The House passed a 2018 budget resolution last week along with the Senate Budget Committee, two crucial steps to start tax reform. It’s an opportunity for President Donald Trump and the Republican lawmakers to hold a promise after they couldn’t repeal Obamacare.
The GOP has the majority, but just like with Obamacare, there are divisions within the party that could prevent tax reform from happening.
The top concern is to make sure that the middle class will not have to pay more in taxes.
Child Tax Credit
As one example, the lack of specifics on how much to raise the child tax credit by has led to “frustration” among GOP lawmakers, said Representative Chris Collins, a New York Republican and ally of President Donald Trump. The early concern previews the political arguments that will surround tax legislation as Congress focuses in on it.
Collins said more specifics about GOP plans to increase the child tax credit would make the benefit for middle-income families clearer. Instead, Republican lawmakers are fending off attacks that some middle-income families would be hurt because the plan calls for eliminating dependent exemptions and the state and local tax deduction.
“We are committed, the Republicans are committed — middle-income earners and even upper middle-income earners are not going to pay more in taxes, whether you live in Alabama, or whether you live in New York or New Jersey,” Collins said during a Bloomberg TV interview on Friday.
This is what the framework says:
To further simplify tax filing and provide tax relief for middle-income families, the framework repeals the personal exemptions and significantly increases the Child Tax Credit. The first $1,000 of the credit will be refundable as under current law.
In addition, the framework will increase the income levels at which the Child Tax Credit begins to phase out. The modified limits will make the credit available to more middle-income families and eliminate the marriage penalty in the existing credit.
The framework also provides a non-refundable credit of $500 for non-child dependents to help defray the cost of caring for other dependents.
Kyle Pomerleau of the Tax Foundation considered the vagueness within the framework “a double-edged sword” because it increased fears of a tax hike on the middle class, but it also allowed leeway to the tax writing committees. He offered his advice on how to make the child tax credit work:
The first is to raise the income threshold subject to the lowest tax rate to make sure it applies as broadly as possible. The second is to boost the size of the child tax credit, which is currently $1,000 per child under 17. He said a $500 increase may be a starting point, but that may rise in the Senate, where Florida’s Marco Rubio and Utah’s Mike Lee have proposed a $1,000 boost.
That could ease some of the concerns about tax increases on the middle class, Pomerleau said.
Sen. Rand Paul (R-KY), who voted no on the Obamacare repeal bills, has dropped hints that he would not approved of tax reform because he believes the framework “cuts taxes for wealthy earners and the poor, but doesn’t do enough to cut taxes for the middle class.”
This is a GOP tax plan? Possibly 30% of middle class gets a tax hike? I hope the final details are better than this. https://t.co/lcjkI4YRz8
— Senator Rand Paul (@RandPaul) October 2, 2017
The analysis from TPC shows “that by 2027, almost 30 percent of taxpayers with income between about $50,000 and $150,000 would see their taxes increase.” The center found that “about 25 percent of taxpayers would see higher taxes” by 2027.
Second, what about the deficit? Sen. Bob Corker (R-TN) has said he would not vote for a tax bill that adds any money to the deficit. According to The Hill, he’s not the only one:
“The numbers are really uglier than almost anybody around this place seems to have digested,” said Rep. David Schweikert (R-Ariz.), a member of the tax-writing Ways and Means Committee.
Republicans for the most part have rallied around the tax proposal, which is backed by GOP leaders in both chambers as well as the White House.
The tax plan could cost the government $1.5 trillion in revenue over the next decade, but advocates argue that would be made up for through economic growth unleashed by the corporate and individual tax cuts included in the plan.
White House Budget Director Mitch Mulvaney countered Corker by saying that a higher deficit will add growth. From Bloomberg:
White House Budget Director Mick Mulvaney is signaling similar flexibility, saying on CNN Sunday that decisions about deductions remain up in the air as “the bill is not finished yet.” He took it a step further, by adding that a tax plan that doesn’t add to the deficit won’t spur growth.
“I’ve been very candid about this. We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3 percent economic growth.”
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