The Senate tax bill is a handout for wealthy Americans

No matter which way you slice it, neither of the Republican proposals do anything for the middle class.

From left, Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, Senate Majority Leader Mitch McConnell, R-Ky., Senate Finance Committee Chairman Orrin Hatch, R-Utah, Treasury Secretary Steven Mnuchin, President Donald Trump's top economic adviser Gary Cohn, and Sen. Rob Portman, R-Ohio, talk to reporters as work gets underway on the Senate's version of the GOP tax reform bill, on Capitol Hill in Washington, Thursday, Nov. 9, 2017. (AP Photo/J. Scott Applewhite)
From left, Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, Senate Majority Leader Mitch McConnell, R-Ky., Senate Finance Committee Chairman Orrin Hatch, R-Utah, Treasury Secretary Steven Mnuchin, President Donald Trump's top economic adviser Gary Cohn, and Sen. Rob Portman, R-Ohio, talk to reporters as work gets underway on the Senate's version of the GOP tax reform bill, on Capitol Hill in Washington, Thursday, Nov. 9, 2017. (AP Photo/J. Scott Applewhite)

Republicans in the Senate were determined to a write a tax plan that, unlike the House’s proposal, would be less of a handout to some of the wealthiest Americans. Unfortunately, it seems the new plan still benefits them significantly.

Both bills center around a huge corporate tax cut that Republicans hope will allow freed-up cash to trickle-down to the middle-class in the form of higher wages and more jobs. Analyses of the House tax plan finds that it falls far short of that goal, and the Senate bill doesn’t hold up any better under scrutiny.

Under the 373-page Senate plan — which Republicans dropped just before the long holiday weekend — the corporate tax rate would be lowered from 35 percent to 20, but unlike the House plan, that change wouldn’t phase in until 2019. This one-year delay would save the U.S. Treasury about $108 billion, which is crucial, given that the corporate tax cut is the single-most expensive change to the U.S. tax code, reducing the federal revenue by $1.46 trillion over the next decade.

The trade-off for these corporate tax cuts, however, is so small that even delaying their implementation wouldn’t make much of a difference in the long-run. Many corporations already pay a lower effective tax, with some paying no U.S. taxes at all. The effective corporate tax rate, after credits and deductions, is closer to 19 percent, according to the Congressional Budget Office.

For those companies to whom the 20 percent rate would apply then, the extra money would likely end up back in the pockets of the shareholders, and would not, as Republicans argue, translate to increased job opportunities and higher wages for workers (even the economist who helped create the policy doesn’t even believe that).

Another provision in the House tax plan that was seen as a huge handout to the ultra-wealthy, repealing the estate tax, also finds its way into the Senate plan, albeit in a slightly different form. The Senate plan does not entirely repeal the estate tax, but rather doubles the exemption threshold. Now, individuals won’t pay taxes on the first $11 million of inheritance, rather than the first $5.5 million.

The Senate bill notably retains a number of personal exemptions that would be eliminated under the House plan, including the student loan interest deduction and medical expense deduction, an exemption primarily utilized by seniors and individuals with very high medical costs. The mortgage interest deduction will also remain intact, which would allow individuals to deduct the interest they pay on the first $1 million of mortgage debt. (This was lowered to $500,000 in the House GOP plan, which caused some outcry among real estate and homebuilders associations, as well as congressmen who represent areas with extremely hefty real estate costs.)

A deduction that does stand to be eliminated under the Senate plan, however, is the state and local tax deduction (SALT). This tax break allows residents to deduct their state and local property taxes from their federal taxes and is used by 44 million people (or 30 percent of tax filers), mainly middle to upper-middle class families from high-tax, blue states like Connecticut, New York, New Jersey, and California. The Senate is making this move, despite cries from Republicans from blue states, in order to raise money to pay for the other tax cuts in the bill, like the huge tax break for corporations.

House Ways and Means Committee Chairman Kevin Brady said on Sunday the House would not accept a full repeal of SALT under the Senate bill. There are 55 Republicans in the House from these high-tax, blue states who would likely face criticism from constituents if that happens.

In the end, should the Senate bill pass, the most likely scenario is that middle-class families will likely end up seeing a tax hike over time. The wealthiest Americans will, by contrast, wind up getting a tax cut of nearly $50,000 dollars, according to the non-partisan Joint Committee on Taxation.

The House tax plan was previously criticized for hurting the very people Republicans claimed to be helping, those same middle-income earners that would be overlooked by the Senate plan.

The non-partisan Tax Policy Center found that after 2027 — when the GOP House plan is set to take full effect, if it’s passed — 80 percent of the benefits would wind up going to the top 1 percent; the top 1 percent will get an average cut of $1,022,120, while the middle 20 percent would only receive get an average cut of $420, eviscerating any notion that the middle class are the key beneficiaries of the plan.

Credit: Tax Policy Center
Credit: Tax Policy Center

Republicans in Congress are working on a tight, unforgiving timetable to get tax reform onto the president’s desk to sign by the new year. House Speaker Paul Ryan (R-WI) has stated he wants a vote on the House tax plan by the beginning of hunting season in Wisconsin, which begins on November 18.

The Senate Finance Committee began its mark-up process on Monday, after scrambling to digest much of the bill over the weekend.