary Cohn stated that "The wealthy are not getting a tax cut under our plan" and that the plan would cut taxes for low- and middle-income households. Further, Trump claimed that the tax plan "...was not good for im ersonally"
Republican supporters of the tax bill characterized it as a simplification of the tax code. While some elements of the legislation have simplified the tax code, other provisions in fact added additional complexity. For most Americans, the process for filing taxes under the new legislation would be similar to what it was before.
Opposition
Democrats opposed the legislation, viewing it as a giveaway to corporations and high earners at the expense of middle class communities. Every House Democrat voted against the bill when it came to the House floor; they were joined by 13 Republicans who voted against it.
The top congressional Democrats—Senate Minority Leader
The positions of majority leader and minority leader are held by two United States senators and members of the party leadership of the United States Senate. They serve as the chief spokespersons for their respective political parties holding ...
Chuck Schumer
Charles Ellis Schumer ( ; born November 23, 1950) is an American politician serving as Senate Majority Leader since January 20, 2021. A member of the Democratic Party, Schumer is in his fourth Senate term, having held his seat since 1999, and ...
of New York and House Minority Leader
Party leaders of the United States House of Representatives, also known as floor leaders, are congresspeople who coordinate legislative initiatives and serve as the chief spokespersons for their parties on the House floor. These leaders are el ...
Nancy Pelosi
Nancy Patricia Pelosi (; ; born March 26, 1940) is an American politician who has served as Speaker of the United States House of Representatives since 2019 and previously from 2007 to 2011. She has represented in the United States House of ...
—strongly oppose the bill. Schumer said of the bill that "The more it's in sunlight, the more it stinks." Pelosi said the legislation was "designed to plunder the middle class to put into the pockets of the wealthiest 1 percent more money. ... It raises taxes on the middle class, millions of middle-class families across the country, borrows trillions from the future, from our children and grandchildren's futures to give tax cuts to the wealthiest and encourages corporations to ship jobs overseas."
The 13 House Republicans who voted against the bill were mostly from New York, New Jersey, and California, and were opposed to the $10,000 cap on the state and local income tax deduction, which benefits those states.
Billionaire and former Mayor of New York Michael Bloomberg
Michael Rubens Bloomberg (born February 14, 1942) is an American businessman, politician, philanthropist, and author. He is the majority owner, co-founder and CEO of Bloomberg L.P. He was Mayor of New York City from 2002 to 2013, and was a ca ...
called this tax bill an "economically indefensible blunder" arguing that companies would not invest more because of the tax cuts: "Corporations are sitting on a record amount of cash reserves: nearly $2.3 trillion. That figure has been climbing steadily since the recession ended in 2009, and it's now double what it was in 2001. The reason CEOs aren't investing more of their liquid assets has little to do with the tax rate."
Bill Gates
William Henry Gates III (born October 28, 1955) is an American business magnate and philanthropist. He is a co-founder of Microsoft, along with his late childhood friend Paul Allen. During his career at Microsoft, Gates held the positions ...
and Warren Buffett
Warren Edward Buffett ( ; born August 30, 1930) is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world and has a net w ...
also thought that Trump's tax cut would not help businesses. In a CNBC
CNBC (formerly Consumer News and Business Channel) is an American basic cable business news channel. It provides business news programming on weekdays from 5:00 a.m. to 7:00 p.m., Eastern Time, while broadcasting talk sho ...
interview, Buffett even said: "I don't need a tax cut in a society with so much inequality".
In a letter made public on the November 12, 2017, more than 400millionaires and billionaires (which include George Soros
George Soros ( name written in eastern order), (born György Schwartz, August 12, 1930) is a Hungarian-American businessman and philanthropist. , he had a net worth of US$8.6 billion, Note that this site is updated daily. having donated mo ...
and Steven Rockefeller) asked Congress to reject the Republican tax plan. They note that it would disproportionately benefit the wealthy, while adding at least $1.5 trillion in tax cuts to the current national debt. This deficit "would leave us unable to meet our country's current needs and restrict us in advancing any future investments," the letter continues.
''The Economist
''The Economist'' is a British weekly newspaper printed in demitab format and published digitally. It focuses on current affairs, international business, politics, technology, and culture. Based in London, the newspaper is owned by The Econo ...
'' has also been critical of the tax cut and its lack of long-term vision: "The expiry of tax cuts for individuals is a ticking time-bomb in the tax code. It will explode just as America approaches a budget crisis, driven by rising spending on health care and pensions for the elderly. This gap will probably eventually be plugged by a combination of tax rises and spending cuts. But by cutting taxes now, Republicans have moved the starting point for any future negotiations.".
''The Financial Times
The ''Financial Times'' (''FT'') is a British daily newspaper printed in broadsheet and published digitally that focuses on business and economic current affairs. Based in London, England, the paper is owned by a Japanese holding company, Nikk ...
'' argued that this bill was "built for plutocrats
A plutocracy () or plutarchy is a society that is ruled or controlled by people of great wealth or income. The first known use of the term in English dates from 1631. Unlike most political systems, plutocracy is not rooted in any established ...
