WASHINGTON — An analysis of the Republican tax bill released Tuesday suggested tax cuts for lower- and middle-income taxpayers would fade over the course of a decade, more so than they would for high earners.
The analysis by the congressional Joint Committee on Taxation found that about 80 percent of tax filers earning between $50,000 and $75,000 would receive a tax cut from the bill in 2019. By 2027, just 60 percent of taxpayers in that same income group would see a tax cut. Of those earning more than $1 million, 75 percent would see a tax cut in 2019, and, by 2027, 66 percent of millionaires would continue to see a tax cut.
The analysis could further complicate efforts by Republican leaders to forge ahead with a bill that is already under attack from Democrats, who say the plan is a gift to the rich, and from business groups that say the legislation would disadvantage multinational companies.
Some Republican lawmakers have also raised questions about provisions in the bill, particularly the repeal of the state and local tax deduction for income and sales taxes. Representative Darrell Issa, Republican of California, said Tuesday that he had concerns about the impact on his constituents, while several senators over the past days have raised concerns about tax legislation that raises the federal budget deficit.
Issa faces a difficult reelection campaign in 2018.
“Congressman Issa’s concerns are largely over the impact of eliminating the state and local tax deduction and whether the bill does enough to reduce taxes for hard-working Californians,” said Calvin Moore, a spokesman for Issa. “After looking at the proposal in-depth over the weekend, it’s not certain that most Californians would see enough of the benefits of tax reform as it’s currently written. It’s clear we can make a better deal for California taxpayers.”
GOP Representative Kevin McCarthy of California, the majority leader, said Republicans would focus on clarifying what is in the bill as the House tries to push it to a floor vote next week.
“The challenge to the American public is what is the truth about this bill,” McCarthy said. “I think what’s most important is we should state the facts.”
The House Ways and Means Committee opened a second day of debate on the bill, which will continue through this week. The committee chairman, Representative Kevin Brady, Republican of Texas, said Tuesday morning that he expected the bill to pass out of committee Thursday and to move quickly to the House floor.
In an interview on Hugh Hewitt’s radio program, Brady said that the bill would not be subject to amendments on the House floor. But he also said that Republicans were still considering further changes to the bill, including possibly restoring tax breaks to encourage adoption and including a provision to repeal the health care law’s requirement that most people have health insurance.
“We’ll work to continue to improve it at every step,” Brady said, “including as we send it to the House floor.”
That may be an uphill battle, as key groups begin coming out in opposition to parts of the bill, including a proposed excise tax of 20 percent on payments made by US companies to foreign affiliates. The provision is aimed at preventing US companies from shifting profits abroad through payments, such as royalties, made to subsidiaries or other foreign affiliates.
US multinational corporations are especially concerned about the proposal, which would raise just over $150 billion over a decade. They say the tax will harm US companies and their consumers.
On Tuesday, the American Forest and Paper Association said it was “very troubled” by the provision, which it said “would lead to massive over-collection of tax in the United States.” The provision is also coming under fire from pharmaceutical companies and the small-government advocacy groups spearheaded by the billionaire Republican megadonor brothers Charles and David Koch, who are trying to generate opposition to the excise tax from other conservative groups.
Tim Phillips, president of Americans for Prosperity, a conservative advocacy group funded by the Koch brothers and their network of donors, called the provision “misguided.”
Tax specialists at multinational firms have spent the last several days struggling to calculate what their new effective tax rates would be under a change that most did not see coming.
“As currently structured the provision probably is not administrable and could also be gamed by taxpayers,” said Itai Grinberg, an international tax policy professor at Georgetown University’s law school. “Separately, the rule alters the purposes of financial accounting in ways that may create incentives for abuse.”
Brady said lawmakers “continue to make improvements at every step” and are working with multinational companies to address their concerns. “But make no mistake,” he said, “we have to have safeguards in place so that companies aren’t encouraged to shift their earnings and their profits offshore and to low-tax havens, and we need strong guardrails to make sure they’re not importing deductions, exclusions, and other tax rate issues.”
A prominent conservative group, the Club for Growth, criticized the House bill on Tuesday for what it called “four serious shortcomings,” including maintaining the existing top tax rate on millionaires and phasing out the estate tax instead of repealing it immediately.
But other groups continued to praise the bill, even as they worked behind the scenes to shape it more to their liking. The Business Roundtable, an influential lobbying group in Washington, announced a multimillion dollar national advertising campaign, including television, radio, and digital ads, urging members of Congress to approve a bill. The ad features the line “Congress promised tax reform, and Congress needs to deliver.”
With the process underway in the House, business groups and other lobbyists began turning much of their attention to the Senate, which is expected to introduce its own version of the bill Thursday.
At a news conference with Republican senators and Trump administration officials, Senator Ted Cruz of Texas expressed concern that the House Republican plan to repeal the state and local tax deduction for sales and income tax could mean higher tax bills for people in some states. He also lamented that the House plan does not repeal the Affordable Care Act’s mandate that most people have insurance. He echoed Trump’s call to eliminate the provision that is central to the health law.
“I think we need to do even more to provide a tax cut, not just tax reforms, but a tax cut to every American,” Cruz said. “I think there is a path forward, that actually President Trump laid out last week, which is repealing the individual mandate — the IRS tax — from Obamacare.”
The future of the estate tax also remains unclear. While the House bill would phase out the tax that generally only hits the rich, some senators are skeptical that doing so is fiscally responsible.
Steven Mnuchin, the Treasury secretary, said, “The president is interested in repealing the estate tax,” but suggested that he has bigger priorities in the tax bill.
At a separate news conference, Senator Mitch McConnell of Kentucky, the Republican majority leader, declined to discuss the House bill and dismissed analyses that showed the tax legislation would add to the deficit.
“There are all kinds of reports about all kinds of proposals,” McConnell said, noting the Senate had not yet unveiled its bill. “We fully anticipate this tax proposal in the end to be revenue neutral to the government, if not a revenue gainer.”
Meanwhile, House Republicans have slashed the number of colleges targeted for a new tax on endowment income.
The GOP majority on the Ways and Means Committee voted Monday night to modify a tax bill that includes several provisions affecting higher education. Among them is a proposal that makes college presidents blanch: an excise tax on endowment income for certain private colleges.
Under the first version of the bill, made public last week, private colleges would have been subject to a 1.4 percent tax on net investment income if they had 500 or more students and an endowment of at least $100,000 per full-time student. A Chronicle of Higher Education analysis found that about 140 schools would have been affected. The American Council on Education estimated the number affected at 155.
Now the total of targeted schools has been cut by more than half.
Material from the Washington Post was used in this report.