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Tax Cuts and Jobs Act of 2017

From Wikipedia, the free encyclopedia
The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, officially referred to as the Tax Cuts and Jobs Act, is a United States Congressional bill to amend the Internal Revenue Code of 1986, effectively altering the rate of taxation for individuals and businesses.[1] It is the major tax reform advocated by congressional Republicans and the Trump administration. Major elements include reducing tax rates for individuals and businesses; increasing the standard deduction and family tax credits; limiting the mortgage interest deduction and deductions for state and local income taxes and property taxes; limiting the Alternative Minimum Tax for individuals and eliminating it for corporations; reducing the number of estates impacted by the estate tax; and repealing the individual mandate of the Affordable Care Act (ACA)

Tax Cuts and Jobs Act
Great Seal of the United States
Full title An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.
Acronym TCJA
Colloquial name(s) Trump Tax Cuts
Introduced in 115th United States Congress
Introduced on November 2, 2017
Effects and codifications
Act(s) affected Internal Revenue Code of 1986
Tax Reform Act of 1986
Agencies affected Internal Revenue Service
Legislative history
  • Introduced in the House of Representatives as H.R. 1 by Kevin Brady (RTXon November 2, 2017
  • Committee consideration by: House Committee on Ways and Means; passed committee on November 9, 2017 as “Tax Cuts and Jobs Act” (24–16)
  • Passed the House of Representatives on November 16, 2017 (227–205)
  • Passed the Senate on December 2, 2017 (51–49)
  • Reported by the joint conference committee onDecember 15, 2017; agreed to by the Senate onDecember 20, 2017 (51–48and by the House of Representatives on December 20, 2017 (227–203)

The non-partisan Congressional Budget Office (CBO) reported that under the Act, individuals and pass-through entities like partnerships and S-corporations would receive approximately $1,125 billion in net benefits (i.e., net tax cuts offset by reduced healthcare subsidies) over ten years, while corporations would receive approximately $320 billion in benefits. The individual and pass-through tax cuts fade over time and become net tax increases starting in 2027, while the corporate tax cuts are permanent. This enabled the Senate to pass the bill with only 51 votes, without the need to defeat a filibuster, under the budget reconciliation process.[3]

The CBO estimated that implementing the Act would add an estimated $1.455 trillion to the national debt over ten years,[3] or about $1.0 trillion after macroeconomic feedback effects,[4] in addition to the $10 trillion increase forecast under the current policy baseline and existing $20 trillion national debt.[2] The non-partisan Joint Committee on Taxation estimated that the GDP level would be 0.8% percent higher, 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.[4] These are higher levels, not higher annual growth rates, so these are relatively minor economic impacts over ten years.[5]

The distribution of impact from the final version of the Act by individual income group varies significantly based on the assumptions involved and point in time measured. In general, businesses and upper income groups will mostly benefit regardless, while lower income groups will see the initial benefits fade over time or be adversely impacted. For example, the Joint Committee on Taxation estimated that:

  • During 2019, each income group would receive a tax cut (i.e., a lower average tax rate) relative to current law.
  • However, in 2021 those income groups earning $10,000-30,000 (24% of taxpayers) would pay more in taxes (a higher average tax rate).
  • In 2023 and 2025, those income groups earning $0-$30,000 (34% of taxpayers) would pay more in taxes, while those earning $30,000-$40,000 (9% of taxpayers) would pay the same amount.
  • In 2027, income groups below $75,000 (65% of taxpayers) would pay more in taxes, while tax cuts remain for those earning over $75,000.[6]

The Tax Policy Center (TPC) 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.[7] TPC also 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.[8]

The final version also impacts healthcare by repealing the ACA individual mandate, with up to 13 million fewer persons covered with health insurance and higher insurance premiums on the ACA exchanges.[9] The Congressional Budget Officereported that the deficit increase of $1.4 trillion in the Senate bill could trigger automatic spending reductions in specified categories of up to $150 billion per year over the next ten years, including $25 billion in Medicare. This is due to the 2010 Statutory Pay-as-You-Go Act (PAYGO).[9] The Senate requires 60 votes to waive PAYGO requirements, which would mean Republicans and Democrats would have to agree to waive the rule. If the PAYGO rule is not waived, these spending cuts would be automatically implemented.[10]

Critics in the media, think tanks, and academia assailed the bill in terms of its adverse impact (e.g., higher budget deficit,[11]higher trade deficit,[12] worse income inequality,[13][14] lower healthcare coverage, and higher healthcare costs[9]) and the misrepresentations made by its advocates.[15][16] It is among the least popular major legislation in recent U.S. history, with approximately 32% approval, nearly all of it Republican.[17]

The House passed the final bill on December 19, 2017, though for procedural reasons a re-vote will need to be held.[18] The Senate passed the final version on December 20 in a 51-48 vote, and if the bill is reaffirmed by the House it will be sent to the president to be signed into law.[18]

Contents

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Plan elements[edit]

The final Republican tax bill approved by the Conference Committee as of December 15, 2017 includes the following elements, among others, as reported by The New York Times:[19]

Individual income tax[edit]