" as it would mainly benefit very high income households ("45 per cent of the tax reductions in 2027 would go to households with incomes above $500,000 – fewer than 1 per cent of filers"). It concluded by stating: "The US the world once knew is drowning in a tide of unconscionable and apparently unlimited greed
Greed (or avarice) is an uncontrolled longing for increase in the acquisition or use of material gain (be it food, money, land, or animate/inanimate possessions); or social value, such as status, or power. Greed has been identified as und ...
. We are all now doomed to live with the unhappy consequences.".
The Editorial Board of ''The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' vigorously opposed the bill: "This bill is bad enough. No less revolting is the dishonest and sneaky way it was written.". In an article published in August 2018, it noted that none of the benefits that the GOP
The Gop ( cy, Coparleni, also known as Gop Cairn or ''Gop-y-Goleuni'') is a neolithic monument lying within the Clwydian Range, northwest of Trelawnyd, in Flintshire, Wales, in the Clwydian Range. There is evidence that there was a considerabl ...
promised had been delivered. Corporate investments did not increase, real wages were down and corporate tax revenue plummeted. The article ended with the following statement: "Today, many Republicans seem to realize that the tax cut has become a political liability. Even they realize that it doesn't do any of what they promised.".
Editorial Boards of major US newspapers including ''USA Today
''USA Today'' (stylized in all uppercase) is an American daily middle-market newspaper and news broadcasting company. Founded by Al Neuharth on September 15, 1982, the newspaper operates from Gannett's corporate headquarters in Tysons, Virgini ...
'', ''The Washington Post
''The Washington Post'' (also known as the ''Post'' and, informally, ''WaPo'') is an American daily newspaper published in Washington, D.C. It is the most widely circulated newspaper within the Washington metropolitan area and has a large nati ...
'', ''The Los Angeles Times
''The'' () is a grammatical article in English, denoting persons or things already mentioned, under discussion, implied or otherwise presumed familiar to listeners, readers, or speakers. It is the definite article in English. ''The'' is the m ...
'', ''The San Francisco Chronicle
The ''San Francisco Chronicle'' is a newspaper serving primarily the San Francisco Bay Area of Northern California. It was founded in 1865 as ''The Daily Dramatic Chronicle'' by teenage brothers Charles de Young and Michael H. de Young. The pa ...
'' and ''The Boston Globe
''The Boston Globe'' is an American daily newspaper founded and based in Boston, Massachusetts. The newspaper has won a total of 27 Pulitzer Prizes, and has a total circulation of close to 300,000 print and digital subscribers. ''The Boston Glob ...
'' also opposed the bill.
Minor impact on economic growth
Paul Krugman
Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
disputed the Administration's primary argument that tax cuts for businesses will stimulate investment and higher wages:
*Foreigners own about 35% of U.S. equities, so as much as $700billion of the tax cut will go overseas, as corporate after-tax income will flow to these investors as stock buybacks and dividends.
*CEOs indicate that tax cuts are not a big factor in investment decisions.
*Significantly increasing capital expenditures requires an inflow of foreign capital, strengthening the dollar, increasing trade deficits and potentially costing up to 2.5million manufacturing and supporting jobs.
In November 2017, the University of Chicago asked over 40 economists if U.S. GDP would be substantially higher a decade from now, if either the House or Senate bills were enacted, with the following results: 52% either disagreed or strongly disagreed, while 36% were uncertain and only 2% agreed.
The Tax Policy Center
The Urban-Brookings Tax Policy Center, typically shortened to the Tax Policy Center (TPC), is a nonpartisan think tank based in Washington D.C. A joint venture of the Urban Institute and the Brookings Institution, it aims to provide independent ...
estimated that GDP would be 0.3% higher in 2027 under the House bill versus current law, while the University of Pennsylvania Penn Wharton budget model estimates approximately 0.3–0.9% for both the House and Senate bills. The very limited effect estimated is due to the expectation of higher interest rates and trade deficits. These estimates are both contrary to the Administration's claims of 10% increase by 2027 (about 1% per year) and Senator Mitch McConnell's estimate of a 4.1% increase.
Federal Reserve Bank of NY President and CEO William C. Dudley
William C. Dudley (born 1953) is an American economist who served as the president of Federal Reserve Bank of New York from 2009 to 2018 and as vice-chairman of the Federal Open Market Committee. He was appointed to the position on January 27, 2 ...
stated in January 2018: "While this legislation will reduce federal revenues by about 1 percent of GDP in both 2018 and 2019, I anticipate the boost to economic growth will be less than that. Most importantly, most of the tax cuts accrue to the corporate sector and to higher-income households that have a relatively low marginal propensity to consume. This suggests that a significant portion of the tax cuts will be saved, not spent."
