An updated Senate plan to overhaul the U.S. tax code could dramatically raise taxes on households earning between $10,000 to $30,000 starting in 2021, according to new findings released Thursday by the Joint Committee on Taxation.
The analysis incorporates the effect of changes released by Senate Republicans late Tuesday in a chairman’s mark, including repeal of the individual mandate penalty for failure to purchase health insurance coverage, bigger tax rate cuts and child tax credits, and sunsetting provisions affecting individuals and families after 2025.
The uptick in the tax burden for lower-income earners is likely due to foregoing tax credits to subsidize insurance on the exchanges set up by the 2010 health care law, according to the JCT. Nonetheless, the report gave ammunition to Democrats who have argued the GOP plan is a tax cut for the rich paid for through a tax hike on lower- and middle-income Americans.
“We have gotten astounding news in the last hour,” Senate Finance ranking member Ron Wyden of Oregon said at the outset of Day Four of the panel’s markup of the Republican tax bill. “Families earning $30,000 and under are going to get clobbered with a tax hike.”
Finance Chairman Orrin G. Hatch of Utah used the $318 billion in 10-year revenue generated by repealing the mandate penalty — a central plank of the health care law — to cut tax rates further for middle-income households and expand the size of child tax credits to $2,000 for households earning up to $500,000.
Hatch said the JCT analysis showing worsening results for lower-income groups reflected the choice not to buy health insurance and therefore lose premium tax credits. JCT Chief of Staff Thomas A. Barthold explained that the change in the estimate for lower-income groups “accounts for taxpayer behavior.”
The overall result, however, is that beginning in 2021, there would be smaller tax cuts in the new version for families earning up to $50,000, and outright tax increases for those making between $10,000 and $30,000. At the same time, households with more than $50,000 in annual income, including the wealthiest Americans, would generally see larger tax cuts than they would have under the Senate GOP’s earlier plan — at least until most of the new tax provisions affecting individuals expire after 2025.
Republicans are also opting to make a reduction in the corporate tax rate permanent, which Wyden at Wednesday’s markup called a “double standard” in the bill.
The new version of the chairman’s mark would result in tax cuts for every income bracket in 2019, according to the JCT. Those making between $30,000 and $40,000 would see the largest tax break by percentage — an estimated 9.8 percent reduction — followed closely by those making between $500,000 and $1 million a year (9.7 percent reduction).
In 2021, those making between $20,000 and $30,000 could see a 13.3 percent tax increase, according to the JCT. That percentage would hit 25.4 percent in 2027, after the individual tax cuts sunset. Under the prior GOP proposal, the JCT estimated that cohort would see a 10.3 percent decrease in taxes in 2027.
Other middle-income earners face better prospects in the updated mark. In 2021, those making between $50,000 and $100,000 would see an estimated 7 percent reduction in taxes. That number decreases throughout the 10-year window, however, and in 2027, that cohort would experience either a small increase in taxes or no change at all.
For those middle-income earners, however, the new mark is more favorable in several of the years. Under the prior version, for example, those making between $75,000 and $100,000 in 2025 would have experienced an estimated 3.7 percent reduction in taxes. That would rise to an estimated 5.4 percent reduction in the updated proposal, according to the JCT.
In 2027, the JCT estimates anyone making less than $75,000 would experience a tax hike. Those making over $75,000 would see a reduction throughout the 10-year window, even with the expiration of the individual tax cuts.
Doug Sword contributed to this story.