Single (2018)[20]
Under current law Tax Cuts and Jobs Act
Rate Income bracket Rate Income bracket
10% $0–$9,525 10% $0–$9,525
15% $9,525–$38,700 12% $19,525–$38,700
25% $38,700–$93,700 22% $38,700–$82,500
28% $93,700–$195,450 24% $82,500–$157,500
33% $195,450–$424,950 32% $157,500–$200,000
35% $424,950–$426,700 35% $200,000–$500,000
39.6% $426,700 and up 37% $500,000 and up
Married filing jointly (2018)[21]
Under current law Tax Cuts and Jobs Act
Rate Income bracket Rate Income bracket
10% $0–$19,050 10% $0–$19,050
15% $19,050–$77,400 12% $19,050–$77,400
25% $77,400–$156,150 22% $77,400–$165,000
28% $156,150–$237,950 24% $165,000–$315,000
33% $237,950–$424,950 32% $315,000–$400,000
35% $424,950–$480,050 35% $400,000–$600,000
39.6% $480,050 and up 37% $600,000 and up
  • Individual income tax brackets. The number of income tax brackets remain at seven, but the income ranges in several brackets have been changed and each new bracket has lower rates. This has the effect of reducing taxes for most income levels, but they expire after 2025. These are marginal rates that apply to income in the indicated range as under current law (i.e., prior to the Tax Cuts and Jobs Act), so a higher income taxpayer will have income taxed at several different rates.[22][23] A different inflation measure (Chained CPI 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. The old and new rates and income brackets are shown at right. [24][25]
  • Standard deduction and personal exemption. The bill nearly doubles the standard deduction, 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 bill eliminates the personal exemption, which is a deduction of $4,150 per taxpayer and dependent, unless it is in an estate or trust. [24][25][26]
  • Family tax credits. The bill doubles the child tax credit from $1,000 to $2,000, $1,400 of which will be refundable. It also provides a $500 credit for other dependents, versus zero under current law.
  • Mortgage interest deduction. Mortgage interest deduction for newly purchased homes (and second homes) would be lowered from total loan balances of $1 million under current law to $750,000. Interest from home equity loans (aka second mortgages) will no longer be deductible, unless the money is used for home improvements.
  • State, local, sales, and property tax deduction. The deduction for state and local income tax, sales tax, and property taxes (“SALT deduction”) will be capped at $10,000. This would have more impact on taxpayers with more expensive property, generally those who live in higher-income areas, or people in states with higher state tax rates.
  • Healthcare deductions and credits. The bill repeals the individual mandate of the Affordable Care Act starting in 2019. This is estimated to save the government over $300 billion, by reducing the number of persons with coverage by up to 13 million over time along with related health insurance premium tax subsidies. It is estimated to increase premiums on the health insurance exchanges by up to 10%.[9] It also expands 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. For 2019 and later years, the threshold will increase to 10%.
  • Education deductions and credits. 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.[27]
  • Alternative minimum tax. The bill increases exemption level so fewer people will pay the Alternative minimum tax (AMT). The AMT primarily causes households earning between $200,000 to $1 million to pay more in taxes.
  • Estate tax. Increases the threshold for the estate tax from $5.5 million to $11.2 million.
  • Casualty loss deduction. Taxpayers will only be able to deduct a casualty loss if it occurs in a disaster that’s declared by the president.
  • Alimony deduction. Alimony paid to an ex-spouse will no longer be deductible by the payor. However, 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 payor. This provision is effective for divorce and separation agreements signed after December 31, 2018.
  • Moving expense deduction. Employment-related moving expenses will no longer be deductible.
  • Tax preparation expense deduction. Expenses related to preparing and filing your taxes (such as accountants or tax-preparation software) will no longer be deductible.

Pass-through businesses[edit]

  • Reduce pass-through taxes via a 20% deduction, after which a lower rate of 29.6% will be applied. This benefit phases out starting at $315,000. Many businesses are incorporated as pass-through entities (e.g., sole proprietorships, partnerships, and S-corporations) meaning the owners pay taxes at individual rates. These represent 95% of businesses and most of corporate tax revenues, so this is a large tax cut for owners (i.e., capital as opposed to labor). Approximately the largest 2% of pass-through businesses represent 40% of pass-through income and under current law are taxed at 39.6%, the top individual rate.

Corporate tax rates[edit]

  • The corporate tax rate would fall from 35% to 21%, while some related business deductions and credits would either be reduced or eliminated.
  • The corporate Alternative Minimum Tax would be eliminated.
  • The Act would change the U.S. from a global to a territorial tax system. Instead of a corporation paying the U.S. tax rate (35%) for income earned in any country (less a credit for taxes paid to that country), each subsidiary would pay 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 Journalist Matt Levine explained the concept: “If we’re incorporated in the U.S. [under today’s 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 [under 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.”[28] 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.
  • One time repatriation tax of profits in overseas subsidiaries of 7.5%, 14.5% for cash. U.S. multinationals have accumulated nearly $3 trillion offshore, much of it subsidiaries in tax haven countries. The Act may encourage companies to bring the money home over time, but at these much lower rates.[29]

Universities[edit]

  • The final bill includes a 1.4% excise tax on investment income of private colleges with assets valued at $500,000 per full-time student, and with at least 500 students. This provision has been referred to as an “endowment tax”, and it has been estimated that it would apply to 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.[30] A Senate Parliamentarian ruling on December 19 changed the exemption threshold from 500 tuition-paying students to 500 total students.[31]

Miscellaneous tax provisions[edit]

The Act contains a variety of miscellaneous tax provisions, many advantaging particular special interests.[32] Miscellaneous provisions include:

  • A tax break for citrus growers,[33] allowing them to deduct the cost of replanting “citrus plants lost or damaged due to causes like freezing, natural disaster or disease.”[32]
  • 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 estimates that the extension will lead to the loss of about $1 billion in federal revenue per year.[33]
  • 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 EtihadEmirates and Qatar Airways); major U.S. airlines have complained that the Gulf states provide unfair subsidies to those carriers.[33]
  • Reductions in excise taxes on alcohol for a two-year period.[34] 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 6 million barrels produced from $18 to $16 per barrel.[33] 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 as well.[32] These provisions were supported by the alcohol lobby, specifically the Beer InstituteWine Institute, and Distilled Spirits Council.[34]
  • Exempts private jet management companies from the 7.5% federal excise tax that is levied on each ticket sales of commercial flights.[35][36][37]

Arctic National Wildlife Refuge drilling[edit]

The Act contains provisions that would open 1.5 million acres in the Arctic National Wildlife Refuge to oil and gas drilling.[38]This major push to include this provision in the tax bill came from Republican Senator Lisa Murkowski.[39][40][41] The move is part of the long-running Arctic Refuge drilling controversy; Republicans had attempted to allow drilling in ANWR almost 50 times.[40] Opening the Arctic Refuge to drilling “unleashed a torrent of opposition from conservationists and scientists.”[41]Democrats[39][40] and environmentalist groups such as the Wilderness Society criticized the Republican effort.[40]

Impact[edit]

Economy[edit]

Tax Policy Center estimate of the annual changes in GDP and budget deficit over the 2018-2027 period under the Senate version of the bill. The cumulative GDP increase of $961 billion is less than the deficit increase of $1,233 billion, including macroeconomic feedback effects.[42]

Note: Macroeconomic analysis for the final version of the bill was not available from the JCT, CBO, and TPC as of December 18, 2017. The Senate bill analyses below should not be substantially different from the final bill.

