House And Senate Republicans Pass Tax Cut Bill
Republicans passed their tax bill yesterday. What that means for the economy and the 2018 midterms is another question.
As expected, the House and Senate passed the Republican tax cut bill yesterday and, after a second vote early today in the House due to technical changes made necessary by Senate budget reconciliation rules, the bill will likely be signed into law at the White House later today:
WASHINGTON — Republicans took a critical step toward notching their first significant legislative victory since assuming full political control, as the House and Senate voted along party lines on Tuesday and into early Wednesday to pass the most sweeping rewrite of the tax code in decades.
The $1.5 trillion tax bill, which is expected to head to President Trump’s desk in the coming days, will have broad effects on the economy, making deep and lasting cuts to corporate taxes as well as temporarily lowering individual taxes.
The endeavor was not without hiccups, however, as three small provisions in the final tax bill agreed to by the House and Senate were found by the Senate parliamentarian to violate the budget rules that Republicans must follow to pass their bill through a process that shields it from a Democratic filibuster. As a result, the bill changed slightly in the Senate, and the House will now need to vote on it again since both chambers must approve identical legislation. Among the items that were deemed out of order was the title of the bill: the Tax Cuts and Jobs Act.
The endeavor was not without hiccups, however, as three small provisions in the final tax bill agreed to by the House and Senate were found by the Senate parliamentarian to violate the budget rules that Republicans must follow to pass their bill through a process that shields it from a Democratic filibuster. As a result, the bill changed slightly in the Senate, and the House will now need to vote on it again since both chambers must approve identical legislation. Among the items that were deemed out of order was the title of the bill: the Tax Cuts and Jobs Act.
The approval of the bill in the House and Senate came over the strenuous objections of Democrats, who have accused Republicans of giving a gift to corporations and the wealthy and driving up the federal debt in the process.
As the final vote approached in the Senate, Chuck Schumer of New York, the Democratic leader, gave his closing argument against the bill and scolded his Republican colleagues for talking during his remarks on the floor.
“This is serious stuff,” Mr. Schumer said. “We believe you’re messing up America. You could pay attention for a couple of minutes.”
Representative Nancy Pelosi of California, the House Democratic leader, called the tax bill a scam, saying it “is simply theft — monumental, brazen theft from the American middle class and from every person who aspires to reach it.”
On Tuesday afternoon, the House voted 227 to 203 to pass the bill, with 12 Republicans voting against it and no Democrats voting for it. Eleven of the 12 Republicans were from California, New Jersey and New York, states that would be hit hard by a provision in the bill limiting the deduction for state and local taxes to just $10,000. The Senate approved the bill early Wednesday morning.
The Senate voted 51 to 48, with no Republican defections and no Democratic support.
Under the final tax bill, the corporate tax rate would fall to 21 percent, from the current 35 percent, a move that Republicans are betting will increase economic growth, create jobs and raise wages. Individuals would also see tax cuts, including a top rate of 37 percent, down from 39.6 percent. The size of inheritances shielded from estate taxation would double, to $22 million for married couples, and owners of pass-through businesses, whose profits are taxed through the individual code, would be able to deduct 20 percent of their business income.
But the individual tax cuts would expire after 2025, a step that Republicans took to comply with budget rules, which do not allow the package to add to the deficit after a decade.
The tax changes will affect businesses and individuals unevenly, with winners and losers often being determined by industry or geography. An analysis by the Tax Policy Center found that the bill would reduce taxes, on average, by about $1,600 in 2018, increasing after-tax incomes 2.2 percent, with the largest benefit going to the wealthiest households.
The reach of the bill extends beyond taxes. It strikes at a core component of the Affordable Care Act, eliminating the requirement that most people have health coverage or pay a penalty, a move that the Congressional Budget Office projects will increase premiums for people who buy insurance. It also would open the Arctic National Wildlife Refuge in Alaska to oil and gas drilling, a defeat for environmentalists who have fought against such action for decades.
“Today, we are giving the people of this country their money back,” Speaker Paul D. Ryan of Wisconsin said before the House vote. When the bill passed the House, a giddy Mr. Ryan smiled broadly and banged the gavel with force as he declared victory.
(…)
Republicans in Congress moved with remarkable speed in their bid to enact the biggest tax overhaul since 1986, unveiling legislation to rewrite the tax code, marshaling support for their effort and devising a compromise between the House and Senate in under two months.
