The Republican tax cut bill is up in the Senate and it’s getting a little bit better in some areas on the individual side of things.
The $86.9 billion a year medical expenses deduction, which had been eliminated in the House version of the bill, has been restored. That deduction was taken by 8.7 million Americans in 2015, according to data compiled by the IRS, the vast majority — 6.6 million — are over the age of 55.
For Republicans, that’s good. In the 2016 CNN exit polls, President Donald Trump won among those 50 and older with about 52 percent, and among older whites, with about 60 percent of the vote.
So, maintaining the medical expenses deduction, from a Republican perspective, makes absolute sense. Why would Republicans want to increase taxes on their own constituents, after all? Particularly by eliminating the deduction that could make the absolute difference of keeping their constituents off of programs like Medicaid.
Elsewhere, in the Senate bill, the $3 billion a year individual mandate to purchase insurance is once again on the chopping block. Taken by about 6.6 million Americans in 2015, this tax penalty falls more in the middle of age brackets: 950,000 are 18 to 25, 1.9 million are 26 to 34, 1.5 million are 35 to 44, 1.3 million are 45 to 54 and 1 million are over the age of 55.
An additional 13 million Americans had claimed an exemption from the individual mandate due to hardship and other reasons, whom the change will not affect.
Still, about half of those taking the individual mandate (skewing younger) voted Democrat and half (skewing older) voted Republican. So, everyone benefits there from that tax cut.
Elsewhere, much has been made of the itemized deductions many Americans use going away.
The Senate bill eliminates the $353 billion a year state and local tax deduction, which contrary to reports, is taken by Americans in all 50 states, not just blue states. It affects 42.7 million households. Once again, the vast majority, 29.2 million, are aged 45 and older. Trump won voters of that age bracket with 52 percent.
The Senate bill also eliminates the $189 billion a year real estate tax deduction which, again, affects Americans in all 50 states. That deduction is taken by 37.6 million households. Again, the vast majority, 27 million, are aged 45 and older. That’s Trump country.
And the vast majority of them — about 37 million households — should be still seeing a net tax cut under the plan, thanks primarily to dropping of rates in the tax code and the doubling the standard deduction to $12,000 for individuals and to $24,000 for married couples. That, coupled with paying a lower effective rate, will result in net tax relief.
However, those who make $1 million or more tend to see tax increases under plan, even with filing jointly and with the doubling of the standard deduction. That represents about 366,000 households, or 732,000 individuals.
Also, those who do not file jointly will tend to see tax increases, beginning in the $200,000 to $500,000 a year gross adjusted income levels, starting with a slight increase and then ratcheting up as higher brackets are reached. This represents about 1.3 million tax filers.
All told, that’s about 2 million higher income individuals who could be seeing a tax increase under the plans as proposed. These voters were more evenly split between the candidates in 2016.
As for doubling the standard deduction, this currently impacts 104 million households. However, the pretty large majority, 62 million are under the age of 45. That’s Hillary Clinton country. They’re getting a tax cut, and a rather large one.
Democrats on the campaign trail in 2018 are well aware of these facts. Here in the Commonwealth of Virginia, I just got a constituent email from the Office of Sen. Tim Kaine (D-Va.) who is running for reelection in 2018. Rather than touting the tax cut for those younger than 45 years old, Kaine is aptly engaged in rubbing the salt in the wounds of those who are afraid they will be getting a tax hike who just happen to be more likely to vote Republican.
“I have major issues with proposals in the Republican tax plan. Their plan tilts benefits heavily to the wealthiest few, while estimates indicate millions of middle class families and small businesses will face a tax hike. It would be particularly bad for Virginia by repealing or limiting important provisions to the Commonwealth, such as the state and local tax deduction,” writes Kaine.
This could be a political catastrophe in the making if Republicans cannot explain their plan adequately.
62 million Americans more likely to vote Democrat are likely to get a tax cut under the Republican plan, and who will still be equally unlikely to vote for Republicans despite that fact (if it even passes). Sorry, but that’s the truth, this is no play to pick up younger voters.
And close to 30 million Americans more likely to vote Republican, who take state and local tax deductions and property tax deductions, may be thinking at the moment they are likely to get a tax hike. These voters are already irate at Congressional Republicans’ failure to repeal and replace Obamacare. And unlike their younger counterparts, many of them could change their votes in 2018, either by simply staying home or even crossing over to punish the GOP.
