Understanding the Differences between the House and Senate GOP Tax Reform Measures
The House and Senate Republican tax reform proposals agree on the big-ticket items, but differ on some key matters of interest to many Californians.
They agree on the amount of the tax breaks -- $1.5 trillion over 10 years.
They agree on reducing corporate tax rates from 35% to 20%. This proposal is to induce American multi-nationals to agree to be taxed in America rather than the Island of Jersey or the Isle of Man – two well known tax havens for those seeking to dodge taxes. The House would start in 2018 and the Senate would start in 2019.
They agree on eliminating the alternative minimum tax, which had assured that the wealthy do not overuse tax deductions to escape tax liability.
They agree on the standard deduction of $24,000 for couples; however the Senate would adopt an $18,000 standard deduction for single parents.
They disagree on mortgage interest deductions. The Senate would retain the $1 million cap while the House would reduce that to $500,000 and limit it to only one residence; whereas the Senate would allow deductions for multiple residences. This would be very bad for new home buyers in virtually all California counties along the coast.
They disagree on medical expense deductions for those with large medical expenses in excess of 10% of a taxpayer’s income. The House would eliminate it; whereas the Senate would retain it. Elimination would be awful for Californians with severe or chronic illness, particularly the disabled and seniors in nursing homes.
They disagree on the deduction for state and local taxes (SALT). The Senate would eliminate them entirely while the House would eliminate the deduction for state income taxes and cap the deduction for your home (real property) taxes at $10,000. Both are very bad for Californians.
They disagree on the number of tax brackets. The Senate retains 7 while the House reduces it to 4. The House keeps a tax bracket at 39.6% for those earning over one million annually and the Senate reduces that rate to 38.5%.
They disagree on estate and gift taxes. The House would eliminate them entirely while the Senate would double the estate tax exemption to $11 million.
They agree on a pass-through tax rate of 25%. That means that if you own your own business as the Koch brothers do and President Trump does, you pay at a top income tax rate of 25% as opposed to 39% for the top corporate executives in large publicly held corporations.
Most taxpayers would see decreases under these proposals, but in 2018, 7% of taxpayers would see increases, and by 2027, 25% of taxpayers would see an increase.
Taxpayers in the bottom fifth (less than $25,000 annually) would see an average reduction of 0.4% or approximately $60 annually. Taxpayers in the top 1% (over $730,000 annually) would receive an average reduction of 2.5% of after tax income ($37,000 annually); the top 1% would receive 21% of all the tax savings. The middle quintile (between $48,000 and $86,000) would receive a tax cut of $800 (1.5% of after tax income). The top 0.1% of income earners would receive an average reduction of $178,560 (2.5% of after tax income) and 10% of the total tax relief in 2018.
So this is what middle class tax relief means to the Trump Administration and the House and Senate GOP leaders – huge handouts to their donor base -- and little to no relief and over time increases in taxes for many of their middle-income voting base. In 2018, the top 1% gets 21% of the benefits of “tax reform”; in 2027, they get 47% of the benefits of tax reform. In 2018, the middle fifth (middle class) get 14% of the benefits of tax reform ($800 on average), in 2027 they get 9% of the benefits of tax reform ($300). This will be especially pernicious in states like California.
Please communicate your views to your local Congressperson now. The plan is to pass these bills by Thanksgiving and have them on the President’s desk before Christmas.
Prepared by: Lucien Wulsin
Dated: 11/10/17