The non-partisan Joint Committee on Taxation of the U.S. Congress published its macroeconomic analysis of the Senate version of the Act, on November 30, 2017:

  • Gross domestic product would be 0.8% higher on average each year during the 2018–2027 period relative to the CBO baseline forecast, a cumulative total of $1,895 billion, due to an increase in labor supply and business investment.
  • The Act would increase the total budget deficits (debt) by about $1 trillion 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 $1,414 billion, less $458 billion in feedback effects, plus increased interest costs of $51 billion due to higher debt levels, results in a $1,007 billion net debt increase over the 2018–2027 period. This increase is in addition to the $10 trillion debt increase already in the CBO current law baseline projected over the 2018–2027 period, and the approximately $20 trillion 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 0.6%.[4]
  • 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.[5]

The Tax Policy Center (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 $961 billion 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 $1,412 billion, less $179 billion in feedback effects, for a $1,233 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.[42]

Budget deficits and debt[edit]

U.S. annual budget deficits under the “Tax Cuts and Jobs Act” (Conference Cmte. version) vs. the CBO June 2017 current law baseline. CBO estimates the tax cuts would increase the annual deficits by a total of $1.45 trillion over ten years, an average of $145 billion per year.[3]

The non-partisan Congressional Budget Office(CBO) estimated on December 15, 2017 that implementing the Act would add an estimated $1,455 billion to the national debt over ten years,[3] in addition to the $10 trillion increase forecast under the current policy baseline and existing $20 trillion national debt.[2] Analysis of the similar Senate version indicated the deficit increase from the Act would be $1.0 trillion after macroeconomic feedback effects.[4]

The Joint Committee on Taxation estimated the Act would add $1,456 billion 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: $1,127 billion deficit increase)

  • Add to the deficit: Reducing/consolidating individual tax rates $1,214 billion; doubling the standard deduction $720 billion; modifying the Alternative Minimum Tax $637 billion; reduce taxes for pass through business income $415 billion; modification of child care tax credit $573 billion.
  • Reduce the deficit: Repealing personal exemptions $1,212 billion, repeal of itemized deductions $668 billion; reduce ACA subsidy payments $314 billion; alternative (slower) inflation measure for brackets $134 billion.
  • The pass through changes represent a net $265 billion deficit increase, so the remaining individual elements are a net $862 billion increase.

Business / Corporate and International (Total: $330 billion deficit increase)

  • Add to the deficit: Reduce corporate tax rate to 21% $1,349 billion; deductions for certain international dividends received $224 billion; repeal corporate AMT $40 billion.
  • Reduce the deficit: Enact one-time tax on overseas earnings $338 billion; and reduce limit on interest expense deductions $253 billion.[43]

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.[44] The economists unanimously agreed that the bill would increase the U.S. debt.[44][45]

Required spending reductions/PAYGO[edit]

CBO reported that the deficit increase of $1.5 trillion in the Senate bill could trigger automatic spending reductions of up to $136 billion per year, including $25 billion in Medicare. This is due to the 2010 Statutory Pay-as-You-Go Act or PAYGO.[10][9]The Senate requires 60 votes to waive PAYGO requirements, which would mean Republicans and Democrats would have to agree to waive the rule. If the PAYGO rule is not waived, significant cuts of up to $150 billion per year would be automatically implemented for the next ten years, potentially making the tax cuts budget-neutral (i.e., tax and spending cuts would roughly offset). However, the pool of authorized spending that can be cut is limited by the rule, and may not be large enough to fully offset the cost of the tax bill. Medicare spending cuts are limited by PAYGO rules, while Social Security and certain safety net programs are exempt.[46][47] The impact of PAYGO is not included in the distributional analyses described in the next section; these analyses focus solely on the content of the bill.

Distribution[edit]

Average tax rate changes for various income groups, by year, under the Conference Agreement, as of December 15, 2017. The slope of each line down to the right indicates larger benefits for higher incomes, while the upward shift of the lines over time indicates fading benefits (or increasing costs) across all income levels.[6]

Tax Cuts and Jobs Act impact by income group and year for the Conference Agreement (final) version. The highlight indicates those groups that will have net tax increases in that year ($ millions).[6]

Distribution of benefits during 2018 by income percentile under the Tax Cuts and Jobs Act (Conf. Cmte. version) based on data from the Tax Policy Center. The top 10% of taxpayers (incomes above $216,800) receive approximately 52% of the benefit; the bottom 60% (incomes below $86,100) only 17%.[8]

By income level[edit]

On December 18, 2017, the Joint Committee on Taxation released its distribution estimate of the Act:

  • During 2019, each income group receives a tax cut (i.e., a lower average tax rate) relative to current law.
  • However, in 2021 those income groups earning $10,000-30,000 (24% of taxpayers) pay more in taxes (a higher average tax rate).
  • In 2023 and 2025, those income groups earning $0-$30,000 (34% of taxpayers) pay more in taxes, while those earning $30,000-$40,000 (9% of taxpayers) pay the same amount.
  • In 2027, income groups below $75,000 (65% of taxpayers) pay more in taxes, while tax cuts remain for those earning over $75,000.[6]

The Tax Policy Center (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.[8]

  • 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.[8]

Individual vs. business[edit]

TCJA Senate version, net tax benefits by type of taxpayer, in total over ten years. Businesses receive a $890 billion benefit or 63%, individuals $441 billion or 31%, and estates $83 billion or 6%.[2]

Under the Senate version of the bill, businesses receive a $890 billion benefit or 63%, individuals $441 billion or 31%, and estates $83 billion or 6%.[2] 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 (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.”[48] Corporations have significant cash holdings ($1.9 trillion 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.[49]As of Q2 2017, corporate profits after taxes were near record levels in dollar terms at $1.77 trillion annualized, and very high measured historically as a percentage of GDP, at 9.2%.[50]