The success within reach would be a stark contrast with their attempt this year to repeal and replace the Affordable Care Act, a quest that was encumbered by internal divisions among Republicans and ultimately ended in humiliating failure.
“People wanted to get it done,” Senator John Cornyn of Texas, the No. 2 Senate Republican, said of the tax rewrite. “That’s the single biggest difference.”
It would also give Mr. Trump a signature accomplishment as the first year of his presidency nears an end. After the House vote, Mr. Trump took to Twitter to congratulate House Republican leaders as well as “all great House Republicans who voted in favor of cutting your taxes!”
Shortly after 1 a.m. Wednesday, Mr. Trump acknowledged the Senate’s vote in a tweet: “The United States Senate just passed the biggest in history Tax Cut and Reform Bill. Terrible Individual Mandate (ObamaCare)Repealed.”
As I noted above, the House will be required to vote on the bill again this morning due to minor technical changes that were made necessary in order for the bill to qualify for the Senate’s budget reconciliation rules which allowed Republicans to pass the bill with a bare majority rather than having to find sixty votes to invoke cloture, which obviously would not happen. The changes themselves are relatively minor and include one provision that would have allowed parents to use 529 savings accounts to pay for homeschooling expenses and the criteria used to determine if colleges and universities must pay an excise tax on their investment income. Additionally, the Senate Parliamentarian ruled that the name that was given to the bill by the House, the “Tax Cut And Jobs Act,” was not permissible because the part of the bill
The last-minute parliamentary stumble involved three small components of the bill, according to Senate Democrats, including a provision that would have allowed the use of 529 savings accounts for homeschooling expenses and part of the criteria to be used to determine whether colleges and universities are subject to an excise tax imposed on their investment income. The parliamentarian even ruled against the bill’s name, the Tax Cuts and Jobs Act, since the provision creating the name did not influence spending or revenue, as each provision must under Senate budget rules. Those provisions were eliminated in the version the Senate voted on last night, so that means the House must vote again on the bill this morning. There’s no doubt that the bill will pass the House on a party-line vote once again, of course, and the bill will most likely be signed by the President later today in a ceremony at the White House that will likely include most if not all of the Republicans in the House and Senate and turn into something of an end-of-the-year celebration given that the GOP has had very little to celebrate by way of accomplishments so far in the Trump Administration.
The two big questions, of course, are what impact this bill will have on the economy and on politics as we head into the midterm elections.
On the economic side, Republicans contend that the bill will result in more money in the hands of taxpayers and corporations, which will lead to economic growth and increased wages across the board. Democrats, of course, contend that the cuts contained in the bill will largely benefit high-income earners and that corporations will not pass on whatever tax savings they experience to works or use it for new investment that helps to create new jobs. The reality is that right now, we can’t really tell for sure which side of this debate will end up being correct, and outside of forecasts, many of which have been put forward by groups and economists with identifiable partisan preferences, there isn’t a lot reliable, testable data out there to work with. That being said, I think it’s fair to say that the forecasts being offered by Republicans are most assuredly overly optimistic to say the very least. Forecasts of economic growth between 4% and 5%, for example, are unlikely to come to pass based quite simply on the fact that this is a level of economic growth we haven’t seen except for isolated quarters in more than twenty years now. That, combined with the fact that we’re in the eighth year of the economic recovery suggests that we’ll be lucky to see economic growth in the 3% to 3.5% range right now. Additionally, it’s unclear what corporations might do with the tax savings they might get from this bill. One survey of CEOs showed that the people interviewed would be more likely to return any tax savings to shareholders via stock buybacks than to increase wages or engage in new investment that would require more hiring, but that may not be true in all sectors of the economy. Notwithstanding that caveat, though, it’s worth noting that it would take more than just tax savings for most businesses to either increase wages unless its necessary to attract or keep works or to invest in new technologies unless they were sure they could get a return out of that investment. Given that, any forecasts in this regard are premature at best. All that being said, it seems clear that Democrats are correct that the tax bill will likely benefit high-income earners far more than it will benefit the middle class.