The Trump administration predicted the tax cut would spur corporate capital investment and hiring. One year after enactment of the tax cut, a National Association for Business Economics
The National Association for Business Economics (NABE) is the largest international association of applied economists, strategists, academics, and policy-makers committed to the application of economics. Founded in 1959, it is one of the member o ...
survey of corporate economists found that 84% reported their firms had not changed their investment or hiring plans due to the tax cut. Later in 2019, the Economic Policy Institute
The Economic Policy Institute (EPI) is a 501(c)(3) non-profit American, left-leaning think tank based in Washington, D.C., that carries out economic research and analyzes the economic impact of policies and proposals. Affiliated with the labor mo ...
analyzed the data on business investment from the federal Bureau of Economic Analysis
The Bureau of Economic Analysis (BEA) of the United States Department of Commerce is a U.S. government agency that provides official economy of the United States, macroeconomic and industry statistics, most notably reports about the gross domestic ...
and concluded that, "if the TCJA’s corporate rate cuts were working, we would be seeing a permanent rise in investment. Instead, investment growth is cratering." Analysis conducted by ''The New York Times'' in November 2019 found that average business investment was lower after the tax cut than before, and that firms receiving larger tax relief increased investment less than firms receiving smaller tax relief. The analysis also found that since the tax cut firms increased dividends and stock buybacks by nearly three times as much as they increased capital investments.
Limited or no wage impact
Corporate executives indicated that raising wages and investment were not priorities should they have additional funds due to a tax cut. A survey conducted by Bank of America-Merrill Lynch of 300 executives of major U.S. corporations asked what they would do with a corporate tax cut. The top three responses were that they would pay down debt, conduct stock buybacks, and conduct mergers. An informal survey of CEOs by Trump advisor Gary Cohn resulted in a similar response, with few hands raised in response to his request for them to do so if their company would invest more.
Former Clinton cabinet
Bill Clinton's tenure as the 42nd president of the United States began with his first inauguration on January 20, 1993, and ended on January 20, 2001. Clinton, a Democrat from Arkansas, took office following a decisive election victory over R ...
Treasury Secretary Larry Summers
Lawrence Henry Summers (born November 30, 1954) is an American economist who served as the 71st United States secretary of the treasury from 1999 to 2001 and as director of the National Economic Council from 2009 to 2010. He also served as pres ...
referred to the analysis provided by the Trump administration of its tax proposal as "...some combination of dishonest, incompetent, and absurd." Summers wrote that the Trump administration's "central claim that cutting the corporate tax rate from 35 percent to 20 percent would raise wages by $4,000 per worker" lacked peer-reviewed support and was "absurd on its face."
On December 20, 2017, the day the final bill was passed by the House, Wells Fargo, Fifth Third Bancorp and Western Alliance Bancorp announced they would raise the minimum wage of its workers to $15 an hour upon signing of the bill. A number of companies announced bonuses for workers, including AT&T which said it will give a $1,000 bonus to every single one of its 200,000 employees as a result of the Tax Cut bill. Democratic Senator Chuck Schumer
Charles Ellis Schumer ( ; born November 23, 1950) is an American politician serving as Senate Majority Leader since January 20, 2021. A member of the Democratic Party, Schumer is in his fourth Senate term, having held his seat since 1999, and ...
stated that these were the exception to the rule and that AT&T was in litigation with the government over a pending merger. He stated: "There is a reason so few executives have said the tax bill will lead to more jobs, investments, and higher wages—because it will actually lead to share buybacks, corporate bonuses, and dividends."
In the immediate aftermath of the passage of the Act, a relatively small number of corporations—many of them involved in mergers disputed by the government or regulatory difficulties—announced pay raises or bonuses to employees, although it is not clear they would not have done so without the tax cut (many companies award raises and bonuses early each year in the normal course of business, after their prior year earnings are known and their new budgets are put in place). About 18 companies in the S&P did so; when companies paid awards to employees, these were usually a small percentage of corporate savings from the Act. A January 2018 study from the firm Willis Towers Watson
Willis Towers Watson Public Limited Company is a British-American multinational insurance advisor company. The company was founded in 2016, following a merger of the Willis Group and Towers Watson.
Overview
WTW operates in more than 140 co ...
found that 80% of companies were not "considering giving raises at all." Bloomberg reported in March 2018 that an estimated 60% of corporate tax savings were going to shareholders, while 15% was going to employees, based on analysis of 51 S&P 500 companies. In July 2018, Bloomberg reported that real wages have actually fallen in the first quarter after the tax bill went into effect.
Increases income and wealth inequality
''The New York Times'' editorial board explained the tax bill as both consequence and cause of income
Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. For ...
and wealth inequality
The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or heterogeneity in economics, economic heterogeneity.
The distribution of wealth differs from the i ...
: "Most Americans know that the Republican tax bill will widen economic inequality by lavishing breaks on corporations and the wealthy while taking benefits away from the poor and the middle class. What many may not realize is that growing inequality helped create the bill in the first place. As a smaller and smaller group of people cornered an ever-larger share of the nation's wealth, so too did they gain an ever-larger share of political power. They became, in effect, kingmakers; the tax bill is a natural consequence of their long effort to bend American politics to serve their interests." The corporate tax rate was 48% in the 1970s and is 21% under the Act. The top individual rate was 70% in the 1970s and is 37% under the Act. Despite these large cuts, incomes for the working class have stagnated and workers now pay a larger share of the pre-tax income in payroll taxes.