In 2017, the Congressional Budget Office 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.[51]

By state[edit]

An Institute on Taxation and Economic Policy 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…”[52]

If the tax cuts are paid for[edit]

Tax Policy Center analysis of the impact of the Senate version of the Tax Cuts and Jobs Act, assuming it is paid for by spending cuts that are borne evenly by all taxpayers.[7]

The scoring by the organizations above assumes the tax cuts are deficit-financed, meaning that over ten years the deficit rises by $1.4 trillion relative to the current law baseline; or $1.0 trillion after economic feedback effects. However, if one assumes the tax cuts are paid for by spending cuts, the distribution is much more unfavorable to lower- and middle-income persons, as most government spending is directed to them; the higher income taxpayers tend to get tax breaks, not direct payments. According to the Tax Policy Center, if the Senate bill were financed by a $1,210 per household cut in government spending per year (a more likely scenario than focusing cuts proportionally by income or income taxes paid), then during 2019:

  • The bottom 72% would be worse off than current law, meaning benefits from tax cuts would be more than offset by reduced spending on their behalf.
  • The bottom 60% of taxpayers would have lower after-tax income, paying a higher average federal tax rate.
  • The benefits to the 60th to 80th percentiles would be minimal, a $350 net benefit on average or 0.3% lower effective tax rate.
  • Significant tax benefits would only accrue to the top 20% of taxpayers.[7]

Republican politicians such as Paul Ryan have advocated for spending cuts to help finance the tax cuts, while the President Trump’s 2018 budget includes $2.1 trillion in spending cuts over ten years to Medicaid, Affordable Care Act subsidies, food stamps, Social Security disability insurance, Supplemental security income, and cash welfare (TANF).[7]

Healthcare and spending subject to sequester[edit]

The Senate bill repeals the individual mandate that requires all Americans under 65 to have health insurance or pay a penalty. The CBO estimated that 13 million fewer persons would have health insurance as a result in ten years, including 8 million fewer on the Affordable Care Act exchanges and 5 million fewer on Medicaid. Fewer persons with healthcare means lower costs for the government, so CBO estimated over $300 billion 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.[9]

Further, the $1.5 trillion larger deficit created by the bill could trigger spending cuts of $136 billion in fiscal year 2018 (if PAYGO is not waived), which would include cuts of as much as $25 billion to Medicare. These cuts would continue each year over the 2018–2027 period.[10]

Differences between the House and Senate bills[edit]

There were important differences between the House and Senate versions of the bills as of November 16, 2017:

  • The House plan has four income tax brackets ranging from 12% to 39.6%, while the Senate bill kept seven brackets ranging from 10% to 38.5%.[53]
  • The House plan cuts the corporate tax immediately, while the Senate plan delays it until 2019.
  • The House plan makes both individual and corporate taxes “permanent” (i.e., no set expiration) while the Senate bill has most of the individual tax cuts expiring (but not the business cuts).
  • The House plan does not repeal the health insurance individual mandate, while the Senate bill does.
  • The House plan eliminates deductions for state, local, and sales taxes paid, and caps property deductions at $10,000. [Note: The Senate bill initially would have eliminated the state and local property tax deduction, but this was later changed to $10,000 as well in the Senate bill just prior to its passage on December 2; see section below.]
  • The House plan allows parents to put aside money for an unborn child’s college education. The Senate bill does not include this provision.
  • The House plan caps the deduction for mortgage interest to the first $500,000 mortgage debt versus the current $1 million, while the Senate does not change it.[54]
  • The House plan repeals the Johnson Amendment. The Senate version does not.[55]

In final changes prior to approval of the Senate bill on December 2, additional changes were made (among others) that must be reconciled with the House bill in a conference committee, prior to providing a final bill to the President for signature. The impact is relative to earlier versions of the Senate bill, measured over ten years in total:

  • Allow itemized deduction of up to $10,000 in state and local property taxes, making the Senate bill more like the House bill, a revenue decrease of $148 billion.
  • Retain the individual Alternative Minimum Tax (AMT), with increased exemption amounts and phaseout thresholds, a revenue increase of $133 billion.
  • Increase deductions for pass-through businesses to 23%, a revenue decrease of $114 billion. The House bill taxes pass-through businesses at 25%.[53]
  • Reinstate the corporate AMT, a revenue increase of $40 billion.[56]

The Tax Policy Center has prepared a detailed table summarizing differences between the House and Senate bills.[57]

Conference version of the bill[edit]

The final version of the Conference Committee was signed on December 15, 2017. It has relatively minor differences compared to the Senate bill. Individual and pass-through tax cuts “sunset” (expire) after ten years, while the corporate tax changes are permanent. It must now be voted on in both the House and Senate, scheduled for the week starting December 18.

  • The Joint Committee on Taxation estimated the cost of the bill at $1.455 trillion over ten years, versus $1.414 trillion in the Senate bill.
  • Top tax rate will be lowered from 39.6% (current and Senate bill rate) to 37%.
  • Corporate tax rate will be cut from 35% (current rate) to 21%, not 20% (Senate bill version).
  • Child tax credit will be increased from $1,000 (current amount) to $2,000 (Senate bill version) but the maximum amount refundable will be increased from $1,000 (Senate bill) to $1,400.
  • Amount of mortgage loan that can be used as a basis for a mortgage interest deduction lowered from $1 million (current amount) to $750,000.
  • State and local tax deduction capped at $10,000; this includes property, state and local income taxes and sales taxes, similar to Senate bill.
  • Estate tax exemption amount increased, so it affects fewer estates, similar to the Senate bill. This change sunsets in 2025.
  • Corporate AMT is eliminated, similar to Senate bill.
  • Repeals the individual mandate in the Affordable Care Act, similar to the Senate bill.
  • Pass-through businesses are allowed to deduct 20% from income, versus 23% in Senate bill. A 29.6% rate will then be applied, versus the 39.6% rate under current law.[58]

Claims made by the Administration[edit]

The Administration and its Council of Economic Advisors have made several claims in advocating the Act during 2017, including:

