GOP Tax Plan Includes Secret “Millionaire Tax”
Yesterday, House Republicans finally unveiled their 2018 tax plan, and as we reported, there’s plenty in it to like. There’s a balance of tax cuts that are “paid for” in part by limiting deductions that disproportionately benefit higher earners – most prominently in blue states.
Among the highlights of the tax plan include:
- Lowering individual tax rates for low- and middle-income Americans to Zero, 12%, 25%, and 35%; keeps tax rate for those making over $1 million at 39.6%
- Increasing the standard deduction from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
- Establishing a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600
- Preserving the Child and Dependent Care Tax Credit
- Preserving the Earned Income Tax Credit
- Preserving the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000, half the current $1,000,000
- Continuing to allow people to write off the cost of state and local property taxes up to $10,000
- Repealing the Alternative Minimum Tax
- Lowering the corporate tax rate to 20% – down from 35%
- Reducing the tax rate on business income to no more than 25%
- Establishing strong safeguards to distinguish between individual wage income and “pass-through” business income
- Allowing businesses to immediately write off the full cost of new equipment
- Retaining the low-income housing tax credit
The economics of the plan are also good for wages. The President’s Council of Economic Advisors recently released a report showing that updating the U.S. business tax code to compete with other countries around the world could boost workers’ wages by $4,000, and as much as $9,000 a year.
While on the surface the law appears to keep the top tax bracket of 39.6% in place, it actually does manage to raise that rate to 45% if you read the dirty details. According to Politico, “a little-noticed provision effectively creates a new band in which income is taxed at over 45 percent. Thanks to a quirky proposed surcharge, Americans who earn more than $1 million in taxable income would trigger an extra 6 percent tax on the next $200,000 they earn—a complicated change that effectively creates a new, unannounced tax bracket of 45.6 percent.”
More from the report: “After the first $1 million in taxable income, the government would impose a 6 percent surcharge on every dollar earned, until it made up for the tax benefits that the rich receive from the low tax rate on that first $45,000. That surcharge remains until the government has clawed back the full $12,420, which would occur at about $1.2 million in taxable income. At that point, the surcharge disappears and the top tax rate drops back to 39.6 percent. This type of tax is sometimes called a ‘bubble tax,’ because the marginal tax rate effectively bubbles up for a brief period before falling back to a lower level.”
Make of it what you will – but it certainly dispels any liberal claim that the plan is nothing more than “tax cuts for the rich.” House Speaker Paul Ryan and other House GOP leaders touted the bill in a press conference yesterday and argued it would save the average family of four $1,182 a year on their taxes.
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