First test looms for GOP tax reform plan
Washington — The U.S. House is poised to vote Thursday on the GOP tax reform plan as Michigan Republicans are aiming to overcome Democratic objections and deliver the first major overhaul of the U.S. tax code in 30 years.
The legislation would cut tax rates on corporations and pass-through businesses such as partnerships; eliminate the estate tax, and collapse the current seven personal income tax brackets to five. It doubles the standard deduction and includes a larger child tax credit.
Republicans say their plan would simplify the tax-filing process, create economic growth and deliver tax relief for low- and middle-income families. The cuts are financed by taking on new debt of roughly $1.5 trillion over 10 years.
Rep. Mike Bishop, a Rochester Republican on the tax-writing Ways and Means Committee, said he is “very confident” the bill will pass.
“I think it’s transformational for the economy, for families and for business in general,” Bishop said. “It’s inconceivable that we haven’t touched the code in this long.”
Few, if any, Democrats are expected to back the bill. Democrats argue that the bulk of benefits in the GOP plan would go to the super-wealthy, and that many working families would end up paying more because of eliminations of deductions and tax credits.
Rep. Sandy Levin, a senior Democrat on the Ways and Means Committee, has called the GOP effort “a total disgrace.”
“This isn’t a product of deliberation but desperation. They haven’t been able to pass anything of substance, so now it’s down to passing a tax bill at all costs,” Levin said of his Republican colleagues.
“Essentially, this is much more of a top-down tax cut, and the further down you go in many cases, the less the tax cut. And in some cases, the middle class will see increases.”
Levin highlights an analysis from Congress’ own Joint Committee on Taxation showing taxpayers making less than $50,000 would be hit with a tax increase by 2023 under the GOP tax bill.
The same nonpartisan analysis also estimated that Americans making more than $1 million would see an average tax cut of $73,000 in 2019, the Royal Oak Democrat said.
Tax impact estimates contested
An analysis by the Tax Policy Center concluded that, while the legislation would cut taxes for all income groups, the largest benefits would go to the highest-income households — those making $1 million a year or more.
Mick Mulvaney, director of the White House budget office, questioned the credibility of the Tax Policy Center, which is affiliated with the Brookings Institution and Urban Institute, suggesting its studies are biased.
“We don’t put much credence in the larger studies from the groups that we know don’t like what the president is trying to accomplish,” Mulvaney told a group of reporters Tuesday at the White House.
Bishop acknowledged that some households might see little change in their tax liability, but other families will see significant tax savings.
“We know, in most cases, a single mother with $33,000 of income — she is going to see a tax return that is substantially more,” he said.
Bishop noted one estimate that a middle-income family of four in his Metro Detroit district would see a tax cut of nearly $2,800.
The Tax Foundation has projected the bill would create more than 26,625 full-time jobs in Michigan over 10 years, with a $2,169 boost to after-tax income for a middle-income Michigan family, also within a decade.
That tax model assumes that lower tax rates would lead to a 3.9 percent higher gross domestic product — or total economic output — in the long term, as well as higher wages.
Democratic Sen. Debbie Stabenow, a senior member of the Senate Finance Committee, calls the Republican plan “the same trickle-down scheme that’s failed every time it’s been tried.”
“Profits have gone up. Not paychecks,” Stabenow said this week during the markup of the Senate GOP version of the bill.
“There is absolutely no evidence from past supply-side tax giveaways that they result in hiring more people or raising workers’ wages.”
Rep. Bill Huizenga, R-Zeeland, disagreed with that assessment, arguing that the John Kennedy-era and Ronald Reagan tax cuts “prove” that people spend money returned to their pocketbooks, fueling economic growth that included a seven-year recovery in the 1980s.
“I don’t believe you can say with a straight fact that when you give money back to individuals and families, when you give money back to a small business, that they’re not going to invest that money and spend that money. They’re not going to just sit on it,” Huizenga said.
Electric vehicle subsidy fight
Levin and other Michigan Democrats argue that deductions eliminated under the bill are popular in Michigan, such as the 410,650 tax filers who claimed deductions for student loan interest in 2015, according to Internal Revenue Service data.
The House bill would eliminate the $7,500 per vehicle tax credit intended to help generate consumer interest in electric vehicles. The Senate version preserves the credit.
EV enthusiasts and environmentalists say the repeal threatens the emerging electric-vehicle market. Automakers such as General Motors Co. and Tesla have relied on the incentive to bolster sales of models like the Chevy Bolt and Tesla Model 3.
Bishop pointed out that the EV credits were to be phased out in the next couple years anyway.
“The automakers didn’t even raise it with us,” Bishop said. “The car companies are looking at this lower, 20 percent corporate tax rate that will impact them directly and so positively, it overwhelms all other issues.”
Some Republicans from high-tax states such as New York and New Jersey plan to oppose the House bill because it would limit the state and local tax deduction.
Roughly 27 percent of tax filers in Michigan claimed the state and local tax deduction in 2015, with an average deduction of $9,648, according to an analysis by the Government Finance Officers Association.
A compromise in the House bill would allow property taxes to be deducted up to $10,000, but the Senate bill would fully repeal the provision.
Rep. Debbie Dingell, D-Dearborn, is particularly concerned about ending the deduction for medical costs.
In Michigan, more than 235,000 taxpayers with high out-of-pocket medical expenses (more than 10 percent of their income) deducted a portion of their costs from their taxable income – on average $9,264, according to an AARP analysis. The GOP House bill would eliminate the deduction, while the Senate version would keep it.
“It’s eliminating a critical tax deduction for families that are struggling to help care for someone that is sick, older or has a serious illness,” Dingell said.
The original House bill ended the tax credit for adoption expenses — up to $13,570 for 2017.
Huizenga was among a group of GOP lawmakers who wrote to Ways and Means Chairman Kevin Brady last week urging him to restore the adoption tax credit for a “more holistic, pro-family” tax plan.
The tax credit was restored. The Senate version also retains the credit.
“For me, it’s just the right thing to do. And the ‘cost’ on it was not significant,” said Huizenga, whose district includes the headquarters for Bethany Christian Services, a global adoption agency.
Staff Writer Keith Laing contributed.