The share of income going to the top 1% has doubled, from 10% to 20%, since the pre-1980 period, while the share of wealth owned by the top 1% has risen from around 25% to 42%. Despite President Trump promising to address those left behind, the House and Senate bills would increase economic inequality:
*Sizable corporate tax cuts would flow mostly to wealthy executives and shareholders;
*In 2019, a person in the bottom 10% would average a $50 tax cut, while a person in the top 1% gets a $34,000 tax cut;
*Up to 13million persons losing health insurance or subsidies are overwhelmingly in the bottom 30% of the income distribution;
*The top 1% receives approximately 70% of the pass-through income, which will be subject to much lower taxes;
*Rolling back the estate tax, which only impacted the top 0.2% of estates in 2016, is a $150billion benefit ote: $83billion in final billto the ultra-rich over ten years.
*The top 1% of households by wealth own 40% of stocks; the bottom 80% just 7%, even when including indirect ownership through mutual funds.
*According to a Gallup survey, 52% of Americans owned some stock in 2016, down from 65% in 2007.
In 2027, if the tax cuts are paid for by spending cuts borne evenly by all families, after-tax income would be 3.0% higher for the top 0.1%, 1.5% higher for the top 10%, -0.6% for the middle 40% (30th to 70th percentile) and −2.0% for the bottom 50%.
International tax standards
In November 2017, the OECD
The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate e ...
reported that the U.S. tax burden was lower in 2016 than the OECD country average, measured as a percentage of GDP:
*Overall taxes, including many state and local taxes, were 26.0% GDP in 2016, versus the OECD average of 34.3%.
*Income taxes were 8.5% GDP in 2016, versus the OECD average of 8.9%.
*Corporate taxes were 2.3% GDP in 2011, versus the OECD average of 3.0% GDP. Despite this, the US corporate tax rate was 35% prior to the passage of the Tax Cuts and Jobs Act, ten percentage points higher than the OECD average of 25%; the TCJA reduced the American corporate tax rate to 21%, four percentage points lower than the OECD average at the time.
Journalist Justin Fox wrote in Bloomberg Bloomberg may refer to:
People
* Daniel J. Bloomberg (1905–1984), audio engineer
* Georgina Bloomberg (born 1983), professional equestrian
* Michael Bloomberg (born 1942), American businessman and founder of Bloomberg L.P.; politician and m ...
that Americans may feel financial pressure due to healthcare and college tuition costs, which are much higher than other OECD countries measured as a share of GDP, offsetting the benefit of the already lower tax structure.
= International trade issues
=
A potential consequence of the proposed tax reform, specifically lowering business taxes, is that (in theory) the U.S. would be a more attractive place for foreign capital (investment money). This inflow of foreign capital would help fund the surge in investment by corporations, one of the stated goals of the legislation. However, a large inflow of foreign capital would drive up the price of the dollar, making U.S. exports more expensive, thus increasing the trade deficit
The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
. Paul Krugman estimated this could adversely impact up to 2.5million U.S. jobs.
According to ''The New York Times'', "wide range of experts agree that cutting taxes is likely to increase the trade deficit" with other countries, which conflicts with the stated priority of the White House to reduce the trade deficit. However, Economists widely reject that reducing the trade deficit necessarily has to be good for the economy. So the fact that this bill may increase the trade deficit will not necessarily decrease American welfare.
= Foreign objections
=
The finance ministers of the five largest European economies (France
France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
, Germany
Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
, Italy
Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical re ...
, Spain
, image_flag = Bandera de España.svg
, image_coat = Escudo de España (mazonado).svg
, national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond")
, national_anthem = (English: "Royal March")
, i ...
and the United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
) wrote a letter to U.S. Treasury Secretary Steve Mnuchin, expressing concern that the tax reforms could trigger a trade war
A trade war is an economic conflict often resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party. If tariffs are the exclus ...
, as they would violate World Trade Organization
The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation
in the United Nations System, governments use the organization to establish, revise, and e ...
rules and distort international trade. Similar concerns were voiced by China
China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
. In response to the Act, German economists called for the German government to enact tax reform and additional subsidies to prevent a loss of jobs and investments to the United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
.
Conflict of interest
Fact-checkers such as FactCheck.Org, PolitiFact and ''The Washington Post
''The Washington Post'' (also known as the ''Post'' and, informally, ''WaPo'') is an American daily newspaper published in Washington, D.C. It is the most widely circulated newspaper within the Washington metropolitan area and has a large nati ...
''s fact-checker have found that Trump's claims that his economic proposal and tax plan would not benefit wealthy persons like himself were likely false. An analysis by ''The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' found that if Trump's tax plan had been in place in 2005 (the one recent year in which his tax returns were leaked), he would have saved $11million in taxes. The analysis also found that Trump would save $4.4million on his eventual estate tax bill. Experts say that the financial windfall for the President and his family from this bill is "virtually unprecedented in American political history".