Politically speaking, the impact of the bill is also far from certain, but it does seem like Republicans will have a hard time selling this bill to a skeptical public in the year to come. In the days before the bill was passed, for example, polling was indicating that public opposition to the bill was growing and the public was convinced that the Republicans never intended to pass a bipartisan tax bill. Given this, Democrats will no doubt use the tax bill as a major talking point heading into the midterms, arguing that Republicans failed to deliver on their promise of tax relief for the middle class and instead passed a bill that will have a far more favorable impact on high-income earners and corporations. Republicans, meanwhile, will have their work cut out for them in trying to convince anyone outside their base that the bill will be good for them in either the short-term or the long-term. If they fail to do so, then it will likely make what is already looking like a rough 2018 in both the Senate and the House even more difficult. In any case, for now, the GOP will celebrate their one big success of the first year of the Trump Administration. Whether they’ll still be celebrating a year from now is another question.
Remember the inane celebration when the House passed their health care bill? Yesterday, Paul Ryan seemed giddy. Trump will no doubt be insufferable. Today is going to be a good day to not watch any news.
Well, the Republicans just killed the housing market by taking home ownership out of the reach of millennials for a decade or more. Good news for me since I’m looking to upgrade but bad news for anybody just starting out. Watch the bubble burst for the second time this century and we’re not even halfway through it.
A lot of people talk about how this is going to hurt the working or middle class. This was a knife to the throat for millennials and they will not forget. Boomers are only going to have to live with the consequences for a few years, the upcoming generations have to deal with this for the rest of their lives.
Hey, they could use the same ads they used in the Bush era! Wouldn’t even need to change the names, just the dates. “I’m Chuck Schumer/Nancy Pelosi and I approve this message.”
I am just gob-smacked that this country is still trying to prove that voodoo economics will work somehow, someway, someday.
Long term might not be as bad for some people as initially thought. The $10k deduction limit now applies to property, state and sales taxes. I read that high income tax states will consider going to a payroll tax as opposed to an income tax, since payroll taxes are fully deductible.
We know the bill was hastily cobbled together (the Republicans admit that), and had to be voted on twice because of a rules issue. I suspect that accountants are ecstatic over the bill, and and I also have to believe that the wealthy will end up with pretty much 100% of the benefits. especially since a year or two down the road Paul Ryan will announce we will have to do an austerity budget because the deficit is too high.
We have always been at war with Eastasia! Or is it Eurasia?
I’m just going to remind everyone that Clinton would have been worse.
/SARCASM
Also, when Sanders 2.0 gets elected in 2020, the magic pony army will fix everything that Trump has done.
/SARCASM
@KM: I suspect what we’re going to see is a generational split over support for things supporting the Baby Boomers..
Especially amusing when people like Paul Ryan want to move to Act II of this circus show; namely “ooh, we’re not raising as much money as we predicted from taxes, gee, I guess we’ll have to get rid of Medicare and Social Security.”
(My generation is really, really stupid. And selfish. We don’t seem to realize that if we don’t provide support and help for the younger generation, there’s going to be no incentive on the part of the younger-than-Boomers to support us.)
@Daryl’s other brother Darryl :
Told a Trumpkin believer in my department to test this theory in real time: they should give me their tax refund to see if it trickles down into a raise or something later in the year (not this year obviously). Shockingly, they didn’t trust me to give the money back – especially when I pointed out it was a gift and I’m under no legal obligation to return or reciprocate. I then noted I knew them and liked them and thus was less likely to screw them over unlike a CEO who wouldn’t know them from a hole in the wall.
It’s really weird that Americans are willing to turn over their wallets to the rich and not only expect them back intact but with extra in it. It’s like they don’t realize the rich got rich by collecting money, not giving it back. America is gifting this money with no legal strings to MAGA – the rich can do whatever they please with their windfall. Had such provisions existed – say 60% of the new tax return needed to be spent directly on employees – this bill would have been a lot more palatable. Instead it’s a class killer right out the gate.
@KM:
Agreed. We closed on the sale of our home in NY a few weeks ago at a healthy price. I expect Westchester will get slammed by this one.
We’re keeping the inherited family properties in MD simply because I have too much of a sentimental attachment to them to let them go, otherwise they’d be on the block as well.
On the bright side, the looming dividend and stock buyback cycle will pump up this irrational equities bubble for a little while longer, so some extended profit taking anyway.
When this one finally pops (and it will), it will be ugly.
@SenyorDave:
The problem there is that those are Schedule A deductions which one has to itemize in order to claim. This nearly doubled standard deduction factor is going to prevent a great many people from being able to itemize.