  • Reduction in corporate tax rates from 35% to 20% and immediate full expensing of non-structure investments (e.g., IT investments) will increase GDP growth rates by 3 to 5 percentage points over the current baseline projections of around 2%. This could begin as early as 3–5 years from the tax cuts or further out in time. This projection excludes other tax cuts in the Act, such as those for individuals and pass-through entities, which may have additional GDP impact.
  • The mechanism for this increased growth is higher levels of business investment (one of the components of GDP) due to the additional after-tax income available.
  • Further, this growth in GDP (a measure of income as well as production) would represent an average $4,000 annual increase in wage and salary income for households.[59]
  • President Trump and Treasury Secretary Mnuchin have stated the tax cuts would pay for themselves.[60]
  • Trump economic advisor Gary Cohn stated that “The wealthy are not getting a tax cut under our plan.” He also stated that the plan would cut taxes for low-income and middle-income households. Further, Trump stated that the tax plan “…was not good for me [personally].”[61]

Objections[edit]

Increases the budget deficit and debt[edit]

CBO forecast that the Tax Cuts and Jobs Act (Senate version) would add $1.4 trillion to the debt held by the public over the 2018-2027 period, excluding macroeconomic feedback effects. This is in addition to nearly $11 trillion in debt increases already in the June 2017 baseline.[2]

Maya MacGuineas of the Committee for a Responsible Federal Budget wrote that the tax cuts would add $1.5 trillion more to the debt over a decade, on top of $10 trillion already forecast. She explained that when the 2001 Bush tax cutswere passed, debt was 31% GDP, while today it is 77% GDP, “higher than any time in history other than just after World War II.” She concluded that: “Instead of trickling down economic growth, the House plan will unleash a tidal wave of debt that will ultimately slow wage growth and hurt the economy.”[11]

Increases taxes on the middle-class[edit]

Both the House and Senate versions of the bill will raise taxes for middle- and lower-income persons, after initial cuts. For example, the Senate version of the bill will result in tax increases for those earning less than $75,000 by 2027. David Leonhardt wrote: “An assortment of middle-class tax increases—again, to help cover the cost of the tax cuts for the wealthy—last for the full life of the Senate bill. As a result, it ends up being a tax increase on households making less than $75,000.” Leonhardt explained that in 2027, after-tax income falls between 0.1–1.5% for incomes below $75k, while incomes above $500k see benefits of 0.4–0.6%.[62]

Leonhardt referred to the JCT study of the Senate version of the bill, which indicated that: a) Starting in 2021 those earning $10,000–30,000 (24% of taxpayers) pay more in taxes; b) In 2023 and 2025, those earning $0–$30,000 (34% of taxpayers) pay more in taxes; and c) In 2027, income groups below $75,000 (65% of taxpayers) pay more in taxes, while tax cuts remain for those earning over $75,000 (35% of taxpayers).[63]

Minor impact on economic growth[edit]

Paul Krugman disputed the Administration’s primary argument that tax cuts for businesses will stimulate investment and higher wages:[16]

  • Foreigners own about 35% of U.S. equities, so as much as $700 billion of the tax cut will go overseas, as corporate after-tax income will flow to these investors as stock buybacks and dividends.[64]
  • CEO’s indicate that tax cuts aren’t a big factor in investment decisions.[16]
  • Significantly increasing capital expenditures requires an inflow of foreign capital, strengthening the dollar, increasing trade deficits and potentially costing up to 2.5 million manufacturing and supporting jobs.[65]

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.[66]

The Tax Policy Center 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.[67]

Limited or no wage impact[edit]

Corporate after-tax profits (real or adjusted for inflation) have increased about 150% since 2000, yet real median household incomes are flat. The starting point is represented by 100.[68]

U.S. corporate profits after-tax from 1970 to Q2 2017. The dollars are near record level (blue line, left axis), while the % GDP is high relative to historical levels (red line, right axis).

CBO data on share of U.S. federal revenues collected by tax type from 1967-2016. Payroll taxes, paid by all wage earners, have increased as a share of total federal tax revenues, while corporate taxes have fallen. Income taxes have moved in a range, with Presidents Reagan and G.W. Bush lowering income tax rates, and Clinton and Obama raising them for the top incomes.[69]

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: 1) Pay down debt; 2) Stock buybacks, which are a form of payment to shareholders; and 3) Mergers. An informal survey of CEO’s conducted by Trump economic 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.[70]

Former Treasury Secretary Larry Summersreferred to the analysis provided by the Trump administration of its tax proposal as “…some combination of dishonest, incompetent, and absurd.” Summers continued that “…there is no peer-reviewed support for [the Administration’s] central claim that cutting the corporate tax rate from 35 percent to 20 percent would raise wages by $4,000 per worker. The claim is absurd on its face.”[15][71][72]

On November 16, journalist Mike Konczal wrote: “We’ve seen a large increase in corporate profits since 2000…yet this hasn’t trickled down to regular people. Wages are nearly flat since 2000, and the recovery from the recession featured the weakest business investment of the postwar period.” He continued that, “Corporations are flush with cash from large profits and aggressively low interest rates, yet they aren’t investing. This is a big hint that large tax cuts for corporations will have very little effect on the economy.”[68]

Benefits rich owners much more than workers[edit]

Treasury Secretary Steven Mnuchin argued that the corporate income tax cut will benefit workers the most; however, the nonpartisan Joint Committee on Taxation and Congressional Budget Office estimate that owners of capital benefit vastly more than workers.[73]

The New York Times compared average tax rates under the TCJA vs. current law for each income group over time using a series of charts. They show that the Senate version of the bill cuts taxes for lower income persons initially relative to a current law baseline, but by 2027 those earning $50,000 or less would face a tax increase. In contrast, those earning $500,000 or more would have lower taxes initially as well as in 2027. The effect on the lower income persons is more significant if the ACA individual mandate is repealed, as more persons would choose not to sign up for healthcare coverage and thus lose subsidies.[74]

The Act also lowers the taxes paid by pass through entities such as S-corporations, partnerships, and limited liability companies, even though pass-through income mainly flows to higher income owners:

  • About 70% of pass-through income flows to the top 1%.
  • The Tax Policy Center (TPC) estimated that only 19% of middle-class taxpayers have pass-through income, while 77% of the top 1% do. Further, TPC estimated that 85–88% of the benefit from a 25% cap on pass-through taxes (similar to what the House version of the Act proposes) would go to the top 1%.
  • Pass-through income is the majority of income for persons earning over $3.5 million per year, a subset of the top 0.1%.[75]

Increases income and wealth inequality[edit]

The New York Times editorial board explained the tax bill as both consequence and cause of income and wealth inequality: “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.[14]

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%.[76][77] Despite President Trump promising to address those left behind, the House and Senate bills would make inequality far worse:

  • 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 13 million 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 $150 billion benefit to the ultra-rich over ten years.[13]

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%.[78]

May increase the trade deficit, hurting employment[edit]

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 worsening the trade deficit. Paul Krugman estimated this could adversely impact up to 2.5 million U.S. jobs.[65]

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.[12] However, Economists widely reject however 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.[12]

May trigger mandatory spending cuts[edit]

Paul Krugman wrote that deficits driven by tax cuts could trigger cuts in Medicare by law, opening the door to other safety net cuts to programs such as disability insurance. An estimated 13 million Americans could no longer have health insurance under the Senate version of the Act, which would repeal the ACA’s individual health insurance mandate, a provision in the ACA which forces people to buy health insurance. However, many of these people would no longer have health insurance because they would willingly choose not to buy it if they were not forced to. [16]

Neither the House nor the Senate versions of the Act specify how the approximately $1.7 trillion debt increase will be paid for. Therefore, the estimates of its impact on the lower- to middle-classes do not include future reductions in spending that Republicans may attempt to pass to offset the Act’s deficit impact. For example, David Leonhardt explained in The New York Times that: “[A]ll of these estimates understate the long-term damage to the middle class, because they ignore the cuts to education, transportation, Medicare, Medicaid and Social Security that will eventually be necessary to reduce the deficit.”[79]

Three former Secretaries of Defense (Leon PanettaAsh Carter, and Chuck Hagel) wrote a letter to congressional leaders on November 15, 2017, arguing the additional deficits driven by the tax cuts would ultimately result in reduced military spending and endanger national security. The former defense secretaries wrote that the increase in the debt that would be caused by enactment of the tax bill would force the reduction in funding “for training, maintenance, force structure, flight missions, procurement and other key programs” and that “the result is the growing danger of a ‘hollowed out’ military force that lacks the ability to sustain the intensive deployment requirements of our global defense mission.”[80][81]

The Fed may counteract the stimulus[edit]

Interest rates could rise to offset the impact of fiscal stimulus (tax cuts) when the economy is growing and near full employment, if the Federal Reserve raises interest rates to ward off inflation or maintain lower inflation expectations. Higher interest rates tend to slow investment as borrowing becomes more expensive, thus slowing the economy, other things equal. In addition, market factors could raise interest rates through crowding out, in which the government bidding for scarce savings to finance deficits results in an upward bidding of interest rates with the private sector. Crowding out is unlikely, as there is a sizable savings surplus in the U.S. economy.[82]

Taxes are already low by global standards[edit]

In November 2017, the OECD reported that the U.S. tax burden was lower in 2016 than the OECD country average, measured as a percentage GDP:

  • Individual taxes were 26.0% GDP in 2016, versus the OECD average of 34.3%.
  • U.S. corporate taxes were 8.5% GDP in 2016, versus the OECD average of 8.9%.[83]

Journalist Justin Fox wrote in Bloomberg 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.[84]

Unfairly benefits the Trump family[edit]

Fact-checkers such as FactCheck.Org, PolitiFact and The Washington Posts fact-checker have found that Trump’s claims that his economic proposal and tax plan would not benefit wealthy persons like himself are provably false.[85][86][87] The elimination of the estate tax (which only applies to inherited wealth greater than $11 million for a married couple) benefits only the heirs of the very rich (such as Trump’s children), and there is a reduced tax rate for people who report business income on their individual returns (as Trump does).[88][89] An analysis by the New York Times 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 $31 million in taxes from the alternative minimum tax cut alone. If the most recent estimate of the value of Trump’s assets is correct, the repeal of the estate tax could save his family about $1.1 billion.[90]

Impact on science and graduate education[edit]

The bill that passed the House has been criticized for its significant negative impact on graduate students. Graduate students in private universities might see their effective tax rate go above 41.9%, a rate higher than what even the richest of Americans typically pay.[91] The change is due to one of the propositions in the bill that repeals 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.[92][93] The Senate version of the bill does not contain these provisions.[94]

The House bill’s disadvantageous treatment of graduate students was criticized because of its projected negative effect on the training of U.S. scientists.[94] The bill’s impact on U.S. science and innovation has been criticized by Stanford professor emeritus Burton Richter, a winner of the Nobel Prize in Physics and the National Medal of Science, 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.[95]

Encourages tax avoidance[edit]

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.”[96] 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.”[97]

Rushed process[edit]

The legislation has been rushed through Congress with little debate despite its far-reaching effects.[98][99] The 400-page House bill was passed two weeks after the legislation was first released, “without a single hearing” held.[100] 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.”[101] 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.[102] Many last-minute changes were handwritten on earlier drafts of the bill.[101][99] The revisions appeared “first in the lobbying shops of K Street, which sent back copies to some Democrats in the Senate, who took to social media to protest being asked to vote in a matter of hours on a bill that had yet to be shared with them directly.”[99]

The rushed approval of the legislation prompted an outcry from Democrats.[99][101][102][103] Senate Minority Leader Charles Schumer (D–NY) proposed giving senators more time to read the legislation, but this motion failed after every Republican voted no.[103] Requests to wait until incoming Democratic senator Doug Jones of Alabama could vote on the bill were also denied. Some commentators also criticized the process. The New York Times 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.”[104] Bloomberg columnist Al 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.[105]

Polls[edit]

A FiveThirtyEight average of November 2017 surveys showed that 32% of voters approved of the legislation while 46% opposed it.[17] This made the 2017 tax plan less popular than any tax proposal since 1981.[17]