A number of Republican congressmen also stood to benefit personally from the pass-through deduction. Most notably, retiring Tennessee Senator Bob Corker was for some time the sole Republican Senator to oppose the tax plan. Corker stated that he would not support a tax plan that would increase the deficit. However, after Arizona Senator John McCain
John Sidney McCain III (August 29, 1936 – August 25, 2018) was an American politician and United States Navy officer who served as a United States senator from Arizona from 1987 until his death in 2018. He previously served two terms ...
, who was unable to vote while receiving treatment for brain cancer, endorsed the bill, Corker changed his vote to "yes" on the final version of the bill after it was confirmed that the pass-through deduction provision from which he stood to benefit was included in it. Corker rejected the claim that he traded his vote for provisions that benefited him and said that he had no idea that there were provisions in the bill from which he stood to personally benefit.
Tax complication
According to ''The New York Times'', "economists and tax experts across the political spectrum warn that the proposed system would invite tax avoidance. The more the tax code distinguishes among types of earnings, personal characteristics or economic activities, the greater the incentive to label income artificially, restructure or switch categories in a hunt for lower rates." According to ''The Wall Street Journal'', the bill's changes to "business and individual taxation could lead to a new era of business reorganization and tax-code gamesmanship with unknown consequences for the economy and federal revenue collection."
Republicans justified the tax reform initially as an effort to simplify the tax code. Kevin Brady, the chairman of the House Ways and Means Committee, and Speaker Paul Ryan said in November 2017 that they would simplify the tax code so much that 9 in 10 Americans would be able to file their taxes on a postcard. President Donald Trump said on December 13, 2017, that people would be able to file their taxes "on a single, little, beautiful sheet of paper". However, when the final version of the tax legislation passed through houses of Congress, the legislation kept most loopholes intact and did not simplify the tax code. The announcements by the House leaders hurt the stock prices of tax preparers, but upon the release of the actual bill, the stock prices of tax preparers sharply increased.
Procedural concerns
The legislation was passed by Congress with little debate regarding the comprehensive reforming nature of the Act.[Jim Tankersley & Alan Rappeport]
A Hasty, Hand-Scribbled Tax Bill Sets Off an Outcry, ''The New York Times'' (December 1, 2017).
/ref> The 400-page House bill was passed two weeks after the legislation was first released, "without a single hearing" held. In the Senate, the final version of the bill did not receive a public hearing, "was largely crafted behind closed doors, and was released just ahead of the final vote." Republicans rewrote major portions of tax bill just hours before the floor vote, making major changes in order to win the votes of several Republican holdouts.[Seung Min Kim & Colin Wilhelm]
Republicans rewriting tax bill hours before possible vote: Senate GOP leaders are still making major changes to the plan in order to win over several hold-outs
Politico (December 1, 2017). Many last-minute changes were handwritten on earlier drafts of the bill. The revisions appeared "first in the lobbying shops of K Street, which sent back copies to some Senate Democrats, who were left to take to social media in protest regarding being asked to vote in a matter of hours on a massive bill that had yet to be shared with them directly."
The rushed approval of the legislation prompted an outcry from Democrats. Senate Minority Leader Charles Schumer
Charles Ellis Schumer ( ; born November 23, 1950) is an American politician serving as Senate Majority Leader since January 20, 2021. A member of the Democratic Party, Schumer is in his fourth Senate term, having held his seat since 1999, and ...
(D–NY) proposed giving senators more time to read the legislation, but this motion failed after every Republican voted no. Requests to wait until incoming Democratic Senator
A senate is a deliberative assembly, often the upper house or chamber of a bicameral legislature. The name comes from the ancient Roman Senate (Latin: ''Senatus''), so-called as an assembly of the senior (Latin: ''senex'' meaning "the el ...
Doug Jones of Alabama
(We dare defend our rights)
, anthem = "Alabama (state song), Alabama"
, image_map = Alabama in United States.svg
, seat = Montgomery, Alabama, Montgomery
, LargestCity = Huntsville, Alabama, Huntsville
, LargestCounty = Baldwin County, Al ...
could vote on the bill were also denied. Some commentators also criticized the process. ''The New York Times
''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'' editorial board wrote that the Senate's move to rapidly approve the bill "is not how lawmakers are supposed to pass enormous pieces of legislation" and contrasted the bill to the 1986 tax bill, in which "Congress and the Reagan administration worked across party lines, produced numerous drafts, held many hearings and struck countless compromises." Bloomberg Bloomberg may refer to:
People
* Daniel J. Bloomberg (1905–1984), audio engineer
* Georgina Bloomberg (born 1983), professional equestrian
* Michael Bloomberg (born 1942), American businessman and founder of Bloomberg L.P.; politician and m ...
columnist Al Hunt
Albert Reinold Hunt Jr. (born December 4, 1942) is an American journalist, formerly a columnist for Bloomberg View (from which he retired at the end of 2018), the editorial arm of Bloomberg News (which is a subsidiary of Bloomberg L.P.). Hunt ...
classified the legislation as a "slipshod product, legislated with minimal transparency" that was "rushed so fast through a short-circuited lawmaking process" in which many members of Congress who voted in favor of the bill did not fully understand what they had done.