But perhaps more alarmingly, this create real political jeopardy for Trump in 2020. Trump just in May was promising that the Republican tax bill would be “one of the largest tax cuts in history, even larger than that of President Ronald Reagan.” Not only is this not the largest tax cut in history, for millions of Americans, most of whom voted for Trump, the fear of losing these deductions is that it will result in a tax increase. For 88 percent of them, however, it will actually be a tax cut.
The GOP needs to explain this — right now — or this could turn out to be a “read my lips” moment.
These deductions are taken in all 50 states, not just New York, New Jersey, California and Illinois, as is popularly and incorrectly reported by clueless news outlets.
According to data compiled by the IRS, for example, in New York, which voted for Clinton, 2.9 million taxpayers took state and local tax deductions totaling $51.7 billion and 2.3 million took real estate tax deductions totaling $20.9 billion. About 192,000 higher income individuals there could be seeing a tax hike.
In California, 5 million taxpayers took $79.9 billion in state and local deductions and $28.3 billion in real estate tax deductions. There, about 308,000 higher income individuals could see a tax hike.
Yes, those two states alone astronomically account for 37 percent of the state and local tax deduction and 26 percent of the real estate tax deduction. But here’s the thing: A good majority of those who took them make above $75,000, about 35 percent of whom voted for Trump in those states according to the exit polls. They also voted for many of the Republican Congressmen who make up the slim margin that comprises the GOP House majority. Just so you know.
Looking across the electoral map, in the states that won the election for Trump, in Ohio, 1.3 million taxpayers took $9.4 billion in state and local tax deductions and $5.4 billion in real estate tax deductions. About 46,000 of them on the upper end of the income spectrum could seeing a tax hike. Trump won Ohio by about 450,000 votes.
In North Carolina, 1.1 million taxpayers took $8.4 billion in state and local tax deductions and $3.4 billion in real estate tax deductions. About 25,000 of them could be seeing a tax hike in a state where Trump won by 173,000.
In Pennsylvania, 1.6 million taxpayers took $11.3 billion in state and local tax deductions and $8.2 billion in real estate tax deductions. Here’s where things start getting serious. There, 56,000 upper income individuals could be seeing a tax hike in a state where Trump only won by 44,000 votes.
In Florida, 1.7 million taxpayers took $2.8 billion in state and local tax deductions and $9 million in real estate tax deductions. There, 121,000 upper-income individuals could be seeing a tax hike under the plans, where Trump won by only 113,000 votes.
In Michigan, 1.6 million taxpayers took $6.9 million in state and local tax deductions and $4.6 billion in real estate tax deductions. There, about 32,000 higher income individuals could see a tax hike, where Trump only won by 11,000 votes.
Yes, those two blue states benefit disproportionately from the itemized deductions, but for the rest of the country, blue states only benefit slightly more than red states in terms of these deductions. And in swing states, it could mean the difference between victory and defeat in 2018 and 2020.
Yet, even the vaunted Wall Street Journal editorial board somehow misses this and pretends that the state and local tax deduction is only taken in blue states: “The big victory here is total repeal of the state and local deduction, which is a subsidy for high-tax progressive states. The House carves out an exception for property taxes to win the votes of Republicans from California and New York, and a compromise will be negotiated in conference. But note the GOP consensus that the state and local deduction is on death row. This is the price Chuck Schumer’s Democrats will pay for rejecting any reform.”
majority of Senate Majority Leader Chuck Schumer’s constituents are younger, and they are getting a tax cut. And the majority of Republican constituents skew older, and they are afraid of getting a tax hike. How is Schumer paying any price at all? If the plan passes, he gets all the political upside. Democrats still show up and vote Democrat. And Republicans are disappointed and either stay home or cross over.
It is Republicans, not Schumer and the Democrats, who will pay the price in 2018 for raising taxes even on a relatively few number of Americans.
Republicans still have a window of opportunity in the Senate bill and then the conference legislation to fix this problem. What this bill does is directly redistribute wealth, by raising taxes on one group of Americans to “pay” for tax cuts for others. In this case, taxing wealthier Americans, just to stick it to New York and California (where millions of Republicans live) is probably not a recipe for Republican success in the upcoming midterm elections or in 2020. It’s certainly not a recipe for economic growth.
They might just be better off doing nothing on the individual side and just doing corporate tax cuts.
Or, perhaps, just cut everyone’s taxes like they promised. Then nobody will be scared of a tax hike. How about that?
Robert Romano is the Vice President of Public Policy at Americans for Limited Government.