Poll source Fieldwork Support/Approve Oppose/Disapprove Ref.
Start End
Politico/Morning Consult December 14, 2017 December 18, 2017 42%
39%
[106]
CNN/SSRS December 14, 2017 December 17, 2017 33%
55%
[107]
NBC News/Wall Street Journal December 13, 2017 December 15, 2017 24%
41%
[108]
Public Opinion Strategies (R) December 12, 2017 December 16, 2017 40%
49%
[109]
Monmouth University December 10, 2017 December 12, 2017 26%
47%
[110]
Quinnipiac University December 6, 2017 December 11, 2017 26%
55%
[111]
USA Today/Suffolk University December 5, 2017 December 9, 2017 32%
48%
[112]
Vice News/SurveyMonkey December 5, 2017 December 6, 2017 39%
56%
[113]
Reuters/Ipsos December 3, 2017 December 7, 2017 31%
49%
[114]
CBS News December 3, 2017 December 5, 2017 35%
53%
[115]
Gallup December 1, 2017 December 2, 2017 29%
56%
[116]
Quinnipiac University November 29, 2017 December 4, 2017 29%
53%
[117]
Reuters/Ipsos November 23, 2017 November 27, 2017 29%
49%
[118]
Harvard/Harris Poll November 11, 2017 November 14, 2017 46%
54%
[119]
Politico/Morning Consult November 9, 2017 November 11, 2017 47%
40%
[120]
Quinnipiac University November 7, 2017 November 13, 2017 25%
52%
[121]
The Economist/YouGov November 5, 2017 November 7, 2017 30%
40%
[122]
Politico/Morning Consult November 2, 2017 November 6, 2017 45%
36%
[123]
CNN/SSRS November 2, 2017 November 5, 2017 31%
45%
[124]
ABC/The Washington Post October 26, 2017 November 1, 2017 33%
50%
[125]
Politico/Morning Consult October 26, 2017 October 30, 2017 48%
37%
[126]
Reuters/Ipsos October 20, 2017 October 23, 2017 28%
41%
[127]
CNN/SSRS October 12, 2017 October 15, 2017 34%
52%
[128]
Politico/Morning Consult September 29, 2017 October 1, 2017 48%
37%
[129]
ABC/The Washington Post September 18, 2017 September 21, 2017 28%
44%
[130]

Support and opposition[edit]

Passage through the House and Senate[edit]

The bill was introduced in the United States House of Representatives on November 2, 2017 by Congressman Kevin BradyRepublican representative from Texas. On November 9, 2017, the House Ways and Means Committee passed the bill on a party-line vote, advancing the bill to the House floor.[131] 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.[132][133] Companion legislation was passed by the Senate Finance Committee and Senate Budget Committee, both times on a straight party-line vote.[134][135] In the early morning hours of December 2, 2017, the Senate passed their version of the bill by a 51–49 vote. Bob Corker (RTN) was the only Republican senator to vote against the measure and it received no Democratic Party support.[136] Differences between the House and Senate bills were reconciled in a conference committee that signed the final version on December 15, 2017. The final version contained relatively minor changes from the Senate version. Both the House and Senate must again vote on the bill, prior to providing a final bill to the President for signature.[58]

Notable supporters[edit]

Leading Republicans support the bill, including President Donald Trump and Vice President Mike Pence, and Republicans in Congress, such as:[137]

The House passed the bill on a mostly-party line vote of 227–205. No Democrat voted for the bill, while 13 Republicans voted against it.[132]

In the Senate, Republicans “eager for a major legislative achievement after the Affordable Care Act debacle … have generally been enthusiastic about the tax overhaul.”[139]

A number of Republican senators who initiated expressed trepidation over the bill, including Ron Johnson of Wisconsin, Susan Collins of Maine, and Steve Daines of Montana, ultimately voted for the Senate bill.[140][141]

The Senate passed the bill, with amendments, on a mostly-party line vote of 51–49. Every Democrat voted against the bill, while every Republican voted for it, except Senator Bob Corker of Tennessee.[142]

Republican supporters of the tax bill have characterized it as a simplification of the tax code. While some elements of the legislation would simplify the tax code, other provisions would add additional complexity.[143] For most Americans, the process for filing taxes under the Republican legislation would be similar to what it is today.[143]

Notable opponents[edit]

Democrats oppose the legislation, viewing it as a giveaway to corporations and high earners at the expense of the middle class.[144] Every House Democrat voted against the bill when it came to the House floor; they were joined by 13 Republicans who voted against it.[132]

The top congressional Democrats—Senate Minority Leader Chuck Schumer of New York and House Minority Leader Nancy Pelosi—strongly oppose the bill. Schumer said of the bill that “The more it’s in sunlight, the more it stinks.”[145] 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.”[146]

The 13 House Republicans who voted against the bill were mostly from New York, New Jersey, and California, and were opposed to the bill’s elimination of the state and local income tax deduction in the bill, which benefits those states.[147]

Views of economists[edit]

Most academic economists stated that there is no empirical evidence that the tax plan would benefit to the economy as much as the Trump administration claimed it will. There is, however, a consensus that it will widen public deficits and economic inequalities.[148][149][150]

Four winners of the Nobel Prize in Economics have spoken out against the legislation: Joseph Stiglitz,[151] Paul Krugman,[152]Richard Thaler,[153] and Angus Deaton.[154]

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.[155][156] Upon closer examination of signatories, it was discovered that a number of the signatories were not economists, that several who are listed as currently employed were in fact retired, one signatory did not recall having signed the letter and another signatory did not appear to exist.[156] A group of nine economists (largely from the Reagan 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 economists Larry Summers and Jason Furman (both served in the Obama administration), and the nine economists appeared to back off from their original claims.[157]

Political significance[edit]

In November 2017, Senator Lindsey Graham (R–SC) said that “financial contributions will stop” flowing to the Republican Party if tax reform is unable to be passed.[158] 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.'”[159]

Congressional votes[edit]

Pre-conference vote[edit]

The House bill passed by a 227–205 vote with thirteen Republican representatives voting no.