Name of the law
The clause establishing the bill's short title
In certain jurisdictions, including the United Kingdom and other Westminster-influenced jurisdictions (such as Canada or Australia), as well as the United States and the Philippines, primary legislation has both a short title and a long title.
Th ...
was dropped after Senator Bernie Sanders
Bernard Sanders (born September8, 1941) is an American politician who has served as the junior United States senator from Vermont since 2007. He was the U.S. representative for the state's at-large congressional district from 1991 to 2007 ...
(D-VT) filed an objection under the Byrd Rule to the Senate Parliamentarian
The Parliamentarian of the United States Senate is the official advisor to the United States Senate on the interpretation of Standing Rules of the United States Senate and parliamentary procedure. Incumbent parliamentarian Elizabeth MacDonough ...
, claiming the section was extraneous. As a result, the name "Tax Cuts and Jobs Act", though widely used, is not contained in the bill, which is officially referred to by its long title, or as Public Law 115-97.
Federal Reserve
Federal Reserve officials had indicated earlier in 2017 that aggressive tax cuts could increase the pace of interest rate increases already planned. Higher interest rates make borrowing more expensive, slowing economic growth (GDP), other things equal. The Fed also raises interest rates to help offset the risk of inflation in a growing economy near full employment. However, as the tax plan became clearer and its impact on the economy was judged to be relatively minor, the Fed indicated that a plan to raise interest rates incrementally as many as three times in 2018 would not be changed.
Views of economists
While there is no clear consensus among academic economists as to whether the tax plan would benefit the economy to the degree that Trump administration
Donald Trump's tenure as the List of presidents of the United States, 45th president of the United States began with Inauguration of Donald Trump, his inauguration on January 20, 2017, and ended on January 20, 2021. Trump, a Republican Party ...
predicted, there is a consensus that it will widen public deficit
Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit; the opposite of budget surplus. The term may be applied to the budget ...
s and economic inequality
There are wide varieties of economic inequality, most notably income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of we ...
.
In a survey conducted by the University of Chicago
The University of Chicago (UChicago, Chicago, U of C, or UChi) is a private research university in Chicago, Illinois. Its main campus is located in Chicago's Hyde Park neighborhood. The University of Chicago is consistently ranked among the b ...
's Initiative on Global Markets, 37 out of 38 economists interviewed stated that they thought the Act would cause a rapid increase in the national debt. The one dissenting economist later changed his mind. Conversely, only one economist (Stanford
Stanford University, officially Leland Stanford Junior University, is a private research university in Stanford, California. The campus occupies , among the largest in the United States, and enrolls over 17,000 students. Stanford is considere ...
's Darrell Duffie
James Darrell Duffie (born May 23, 1954) is a Canadian financial economist and is Dean Witter Distinguished Professor of Finance at Stanford Graduate School of Business.
He is the author of numerous research articles, and several books, incl ...
) out of the 38 agreed with the statement: "If the US enacts a tax bill similar to those currently moving through the House and Senate—and assuming no other changes in tax or spending policy—US GDP will be substantially higher a decade from now than under the status quo".
Four winners of the Nobel Prize in Economics
The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel ( sv, Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is an economics award administered ...
have spoken out against the legislation: Joseph Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...
, Paul Krugman
Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
, Richard Thaler
Richard H. Thaler (; born September 12, 1945) is an American economist and the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business. In 2015, Thaler was p ...
, and Angus Deaton
Sir Angus Stewart Deaton (born 19 October 1945) is a British economist and academic. Deaton is currently a Senior Scholar and the Dwight D. Eisenhower Professor of Economics and International Affairs Emeritus at the Princeton School of Public ...
.
Princeton
Princeton University is a private research university in Princeton, New Jersey. Founded in 1746 in Elizabeth as the College of New Jersey, Princeton is the fourth-oldest institution of higher education in the United States and one of the ni ...
economist Alan Blinder
Alan Stuart Blinder (, born October 14, 1945) is an American economics professor at Princeton University and is listed among the most influential economists in the world according to IDEAS/RePEc. He is a leading macroeconomist, politically liber ...
, who served as Vice Chair of the Federal Reserve System
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
from 1994 to 1996, argued, in an article published by ''The Wall Street Journal
''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'', that "almost everything was wrong" with the Trump Tax Cut and that "it blew a large hole in the federal deficit
The national debt of the United States is the total government debt, national debt owed by the federal government of the United States, federal government of the United States to United States Treasury security, Treasury security holders. The ...
".
