Republicans say their new tax plan would greatly expand the “zero tax” bracket of those who owe no federal income tax — bucking a longtime goal of fiscal conservatives who want to see more Americans with “skin in the game” when it comes to government spending.
Some 45 percent of Americans pay no federal income tax — a rate that’s more than doubled in recent decades from less than 20 percent in 1980. Mitt Romney made the zero-payers famous with his “47 percent” comment in the 2012 election, lamenting those who were beholden to the government.
The new GOP plan, though, could add more Americans to that pool.
Republican leaders want to nearly double the standard deduction, to $12,000 for individuals and $24,000 for married couples, saying that will more than make up for deleted tax credits.
“It would likely increase the number of taxpayers with zero income tax liability,” said Scott Greenberg, a senior analyst at the Tax Foundation.
The plan, which the GOP unveiled Wednesday and plans to speed through over the next couple of months, beginning with votes on a budget as soon as this week, is meant to flatten the tax code, eliminating a number of credits and deductions while cutting rates themselves.
The seven existing tax brackets would be reduced to three.
Republicans said the chief goal is to get the economy roaring, hoping that growth will eventually cancel out the loss of revenue caused by lower rates — estimated by several watchdog groups to be more than $2 trillion over the next decade.
GOP leaders have said they wanted the relief to go to the middle class more than anyone else, cutting their tax burden.
But early analysis suggests it’s the very wealthy and corporations who benefit the most, while lower- and middle-class families will see small benefits. The worst-off are likely to be taxpayers making between $150,000 and $300,000, many of whom will actually see tax hikes under the plan, according to the Tax Policy Center.
White House budget director Mick Mulvaney cautioned against reading too much into such early analyses.
“I think folks [who] come out and say that they know exactly what this plan is going to do to this individual family or that individual business [are] simply jumping to political conclusions and not going through the serious process of looking at how we make” laws, he said on Fox Business Network.
For Republicans, tax reform is fraught with competing goals of lowering burdens, making the country more competitive in a global economy, and trying to make sure tax burdens are shared — the “skin in the game” argument.
“I think for a lot of us, it is good for all of us to have participation in the financing of our society,” said Rep. David Schweikert, Arizona Republican and a member of the tax-writing Ways and Means Committee.
But he said that goal has taken a back seat to cutting taxes.
“I appreciate the philosophy, but for that hardworking person that’s only making $23,000 a year — they feel a tax burden,” Mr. Schweikert told The Washington Times. “So I think we all have to sort of move from the philosophy to sort of being intellectually honest that they feel a burden, too.”
Senate Finance Committee Chairman Orrin G. Hatch had a similar outlook.
“We’re not going to charge people who are in the lowest brackets really anything,” the Utah Republican said recently on Fox Business Network. “And I’m not against that. It’s just that it would be good for everybody to realize we all have to pull together to pull our country out of the difficulties and keep our country the strongest country in the world.”
Some analysts said it’s not going to be an issue — they said the GOP’s plan won’t substantially reduce the tax rolls.
Those analysts said the way the GOP structured its plan, cutting the personal exemption, will cancel out the gains of a larger standard deduction for many Americans.
The overall number of people who owe no federal income tax would not change very much “precisely because the larger standard deduction is largely offset by eliminating personal exemptions and other changes,” according to Stuart Kantor, a spokesman for the Urban Institute.
“I certainly don’t see this as inevitably taking a whole lot of people off the tax rolls,” said Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy. “It’s giving with one hand and taking away with another in a way that could absolutely leave some middle-income families worse off.”
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