It’s of use only to persons like Reynolds and myself, who pay large property tax bills which will still allow us to exceed the threshold for itemizing. For the vast majority of what I consider to be the middle class, itemizing just got taken off of the table. No medical and dental, no state and local taxes, no mortgage interest, no charitables, no casualty / theft losses, no umreimbursed job expenses, no investment expenses, etc.
Nothing but an increased standard deduction at least offset by eliminated personal exemptions. They might as well have called this one the welfare for people with kids paid for through borrowing bill.
@Daryl’s other brother Darryl:
I’m not. You have to occupy Zucotti Park a few times before the magic works.
@HarvardLaw92:
This! Charities are screaming as they are expecting a massive decrease in philanthropy.
There’s a gift in there for anybody who sends their kids to private K-12 schools. You can now use your 529 to pay for it, which (depending on your tax bracket) is a pretty nice discount on tuition.
The war on public education is being won as we speak.
So a retired couple making 65K AGI this year and claiming 23K itemized this year (with no kids to claim) will end up losing in 2018. Likely paying $400+ more in taxes in 2018 than 2017 because they worship the MAGA man… If you think about it, that is a large demographic of Fox News watching Trump supporters
@Franklin: great for Rubio – with his 4 kids – that extra $4K (maybe more as I don’t know how much he was/is making) – he can now take that and toss it into their 529 to grow to be used towards their education expenses. Or to pay down his credit cards…
@Jc:
And they will somehow end up blaming the Democrats.
Maybe because the wall hasn’t been built, who knows.
@PJ: That’s one future possibility I have looking forwards to: when all the Fox-gazing Trump-supporting geezers lose all their Social Security and Medicare benefits, ask their grandkids for help, and said grandchildren say, “sorry, Granddad–no money!” and brush them off.
I suspect that as times go on we’ll see younger employed people move out of the states that are trying to put the onus of parent support on the kids. Pennsylvania started this trend.
Ruth Bader Ginsburg and a couple of other justices only need to hold on for about another year now. The Republicans are going to get clobbered so hard in 18 that they’ll probably lose the Senate now.
@HarvardLaw92:
Given how much I can write off through my corporation, I will still be itemizing, and playing less than most people on a percentage basis. On a real money basis, I will still be paying more in Federal Income Taxes than the average salary of Americans:
https://www.thebalance.com/average-salary-information-for-us-workers-2060808
Add to the the State taxes I pay when I work in Georgia, NY, ,some of which get offset against my California State Taxes, but that’s still a $20K hit. For 2017, my tax bill will still be over $80K. But on a percentage basis, I will play less than my assistant, due to what I get to write off legally.
The tax cut is great for me. It’s crappy for most Americans.
I wonder what all these Trump voters are going to do when they find out they no longer have health insurance. I have my health insurance for life through Motion Picture and the DGA. I’m vested. Most people don’t have that luxury.
@grumpy realist :
Damn right. My parents haven’t been legally responsible for me since age 18 but now I’m legally responsible for the fact they couldn’t be bothered to save for retirement? Two words for that and the first rhymes with duck. I’d leave the country first. At some point, self-preservation will kick in and Millennials will nope right the hell on out to Mexico or Canada if they have to.
Boomers who try to sell their houses in the next few years are going to be very very shocked it’s not the retirement nest egg they were hoping for. No, your house isn’t worth that much, especially if it hasn’t been updated anytime in the last century. Yes, you’re going to lose money. What did you expect when you saddle your kids with crippling debt – they’d have billions to buy your still-has-the-shag-rug-from-the-70’s deathtrap at extortion prices? HGTV isn’t reality, folks….
@Teve tory:
I’m not so sure. I read somewhere that paychecks will start showing the (small) increase for the working and middle class employees around February. The Republican talking points will be ‘See, more money in your pockets! The Democrats are lied about this tax cut being for the wealthy!’.
And doesn’t this tax ‘reform’ apply to 2018? If so, and since people won’t file their taxes under these rules until 2019, I don’t think the Democrats can use this for the 2018 mid-term election.
I hope I’m wrong…
@Teve tory:
I’m not so sure. I read somewhere that paychecks will start showing the (small) increase for the working and middle class employees around February. The Republican talking points will be ‘See, more money in your pockets! The Democrats lied about this tax cut being for the wealthy!’.