A group of 137 economists signed an open letter expressing support for the bill; the letter was touted by President Trump, House Speaker Paul Ryan and the Senate Finance Committee as support for the legislation among economists; the letter was criticized by left-liberal publications that cited independent research which contradicted some of its claims and alleged that it contained signatories who did not exist. A group of nine economists (largely from the Reagan
Ronald Wilson Reagan ( ; February 6, 1911June 5, 2004) was an American politician, actor, and union leader who served as the 40th president of the United States from 1981 to 1989. He also served as the 33rd governor of California from 1967 ...
and Bush administrations) wrote a letter which estimated 3 percent growth from the reduction in the corporate tax rate within a decade; the letter was challenged by Harvard
Harvard University is a private Ivy League research university in Cambridge, Massachusetts. Founded in 1636 as Harvard College and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of higher le ...
economists Larry Summers
Lawrence Henry Summers (born November 30, 1954) is an American economist who served as the 71st United States secretary of the treasury from 1999 to 2001 and as director of the National Economic Council from 2009 to 2010. He also served as pres ...
and Jason Furman
Jason Furman (born August 18, 1970) is an American economist and professor at Harvard University's John F. Kennedy School of Government and a senior fellow at the Peterson Institute for International Economics. On June 10, 2013, Furman was named ...
(both of whom served in the Obama administration
Barack Obama's tenure as the 44th president of the United States began with his first inauguration on January 20, 2009, and ended on January 20, 2017. A Democrat from Illinois, Obama took office following a decisive victory over Republican ...
), and the nine economists appeared to back off from their original claims.
According to ''The Guardian
''The Guardian'' is a British daily newspaper. It was founded in 1821 as ''The Manchester Guardian'', and changed its name in 1959. Along with its sister papers ''The Observer'' and ''The Guardian Weekly'', ''The Guardian'' is part of the Gu ...
'', thirteen tax law professors from around the US, in a 68-page study, called the law's process "rushed and secretive" that resulted "in deeply flawed legislation".
Political significance
In November 2017, Senator Lindsey Graham
Lindsey Olin Graham (born July 9, 1955) is an American lawyer and politician serving as the senior United States senator from South Carolina, a seat he has held since 2003. A member of the Republican Party, Graham chaired the Senate Committee ...
(R–SC) said that "financial contributions will stop" flowing to the Republican Party if tax reform is unable to be enacted. This echoed comments by Representative Chris Collins (R–NY), who said, "My donors are basically saying 'get it done or don't ever call me again.'"
Excluded provisions before passage
Some provisions were initially proposed for inclusion in the bill, but were excluded before final passage.
Tuition waiver exemption
The bill that passed the House had been criticized for its significant negative impact on graduate students. Graduate students in private universities could have seen their effective tax rate go above 41.9%, a rate higher than what even the richest of Americans typically pay. The change was due to a provision in the bill that would have repealed the deduction for qualified tuition and related expenses, meaning that graduate students' waived tuition would be viewed as taxable income. Given that their stipends are significantly less than the waived tuition, this would typically increase their taxes by 30–60% for public universities and hundreds of percent for private ones. The Senate version of the bill did not contain these provisions.
The House bill's disadvantageous treatment of graduate students was criticized because of its projected negative effect on the training of U.S. scientists. The bill's impact on U.S. science and innovation had been criticized by Stanford
Stanford University, officially Leland Stanford Junior University, is a private research university in Stanford, California. The campus occupies , among the largest in the United States, and enrolls over 17,000 students. Stanford is considere ...
professor emeritus Burton Richter
Burton Richter (March 22, 1931 – July 18, 2018) was an American physicist. He led the Stanford Linear Accelerator Center (SLAC) team which co-discovered the J/ψ meson in 1974, alongside the Brookhaven National Laboratory (BNL) team led by S ...
, a winner of the Nobel Prize in Physics
)
, image = Nobel Prize.png
, alt = A golden medallion with an embossed image of a bearded man facing left in profile. To the left of the man is the text "ALFR•" then "NOBEL", and on the right, the text (smaller) "NAT•" then " ...
and the National Medal of Science
The National Medal of Science is an honor bestowed by the President of the United States to individuals in science and engineering who have made important contributions to the advancement of knowledge in the fields of behavioral and social scienc ...
, who critiqued the bill's negative impact on Americans seeking advanced degrees and wrote that the budget impact of the tax cuts would force a dramatic reduction in federal funding for scientific research.
The final version of the Act reflected the Senate's language in this area, maintaining the prior law's tax exemption for tuition waivers.
Automatic spending cuts averted/PAYGO
Under the Statutory Pay-as-You-Go Act of 2010
The Statutory Pay-As-You-Go Act of 2010, Title I of , is a public law passed by the 111th United States Congress and signed by US President Barack Obama on February 12, 2010. The act reinstated pay-as-you-go budgeting rules used in Congress from 1 ...
(PAYGO), laws that increase the federal deficit will trigger automatic spending cuts unless Congress votes to waive them. Because the Act adds $1.5trillion to the deficit, automatic cuts of $150billion per year over ten years would have applied, including a $25billion annual cut to Medicare. Because the PAYGO waiver is not allowed in a reconciliation bill, it requires separate legislation which requires 60 votes in the Senate to end a filibuster. If Congress had not passed the waiver, it would have been the first time that statutory PAYGO sequestration would have occurred. However, the PAYGO waiver was included in the continuing resolution
In the United States, a continuing resolution (often abbreviated to CR) is a type of appropriations legislation. An appropriations bill is a bill that appropriates (gives to, sets aside for) money to specific federal government departments, ag ...
passed by Congress on December 22 and signed by President Trump.
