Which Federal Tax Plan Is Better?
Majority of taxpayers lose under both plans, but in different ways.
Republican leaders in the U.S. House of Representatives and in the Senate have put forth their own versions of the changes they would like to see made to federal income taxes. While there are different provisions included in the two plans, they are more alike than different. Here are five ways that the House and Senate tax plans are fundamentally similar.
1. A sizeable number of taxpayers with low and moderate incomes would be paying higher taxes under both bills.
Under the newest Senate plan, more than a third – 34% — of Wisconsin taxpayers in the bottom three-fifths of the income spectrum would have a tax increase by the time all the provisions are fully phased in. In contrast, only 1% of the Wisconsin taxpayers in the top 1% by income would experience a tax increase. That group has an average annual income of $2.5 million.
In the House tax plan, 10% of Wisconsin taxpayers with low and middle incomes would have a tax hike, compared to 8% of taxpayers in the top 1% by income.
Under the newest Senate plan, the top 1% of Wisconsin taxpayers by income would pay $7,870 less in income taxes on average. Low- and middle-income taxpayers would pay $190 more on average each year when the provisions are fully implemented.
Under the bill that was approved by House of Representatives, the top 1% would receive an average tax cut of $81,330. That’s more than two hundred times the size of the average tax cut of $340 that taxpayers in the bottom three-fifths of the income spectrum would receive. This bill has passed the U.S. House of Representatives, with six Wisconsin representatives voting in favor: Paul Ryan (R-Janesville), Jim Sensenbrenner (R-Menominee Falls), Glenn Grothman (R-Campbellsport), Sean Duffy (R-Wausau), and Mike Gallagher (R-Green Bay).
3. Corporations, rather than individuals and families, win big in both bills.
This article from National Public Radio explains how the Senate’s revised bill includes some temporary tax cuts for individuals, but permanent tax cuts for corporations:
[A]mong the proposals: making nearly all of the tax changes for individuals temporary, while keeping major corporate changes permanent. The cuts in individual tax rates, the bump in the standard deduction and the larger child tax credit, among other things — all these would end at the end of 2025, as would proposed tax cuts for “pass-through” entities — businesses that pay taxes through the individual income tax code. However, many changes on the corporate side, which are centered on a rate cut from 35 to 20 percent, would remain permanent, as would the proposed elimination of the individual mandate penalty.
Like the Senate bill, the House tax plan drastically cuts the corporate income tax rate from 35% to 20%.
4. Economic security for many taxpayers would be jeopardized by both bills.
Both bills include several changes that would make it harder for low- and middle-income families to thrive economically. One example in the revised Senate bill is the repeal of the requirement that everyone have health insurance, a change that would increase the number of uninsured people by 13 million. That move would drive up premium costs as healthy people with low health care costs opt out of the health insurance system, leaving the remaining pool of people saddled with higher costs.
The House bill includes several changes that would make higher education less affordable, including eliminating the deduction for student loan interest, and requiring students pursuing advanced degrees who have their tuition waived to pay taxes on the value of that tuition. The House bill also scraps a deduction for people with very high out-of-pocket health costs, making it harder for taxpayers to afford long-term care and other major medical expenses.
5. The vast majority of taxpayers would be losers under both bills when you consider how the tax plan will likely be paid for.
Both plans add $1.5 trillion to the deficit over ten years, and it’s likely that the tax cuts will be at least partially financed with the types of spending cuts included in recent GOP budget proposals, which fall overwhelmingly on low- and middle-income people. As the Center on Budget and Policies noted:
Sooner or later, the cost will need to be offset through some combination of spending cuts and tax increases. We conclude that the spending cuts and tax increases needed to offset the cost of the Trump/GOP tax cuts would cause most Americans’ incomes to fall more than they would gain from the tax cuts themselves.
The chart below dates from before the details of the bills were released, but it gives an overall picture of how the cost of these plans for low- and middle-income taxpayers increases dramatically when the effect of the budget cuts that will likely follow in the wake of the tax cuts are included.