And doesn’t this tax ‘reform’ apply to 2018? If so, and since people won’t file their taxes under these rules until 2019, I don’t think the Democrats can use this for the 2018 mid-term election.
I hope I’m wrong…
@KM:
Yeah, let’s cry for people buying >$900K homes with 20% down. Armageddon.
Day one of the Tax Bill’s passage:
The Boeing Co. is moving ahead on $300 million in charitable contributions and workplace investments as a response to the tax bill approved by Congress today.
AT&T is giving $1,000 bonuses to 200,000 employees after tax bill.
Wells Fargo, Fifth Third Bancorp unveil minimum wage hikes after tax bill passage.
@john430:
None of that had anything to do with the tax bill, dude.
(That AT&T thing has been thoroughly debunked. I got my bonus today too! Been waiting for it all week.)
@HarvardLaw92:
I’m a little confused as to what you’re getting at here. If the standard deduction is larger than itemized for many people, doesn’t that mean their taxes … go down?
@Guarneri:
When did Republicans become opposed to property ownership?
Seriously, many middle class people in California, because of low interest rates, two incomes, and down money from inheritance and so forth, purchase homes in the urban areas (often simple tract-type homes) for well over $700K.
That $900K home you mock as the province of the wealthy Californians, purchased for $720K has a mortgage of about $3,600/mo, and property taxes of $900/mo. With 2 middle class white collar incomes many people stretch to purchase housing. This is necessary because in the 120 miles on the west side of SF Bay it is hard to find a home for less than $600K to $700K. Not singing the blues here, just providing you with a real context.
Also, I’m sure you are probably aware that Californians get back from Washington less than 80% of each tax dollar they send to DC, and de-facto this is often a subsidy of many “low-tax” Red States.
@john430: You will buy literally anything your fake news sources tell you, won’t you?
@Hal_10000:
No. They’re losing personal exemptions, so on net everybody whose itemized fell between the prior standard and the new standard is about to get hosed – unless they have kids with which to mine refundable credits.
@James Pearce: Funny. The Dallas Morning News, The Baltimore Sun and Time Magazine are all reporting it as fact and several other corporations are following suit, like Comcast who announced that they are giving $1,000 bonuses to 100,000 “frontline and non-executive employees,” and FedEx announced major investments in technology and increased hiring.
@Franklin: cc. to you too, butthead. Hope the big words don’t frighten you off.
@John430:
Hmm, two ISPs start handing out bonuses. I wonder if this has anything to do with their plans to rape their customers in the wake of FCC’s monumentally stupid decision.
Oh, and you missed a caveat with FedEx:
Gotta start doing better homework, Grandpa.
On a brighter note, Cardinal Law just recently entered Hell. Anybody feel like champagne?
@EddieInCA:
No argument. Had I not done what I did with respect to restructuring how income flows from the firm to me, this bill would be a ridiculously large tax cut for me.
As it is, I already pay zero, so no changes there.
As for the middle class morons who are about to get screwed over though, I’m honestly just fresh out of sympathy. They’re getting what they voted for. If they think giving folks like me, you and Reynolds a tax break out of their pockets is a good idea, no problem, and thanks suckers.
Other than that, not my circus; not my monkeys.
I will be reading the fine print, the details, tables, indexes, and the large print. I do have some investments in LexCorp.
@John430: Wow John, that is nice of them to give a bonus. Let’s see – Comcast’s net income in Q3 2017 was 2.65 Billion and the cost of this bonus is $100 Million – so of their profit (from just 1 quarter’s business mind you, not the entire year)…they give about 3.8% of that back to employees – the Christmas generosity is astounding! It was nice of them to do, but let’s get real, its a pittance of an amount to them and they should give more back to their employees. AT&T is I believe cheaper, and also has a merger on the shelf because of DOJ
@john430: You really are gullible, aren’t you?
(That merger has nothing to do with said companies trying to butter up Trump by giving him something to crow loudly about, right?)
If you think this so-called “tax reform” has anything to do with these “bonuses” , well, you’re the reason God invented Nigerian spammers.
@grumpy realist: You guys are determined to spew negativity everywhere, aren’t you? Ask the clerks and line workers if they think a $1000 Christmastime bonus is hurting them. Idiots.
@John430:
Fair enough. Now, you go ask them whether that $1000 bonus has made any fundamental change in their finances.
I learned a long time ago that a bonus is what you get when you don’t get a raise.