10 Surprises in Revised GOP Tax Plan

As I’ve been gradually working my way through an 80-page summary of the tax cut plan that was introduced by House leaders last week, I’ve found a number of things that strike me as surprising. Based on what I’ve read thus far, here’s a subjective list of proposals that I wouldn’t have predicted would be in the plan, if you asked me about it several months ago.

These aren’t the things that concern me the most about the bill (except for # 10), and I haven’t formed an opinion about all of them. These are simply some proposals that I think are worth drawing attention to because we hadn’t necessarily anticipated them, and because some might slip by under the radar if Congress rushes the bill to the floor by the end of the month (which seems to be the plan).

So here’s my list, in reverse order:

10. The bill would result in a huge increase in the deficit. ­– Even though the proponents of the plan generally rail against federal deficits, they have crafted a bill that is expected to increase the federal deficit by $1.5 trillion over the next 10 years. This is only # 10 on my list because it isn’t so much surprising as it is alarming. In any case, I couldn’t leave it off the list, because we shouldn’t take it for granted that it’s okay to have a double standard for spending bills and tax cut bills.

9. It repeals the exclusion from income for employer-supplied dependent care assistance programs (Sec. 1404) – As originally proposed, the House bill would increase taxes on working families with children by $6.5 billion over the next 10 years by fully taxing the value of employer-provided dependent care assistance programs. A recent amendment to the bill would continue the current $5,000 exclusion for five years, before eliminating it.

8. The plan repeals a small business credit for expenditures to provide access to disabled individuals (Sec. 3407) – This is a much smaller item, which would increase tax revenue by $300 million over the next 10 years by eliminating the current tax credit that offsets a portion of the cost of certain expenses incurred by small businesses to improve access to people with disabilities.

7. It ends the deduction for alimony payments (Sec. 1309) – For any divorce decree executed or modifies after 2017, alimony payments would no longer be deductible to the payer or taxable to the recipient. The net effect of those changes is expected to be an $8.3 billion increase in federal taxes over 10 years.

6. Taxing employer assistance with qualified moving expenses (sec. 1405) – The bill would generate $7.7 billion of tax revenue over the next 10 years by treating as income any payments an employer makes to an employee for moving expenses.

5. It imposes a 20% excise tax on the compensation of employees of tax exempt organizations who make more than $1 million per year (Sec. 3803) – An estimated $3.6 billion would be generated by imposing a new tax on the compensation of certain highly-paid employees of tax-exempt organizations (such as a foundation or an athletic department). The employer would have to pay a 20% excise tax on any compensation over $1 million per year.

4. The bill enables churches to engage in political campaigns (Sec. 5201) – This provision would narrow the current prohibition against the participation of a wide range of tax-exempt organizations in political campaigns. By exempting religious organizations from that prohibition, the bill is expected to reduce tax revenue by $2.1 billion over 10 years. I’m not sure, but I suspect the cost would result from allowing organizations that that are already politically active to become tax exempt.

3. It creates and then eliminates two new tax credits – The bill generates nearly $1.5 trillion by repealing the current personal exemption of about $4,000 per individual. It largely offsets that tax increase by boosting the standard deduction and by creating a couple of new or expanded tax credits. However, the new “family flexibility credit” and the “non-child dependent credit” would be repealed in 2023 – which seems like a bait and switch.

2. The plan eliminates the deduction for medical expenses (Sec. 1308) – I was very surprised to learn that the bill would repeal the itemized deduction for medical expenses (which currently applies to unreimbursed medical expenses over 10% of a taxpayer’s adjusted gross income). Nearly 9 million individuals took this deduction in 2015, and the average amount was almost $10,000. It’s especially important for families paying out-of-pocket for long-term care for a relative living in assisted living or a nursing home. (I haven’t tracked down the fiscal estimate yet.)

1. It provides a new tax break for the future education of unborn children, while eliminating far more important tax assistance for higher education costs. – The bill raises taxes by nearly $43 billion over 10 years by repealing five significant tax benefits relating to the cost of higher education, such as the ability to deduct up to $2,500 per year of interest expenses for student loans (Sec. 1204). However, the proposal would allow a parent-to-be to contribute to a 529 Education Saving Plan on behalf of an unborn child.

I haven’t had an opportunity to form an opinion on all of these and will be studying them more carefully. Some of them may make sense, though the general impact is to eliminate some very significant deductions and exclusions that cushion expenses that can be crippling for middle income families, in order to help finance the tax breaks that primarily benefit the top 1% of Americans.