A Historic Tax Bill Moves through Congress

To the Teacher:

Ask students to read the following summary of the 2017 Republican tax bill and the controversy over it. (A pdf version of the reading is here.) Afterwards, ask students for any questions they have about the reading, and engage them in discussion using the questions below. Consider continuing the discussion as you follow the progress of the bill in the coming weeks.

Congress is poised to enact a tax law of historic proportions.

The Senate released its version of the Tax Cuts and Jobs Act (H.R. 1) on November 9, 2017, a week after the House passed its version of the bill. Both bills were passed by Republicans only, receiving no votes from Democrats. The Act won't go into law until both houses pass an identical bill and President Trump signs it.

Although the two bills are different, their intent and effect is similar: to make large tax cuts for the wealthiest individuals and corporations and temporarily cut taxes for middle class taxpayers. Under the Senate version of the bill:

Corporations would benefit. The tax rate for big businesses would fall from 35 percent to 20 percent starting in 2019, putting the U.S. corporate tax rate at a lower level than many other foreign nations. Companies would be allowed to bring back any money they have stored overseas at the very low tax rate of 14.5 percent.
The very rich would benefit. The top tax rate for millionaires would fall from 39.6 percent to 38.5 percent. More rich families would be exempt from paying the estate tax when they pass property and other inheritance to their children. (The House version of the bill would eliminate the estate tax altogether after 2023.) The rich would also benefit from a lowering of the tax on so–called "pass through" businesses that allow them to take in income as a business. These gifts to the rich have come under fire at a time when U.S. wealth inequality is already at an all–time high: The top 1% now holds 39% of the nation's wealth.
Most Americans would see a temporary tax cut. The Senate bill keeps the current seven tax brackets, but it cuts the rates at every level. This means that most Americans would get a tax cut in the coming years, but not everyone, because the bill also does away with some popular tax credits and savings. But while the big business tax cut would be permanent, the rate reductions for individuals would expire after 2025. By 2027, according to the Congressional Budget Office, everyone making less than $75,000 would provide a net savings to the government, whether through higher taxes, lower amounts spent on services, or both.
Uninsured Americans would no longer have to purchase health insurance or else pay a penalty – a provision of Obamacare known as the "individual mandate." The Congressional Budget Office, the U.S.'s official nonpartisan estimator, has predicted that this change would cause health insurance premiums to rise by an average of about 10 percent a year, and prompt 13 million people to drop insurance by 2027.
Drilling for oil and gas would be allowed in Alaska's Arctic National Wildlife Refuge.

Under both versions of the bill, tax cuts would result in a dramatic drop in revenue for the federal government, adding $1.4 trillion to the U.S. federal deficit. Republicans argue that much of this amount would be made up for by huge economic gains resulting from the tax cuts, as both corporations and the wealthy invest in spending that would grow the economy.

However, past tax cuts have not resulted in a major economic boost. The nonpartisan Joint Committee on Taxation has said the current Senate tax plan will boost economic growth by only 0.8 percent over the next decade, leaving $1 trillion in cuts unpaid for.

A number of Republicans have already signaled how they plan to address this shortfall: By making cuts to programs that support the elderly, disabled and poor people, including Medicaid, Medicare, and Social Security. "The driver of our debt is the structure of Social Security and Medicare for future beneficiaries," noted Sen. Marco Rubio (R–Fla.) in response to questions about the $1 trillion budget gap. House Speaker Paul Ryan (R–Wis.) said that he wants Republicans to reduce spending on government programs in 2018. And Senate Finance Committee Chair Orrin Hatch (R–Utah) argued that "liberal programs" for the poor were wasting Americans' money.

What happens next?

To pass the law, the Senate and House must approve identical legislation, so the leadership of each house must appoint members to a special joint committee, which will work out the differences. The Democrats have appointed their members and the Republicans, theirs. The number of committee members from each party is determined by the overall majorities in each house. Because the Republicans have majorities in both the Senate and House, they have a majority in the reconciliation committee.

Congressional leaders have said they hope that this special conference committee will come up with a tax cut plan that both houses of Congress can pass and send to President Trump to sign by the end of the 2017.

Here are some of the issues that the reconciliation committee will have to iron out:

The House version totally eliminates the Alternative Minimum Tax which ensures that wealthy individuals and companies can't use credits and exemptions to lower their taxes too much. (The Senate version just dilutes the AMT.)
The House version of the bill would eliminate the estate tax altogether after 2023; the Senate version just exempts more families from paying it. (Only those with estates of more than $11 million would have to pay anything.)
While the Senate eliminates the "individual mandate" provision of Obamacare (which ensures that everyone pays into the system so that there's enough money to care for the people with high health expenses), the House version keeps the mandate.
Under the House bill, graduate students who receive a break on tuition will have to pay income tax on that tuition reduction.
The House allows churches and other tax–exempt groups to engage in political activity.
The House bill eliminates the $250 tax deduction for teachers who use their own money for school supplies. (The Senate actually doubles the amount to $500.)

President Trump and Republican leaders are right about one important aspect of the tax laws: the tax code is enormously lengthy, complex, and difficult to understand. The number of adjustments (credits, deductions, exemptions, carryovers, etc.,) to income and to taxes owed is staggeringly difficult to calculate for most individuals. And even more complicated for businesses. Each of the tens of thousands of provisions in the law will help or hurt some group of taxpayers and not others.

The complexity of the law tends to advantage the wealthiest individuals and the largest corporations in at least two ways. First, wealthy donors and corporate lobbyists can afford (very expensive) tax lawyers to tease out every conceivable loophole which will reduce their taxes. Second, they are adept and very successful in persuading Congress to make changes that benefit them.

The Republican tax plans have drawn criticism and protest, particularly from those concerned about wealth inequality, public schools, healthcare, college students, low–income wage earners and the national debt. A Quinnipiac University poll shows 53% disapprove of the plan and 29% approve. 64% think the tax plan benefits the wealthy the most.

Though there were no large scale demonstrations to protest the Republican tax plans, there were hundreds of protests around the country. Many, from Alaska to Maine to North Carolina and Texas, targeted specific legislators.

On Nov. 27, over 100 demonstrations and sit–ins around the country protested the Republican tax plan.
On Nov. 28, 36 people were arrested in the Capitol for interrupting the Senate Budget Committee meeting.
On Nov. 29, graduate students at 63 schools walked out in protest of the bill.
On Dec. 2, New York City Mayor DeBlasio addressed hundreds of protestors in front of the New York Stock Exchange.
On Dec. 4, 500 protestors rallied at the Chicago Board of Trade.
On Dec. 5, 300 demonstrators stormed the House Office Building to take their message to individual members of Congress.
On Dec. 7, nine religious leaders were arrested for protest ing at Sen. Susan Collins' Portland, ME, Office.

Much opposition energy is focused on changing control of Congress in the 2018 elections. In that year (and every two years), all members of Congress are up for election, as are about one–third of U.S. senators. If the bill passes and taxes are cut, some voters will surely reward the Republicans at the polls. But opponents are already mobilizing to challenge every Congress member who votes for a tax bill that they believe will rob the poor to pay the rich.

For Discussion

What questions to do you have about the reading? How might they be answered?
Do you support the tax plans Congress has passed? Why or why not?
Given the huge inequality in the U.S., should tax reform aim to put more money in the hands of middle and lower income groups? Is that government's job? Why or why not?
While there have been many protests in Washington, D.C. and around the country, the movement against the tax bill have been less vigorous than the protests against the repeal of Obamacare. Why do you think there hasn't been a larger response?
Do you think the Republican tax plan will help or hurt their election chances in the 2018 elections for Congress?