  Republican “aye”
  Republican “no”
  Democratic “no”
  Democrat not voting

The Senate bill passed by a 51–49 vote with one Republican Senator voting no.

  Republican “aye”
  Republican “no”
  Democratic “no”
  Independent “no”

Senate vote on the Tax Cuts and Jobs Act, by state.

  2 “aye”
  1 “aye” and 1 “no”
  2 “no”

It was introduced in the United States House of Representatives on November 2, 2017 by Congressman Kevin Brady, Republican of Texas. On November 9, 2017, the House Ways and Means Committee passed the bill on a party-line vote, advancing the bill to the House floor.[131] 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.[132][133] On the same day, companion legislation passed the Senate Finance Committee, again on a party-line vote, 14–12.[134] On November 28, the legislation passed the Senate Budget Committee, again on a party-line vote.[135] On December 2, the Senate passed its version by 51–49, with Bob Corker being the only Republican not to vote in support of the bill.[160]

The benefits of the individual tax cuts fade over time, so the Senate can attempt to pass the bill with only 51 votes under the budget reconciliation process. This is specifically to comply with the Byrd Rule, which allows Senators to block legislation if it would increase the deficit significantly beyond a ten-year term.[161][162]

House of Representatives[edit]

Tax Cuts and Jobs Act – Vote in the House of Representatives (November 16, 2017)[163]
Party Votes for Votes against Not voting/Absent
Republican(240) 227
Democratic(194) 192
Total (434)[nb 1] 227 205 2

Senate[edit]

Tax Cuts and Jobs Act – Vote in the Senate (December 2, 2017)[160]
Party Votes for Votes against Not voting/Absent
Republican (52) 51
Democratic (46) 46
Independent (2)
Total (100) 51 49

Post-conference vote[edit]

The final version of the bill initially passed in the House of Representatives by a vote of 227–203 on December 19, 2017.[164]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.[165] However, several provisions of the bill violated the Senate’s procedural rules, causing the need for the House of Representatives to re-vote with the provisions removed.[164] On December 20, the Senate passed the bill by a party-line vote of 51–48.[166] On the same day, the House of Representatives re-voted on the bill and passed it by a vote of 224–201.[167]

House of Representatives[edit]

Tax Cuts and Jobs Act – Vote in the House of Representatives (December 19, 2017)[168]
Party Votes for Votes against Not voting/Absent
Republican(239) 227
Democratic(193) 191
Total (432)[nb 2] 227 203 2
Tax Cuts and Jobs Act – Vote in the House of Representatives (December 20, 2017)
Party Votes for Votes against Not voting/Absent
Republican(239)
Democratic(193)
Total (432) 224 201 7

Senate[edit]

Tax Cuts and Jobs Act – Vote in the Senate (December 20, 2017)[166]
Party Votes for Votes against Not voting/Absent
Republican (52) 51
Democratic (46) 46
Independent (2)
Total (100) 51 48 1

Cloud tables[edit]

             Present                                                 Proposed
            Brackets*  Fills                                        Brackets   Fills
        10%   12,700                                           10%    24,000
        15%   31,350   1,865                                   12%    43,050   1,905
        25%   88,600  10,453                                   22%   101,400   8,907
        28%  165,800  29,753                                   24%   189,000  28,179
        33%  246,050  52,223                                   32%   339,000  64,179
        35%  429,400 112,728                                   35%   424,000  91,379
      39.6%  483,400 131,308                                   37%   624,000 161,379

                     Joint                                      Single      
    Income       Present       Proposed   Savings        Present       Proposed   Savings

    13,000        30  0.2%        0  0.0%      30        665  5.1%      100  0.8%     565
    21,000       830  4.0         0  0.0      830      1,731  8.2       900  4.3      831
    34,000     2,263  6.7     1,000  2.9    1,263      3,681 10.8     2,450  7.2    1,232
    55,000     5,413  9.8     3,339  6.1    2,074      7,901 14.4     5,400  9.8    2,502
    89,000    10,553 11.9     7,419  8.3    3,134     16,584 18.6    12,880 14.5    3,705

   144,000    24,303 16.9    18,279 12.7    6,024     33,033 22.9    25,970 18.0    7,064
   233,000    48,569 20.8    38,739 16.6    9,830     62,769 26.9    53,040 22.8    9,730
   377,000    95,436 25.3    76,339 20.2   19,097    119,393 31.7   104,740 27.8   14,653
   610,000   181,762 29.8   156,479 25.7   25,283    211,661 34.7   190,950 31.3   20,711
   987,000   331,054 33.5   295,689 30.0   35,365    360,953 36.6   330,440 33.5   30,513

 1,597,000   572,614 35.9   521,389 32.6   51,225    602,513 37.7   556,140 34.8   46,373
 2,584,000   963,466 37.3   886,579 34.3   76,887    993,365 38.4   921,330 35.7   72,035
 4,181,000 1,595,878 38.2 1,477,469 35.3  118,409  1,625,777 38.9 1,512,220 36.2  113,557
 6,765,000 2,619,142 38.7 2,433,549 36.0  185,593  2,649,041 39.2 2,468,300 36.5  180,741
10,946,000 4,274,818 39.1 3,980,519 36.4  294,299  4,304,717 39.3 4,015,270 36.7  289,447

These brackets are the taxable income plus the standard deduction for a joint return. That deduction is the first bracket. For example, a couple earning $88,600 by September owes $10,453; $1,865 for 10% of the income from $12,700 to $31,500, plus $8,588 for 15% of the income from $31,500 to $88,600. Now, for every $100 they earn, $25 is taxed until they reach the next bracket.

After making $400 more; going down to the 89,000 row the tax is $100 more. The next column is the tax divided by 89,000. The proposal is the next column. This tax equals 10% of their income from $24,000 to $43,050 plus 12% from $43,050 to $89,000. The singles’ sets of markers can be set up quickly. The brackets and fills are cut in half.

Itemizers can figure their tax without moving the scale by taking the difference off the top. The couple above, having receipts for $22,700 in deductions, means that the last $10,000 of their income is tax free. After seven years the papers can be destroyed; if unchallenged.