The Republican tax bill has changed substantially since
it was first introduced in October.
And the changes have mostly been for the better as it’s
moved through the legislative process.
Congress is expected to pass the tax bill this
If you formed your impression of the tax bill when it was
first introduced in the House in
October, you should know it’s changed a lot on its way to
becoming the likely final version that Congress
is expected to vote on this week.
In my view, most of the changes have been positive.
Republicans responded to criticism that early versions of the
bill would raise taxes on many middle-income families. To address
that, they changed the bill to partially preserve the deductions
for property taxes and state income taxes (capped at $10,000),
and to offer larger tax credits for children and non-child
dependents. They also tinkered with the tax brackets.
An 11th-hour change sought by Sen. Marco Rubio
makes the structure of the child credit somewhat more
progressive, expanding benefits to low-income families with
As a result of all these changes, the fraction of taxpayers
facing a tax increase in the tax bill’s first year will fall from
about a quarter to somewhere under 7%.
Seven percent was the Tax Policy Center’s estimate of what share of
taxpayers would face a tax increase in 2019 under the version
that passed the Senate last month. Changes in the latest version
(the Rubio provision and the change to rules on deducting state
income taxes) should push the figure even a little lower — and
will push the effectiveness of nearly all the tax changes to
You should also know that many of the provisions that had people
most worried have been stripped out of the bill.
If you were concerned that the Republican plan would end the
adoption tax credit, tax graduate students’ waived tuition,
repeal deductibility of student loan interest, let churches
engage in political activity, abolish the deduction for teachers’
out-of-pocket spending on school supplies, repeal the medical
expense deduction, fully repeal the estate tax, or let people
create education savings accounts for fetuses, you don’t have to
worry — none of those provisions are in the final version of the
The bill still has big problems, and some of the problems have
There is a major “but.” One main way Republicans will pay for all
these revisions to soften the blow of tax reform is by repealing Obamacare’s individual
mandate to carry health insurance.
Repealing the mandate saves the government about $300 billion
over a decade, because without the mandate, fewer people will
choose to carry health insurance. This means the government is on
the hook for less money to subsidize insurance purchases.
The mandate is unpopular, and Republicans frame this change by
saying they will no longer force people to buy a product they
don’t want. But what people really want is insurance that’s a
good enough deal they’d be willing to buy it. Instead, this
change will lead to more people going uninsured, and the likely
exit of healthy people from health insurance pools will push up
premiums for people who still buy in.
Another way they have paid for these changes is by setting the
expiration of individual income tax cuts even earlier than the 10
years they are allowed to grow deficits under Senate budget
rules. Running the tax cuts for fewer years reduces the official
cost of the bill.
Republicans insist those tax cuts will be extended later, and I
think that’s probably a true prediction for most of the
provisions — but that also means the bill will add even more to
the federal debt than the $1 trillion-plus estimated by the
Joint Committee on Taxation.
Moving the expirations earlier has only made the expiration
gimmick more naked, and increased the unstated deficit-increasing
effects of the bill.
If you dislike the bill, you should dislike it for the right
Overall, this is still not a good bill, for several reasons.
Its benefits accrue disproportionately to the highest earners
(though not as disproportionately as under the initial House
version), it grows federal budget deficits for no good reason,
and the deficits the bill creates are likely to be used as a
pretext to argue for entitlement cuts.
Provisions related to so-called pass-through companies will be
ripe for abuse — they are
a giveaway to rich people with little likely positive economic
effect. Fortunately, this is one of the temporary provisions I
think is actually likely to expire, once its true effects are
seen; a similar tax break was repealed in
Kansas, several years after implementation.
The tax cuts for middle-income families are eroded over time
through gimmicks related to inflation, and they are also at risk
of expiration if unforeseen political or economic events arise.
But there are also upsides.
Though Republicans overstate the positive economic effects from
business tax cuts, even forecasting models from groups like the
Tax Policy Center (which is a joint project of two center-left
think tanks) find the bill would modestly boost the economy, in
part because lower corporate tax rates will encourage business
The bill will make taxes simpler for many individual income
taxpayers by greatly reducing the number who itemize deductions.
Many of the tax deductions eliminated or reduced by the bill
distorted economic behavior for no good reason — we should not
miss them. (Unfortunately, while the individual tax changes are a
true simplification, the bill makes taxes on businesses even more
complex in various ways.)
This bill is probably not going to raise your taxes anytime soon
— in fact, if you pay income taxes, it most likely cuts them
And though it will add unnecessarily to the federal debt, the
likely change (adding five or seven percentage points to debt as
a share of GDP a decade from now) should not much change the
ability of the US government to respond to an economic crisis or
support an entitlement state.
When I interviewed Paul Krugman for The
Bottom Line this week, he said he’d love, politically, to say
the bill will be an economic disaster. But he thinks it will
probably have few major macroeconomic effects, in either
So, at least there’s that.
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