With multiple failed attempts at repealing and replacing the Affordable Care Act, all eyes are on Republicans as they prepare to pass major tax reform measures that would effectively provide a hefty tax cut to the top tax bracket while lowering the corporate tax rate to around 20 percent from 35 percent.
As President Donald Trump prepares to announce his plan to “cut taxes tremendously for the middle-class” tomorrow, details about the tax reform plan, which was largely constructed in secrecy by former Goldman Sachs employees now in the administration, are beginning to make their way to the public. On Tuesday, Axios reported Republicans have agreed on a plan to raise the bottom tax rate from 10 percent to 12 percent, while also doubling the standard deduction.
This increase in the bottom tax rate is one of the ways the Trump administration is planning on paying for the massive tax cut for the rich. Trump’s plan is expected to slash the top individual tax rate from 39.5 percent to 35 percent.
“[Republicans] are clearly looking for ways to offset the enormous tax cuts their plan gives to the wealthy and corporations. Just the tax cuts that have been reported would cost $5 trillion,” said Seth Hanlon, senior fellow specializing in tax policy at the Center For American Progress. (Disclosure: ThinkProgress is an editorially independent site housed at the Center for American Progress Action Fund, the sister organization of the Center for American Progress.)
“Raising the bottom rate from 10% to 12% doesn’t come anywhere near paying for those tax cuts, but it’s one of what will be many ways they will try to pay for the tax cuts.”
While those measures, a raise in the bottom tax rate combined with a doubling of the standard deduction, in isolation could benefit low and middle income families, there are still major moving parts that have yet to be identified. For example, what will become of the personal exemption? Earlier Trump and Republican plans have proposed cutting it, which, if implemented would actually raise taxes on middle-income families. Bloomberg reports that a middle-income family with three kids would have to add $20,250 to their taxable income with the personal exemption gone, nearly doubling the new “benefit” they’d get from a standard deduction increase. The Trump administration has also proposed gutting the head of household filing status, which would cause a tax increase to 51 percent of single-parent households, about 5.8 million households.
Very little is currently known about the specifics of what the Republican “Big Six” tax reform negotiators are planning, and without knowing what is in the big picture, it is impossible to predict how the tax plan will affect families. Trump is expected to announce a detailed tax plan on Wednesday, but many with knowledge of the situation are skeptical that he will provide adequate detail. The only part of the plan that is certain is Trump is promising very large and very specific tax cuts to corporations and wealthy Americans while promising an unknown mixture of tax cuts and tax hikes to lower and middle income families.