Final Tax Bill Increases Individual Taxes, Cuts Corporate Taxes

Final Tax Bill Increases Individual Taxes, Cuts Corporate Taxes December 18, 2017

The conference committee has reconciled the House and Senate version of the tax bill and it will now go back for a full vote on the final bill in both chambers, as soon as Tuesday. In its final form, it is essentially a tradeoff — higher taxes on all individuals except the wealthiest and lower corporate taxes. That’s because the individual tax cuts all expire while the corporate tax cuts are permanent.


Republicans are paying for a permanent cut for corporations with an under-the-radar tax increase on individuals.

Senate rules require the Tax Cuts and Jobs Act not to add to the federal deficit after 10 years. Failing to meet that window would result in legislative defenestration, as it would require 60 votes in a Senate that has only 52 Republicans…

That’s why Republicans can’t just let the individual tax cuts expire, as they do at the end of 2025, but they actually need to raise money to offset the permanent corporate tax reduction.

Thanks to a preliminary estimate from the nonpartisan Joint Committee on Taxation that was released alongside the final bill Friday, we know it’s individual taxpayers who ultimately bear the cost of the tax bill.

This chart shows what happens after 10 years, when the corporate tax cuts remain in place, most of the individual income tax cuts expire and, due to a number of technical changes and action taken on various exemptions, individual tax rates go up:

One of those technical changes is switching from using the Consumer Price Index to determine the rate of growth in various programs to using what is called the Chained CPI. It slows the rate of inflation down, or at least slows how it is measured. As Batchelder points out, the result of that little change is a $400 billion tax increase after the ten-year window. She notes, “Slower inflation indexing largely exempts the wealthy b/c most of their income is already in the top tax bracket. Really hurts middle class and poor b/c more of their income taxed at higher brackets over time, and reduces value of tax benefits like EITC.” So again, the damage falls disproportionately on the poor and middle class but exempts the rich.

In addition, the repeal of the individual mandate is also a big factor. Not only will it leave more than 10 million people without health insurance, it will also increase health insurance premiums by an additional 10% over and above the huge increase we’re seeing as a result of Trump refusing to fund the CSR subsidies, according to the CBO. That will also significantly increase the amount of uncompensated medical care, which will inevitably result in more bankruptcies for both individuals and hospitals.

And because they can’t repeal the individual subsidies in the Affordable Care Act, which by law must be funded to reduce the impact on those who do purchase insurance on the health care exchanges, it will actually increase federal spending, not decrease it. So here’s what the tradeoffs really are:

Corporations get a huge (35% to 21%) decrease in taxes, permanently.

Individuals get a brief decrease in taxes, which reverse themselves into an increase for everyone but the wealthiest among us.

We all pay higher health insurance premiums and, quite possibly, end up with a non-functional insurance market because the proportion of relatively healthy to unhealthy people will be flipped on its head by the repeal of the individual mandate.

The cost of medical care (along with the cost of insurance, which is not the same thing) will have to go up at a faster rate because of the jump in the amount of uncompensated care.

The federal government loses $150 billion a year in revenue while increasing spending on the individual health insurance subsidies, which blows a hole in the federal deficit — you know, the one that Trump not only said he could easily eliminate, but that he would build up such an annual surplus that he could pay off the debt in 8 years.

I don’t know how anyone could think this is good public policy.

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