Public opinion
Analysis by FiveThirtyEight
''FiveThirtyEight'', sometimes rendered as ''538'', is an American website that focuses on opinion poll analysis, politics, economics, and sports blogging in the United States. The website, which takes its name from the number of electors in th ...
in November 2017 found the pending tax law to be the least-popular major tax bill in at least 36 years, including the tax increases of 1990 and 1993. Apart from February 12, 2018, the RealClearPolitics
RealClearPolitics (RCP) is an American political news website and polling data aggregator formed in 2000 by former options trader John McIntyre and former advertising agency account executive Tom Bevan. The site features selected political ...
composite of polls has indicated that at least a plurality of Americans has disliked the law from October 2017 through December 2018.
Follow-on bills
House Republicans have written follow-on bills that would extend the individual tax cuts beyond their current expiration date, simplify the rules for Individual Retirement Account
An individual retirement account (IRA) in the United States is a form of pension provided by many financial institutions that provides tax advantages for retirement savings. It is a trust that holds investment assets purchased with a taxpayer's ear ...
s, and add new tax deductions for small businesses.
The follow-on bills were written as three separate bills, named the Protecting Family and Small Business Tax Cuts Act of 2018 (H.R. 6760), the Family Savings Act (H.R. 6757), and the American Innovation Act of 2018 (H.R. 6756).
On September 27, the House of Representatives passed the Family Savings Act by a vote of a 240–177, and then it passed the American Innovation Act by a vote of 260–156.[Lorenzo, Aaron (September 28, 2018).]
House votes to make individual tax cuts permanent
. ''Politico''.
On September 28, the House of Representatives passed the Protecting Family and Small Business Tax Cuts Act by a vote of 220–191.[ Several Republicans in the House voted against the bill to make permanent the $10,000 annual limit on federal tax deductions for state and local taxes because they represent states where residents tend to pay higher state and local taxes.][
The ]Build Back Better Act
The Build Back Better Act was a bill introduced in the 117th Congress to fulfill aspects of President Joe Biden's Build Back Better Plan. It was spun off from the American Jobs Plan, alongside the Infrastructure Investment and Jobs Act, as a ...
, in the version passed by the House in November 2021 (to be reconciled with the Senate), repeals or partially reverses various provisions of the 2017 act, according to the summary given by House speaker Nancy Pelosi
Nancy Patricia Pelosi (; ; born March 26, 1940) is an American politician who has served as Speaker of the United States House of Representatives since 2019 and previously from 2007 to 2011. She has represented in the United States House of ...
in her speech on the morning of passage.
Subsequent events
The elimination of the individual mandate, the tax penalty for not having health insurance, through this Act led to several states led by Texas to challenge the constitutionality of the entire ACA based on the Supreme Court's prior decision in ''National Federation of Independent Business v. Sebelius
''National Federation of Independent Business v. Sebelius'', 567 U.S. 519 (2012), was a List of landmark court decisions in the United States, landmark United States Supreme Court decision in which the Court upheld Congress's power to enact most ...
'' (2012) which justified the individual mandate as an allowable tax. In December 2018, Judge Reed O'Connor of the District Court of Northern Texas issued his opinion in agreement with the states that without the individual mandate, the whole of the ACA had no standing. California and several other states led the appeal of the case to the Fifth Circuit Court. The Fifth Circuit affirmed in part with O'Connor's opinion on the unconstitutionality of the ACA without the individual mandate in December 2019. The case was raised to the Supreme Court to be heard as '' California v. Texas'' during the court's 2020–21 term; in a 7–2 decision issued on June 17, 2021, the Court ruled that Texas and other states that initially challenged the individual mandate did not have standing, as they had not shown past or future injury related to the provision. The Supreme Court otherwise did not rule on the constitutionality of the individual mandate in this case.
See also
*Bush tax cuts
The phrase Bush tax cuts refers to changes to the United States tax code passed originally during the presidency of George W. Bush and extended during the presidency of Barack Obama, through:
* Economic Growth and Tax Relief Reconciliation Act o ...
*Reagan tax cuts The phrase Reagan tax cuts refers to changes to the United States federal tax code passed during the presidency of Ronald Reagan. There were two major tax cuts: The Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. The tax cuts popul ...
*Revenue Act of 1964 The United States Revenue Act of 1964 (), also known as the Tax Reduction Act, was a tax cut act proposed by President John F. Kennedy, passed by the 88th United States Congress, and signed into law by President Lyndon B. Johnson. The act became law ...
Notes
References
External links
Tax Cuts and Jobs Act of 2017
PDF
as enacted in the US Statutes at Large
* via Congress.gov
Tax Foundation's calculator to see effect of the law on you
Taxpayer Advocate Service Tax Reform Changes Website
{{US tax acts
2017 in American law
2017 in economics
Acts of the 115th United States Congress
Presidency of Donald Trump
United States federal reconciliation legislation
United States federal taxation legislation
Articles containing video clips