Tax Reform Passes the House Without a Single Democratic Vote

The House of Representatives passed its tax reform bill on Thursday on a 227-205 vote. All Democrats present and 13 Republicans voted against it.

All but one of the 13 Republicans who voted “no” represent New Jersey, New York, and California, where state and local income taxes are high. The House GOP bill eliminates that deduction for those who would still itemize their deductions. The House GOP bill would raise taxes right off the bat for 7 percent of Americans, according to the Tax Policy Center. But those voters tend to be clustered in high-tax, high cost-of-living districts. Considering that only 56 percent of Americans pay income taxes, the GOP bill nicks a significant portion of the upper-middle-class.

But on net, the bill is a tax cut for 76 percent of Americans. It lowers rates, doubles the standard deduction (from $12,700 for a married couple to $24,000), increases the child tax credit from $1,000 to $1,600, creates a new $300 “family flexibility credit” for each filer and their non-child dependents, and allows the more of the upper-middle-class to claim the child tax credit. (The child tax credit currently begins to phase out for couples with $110,000 of adjusted gross income but would only do so at $230,000 under the House GOP bill.)

The bill would also eliminate the deduction for state and local income taxes (for those whose deductions would still be greater than the $24,000 standard deduction), scrap personal exemptions, cap the deduction for property taxes at $10,000, and grandfather in mortgage interest deductions on existing home loans while capping the mortgage interest deduction on new homes at $500,000.

When you add (and subtract) it all up, that leaves 7 percent of Americans worse off. As Tony Mecia notes in this week’s issue of TWS, the bipartisan tax reform signed by President Reagan in 1986 hiked taxes on 20 percent of the country. On the corporate tax side, the House bill limits and scraps some deductions while lowering the corporate tax rate from 35 percent to 20 percent. Republicans have come under fire for making the corporate cut permanent, while making some of the individual tax credits temporary. The bill can only reduce revenues by $1.5 over a decade and still pass muster under Senate rules. Republicans argue that these popular individual credits will be renewed before their expiration date, but if that’s true that also means the bill’s true impact on the deficit would be bigger than advertised.

While many congressional Republicans believe that passing tax reform is key to saving their House majority, a poll released Wednesday by Quinnipiac shows that voters oppose the GOP plan by a 2-1 margin.

All eyes now turn to the Senate GOP’s tax bill. A couple major differences between the bill drafted in the Senate and the one passed by the House is that the Senate bill includes a bigger child tax credit ($2,000 per child), kills Obamacare’s individual mandate tax, and eliminates the deduction for property taxes as well as state and local income taxes. (The Senate GOP bill also includes a bigger $24,000 standard deduction for married couples.)

Kevin Brady, chairman of the House Ways and Means Committee, said Sunday that the Senate’s elimination of all deductions for state and local taxes was unacceptable.