Republicans have embraced a new test for tax reform, one that could add to the already immense difficulty of passing legislation: They will say their reform bill must make the tax code even more progressive than it is today.
A senior administration official told reporters Tuesday that the goal of the joint framework developed by the Trump White House and Republican congressional leadership is meant to be “a middle-class tax cut that is at least as progressive as the current system and that doesn’t shift the tax burden from higher-income to lower-income households.”
To that end, it will include a nearly doubled standard deduction and larger child tax credits, which will push some families off the income tax rolls. It will also allow for the possibility of a fourth tax bracket to impose a higher rate on individual income taxes than the 35 percent specified in the framework.
A progressive tax code is one that places greater tax burdens on higher incomes. Ensuring that the GOP tax bill makes the code more progressive, or at least doesn’t make it less regressive, will be a difficult task, given the other goals Republicans are hoping to achieve.
Both President Trump’s campaign tax plan and the one written by House Speaker Paul Ryan would have been significantly regressive, according to the Tax Policy Center, a think tank.
Progressivity is a somewhat tricky concept to measure. For example, simply counting which income group would gain the biggest tax cut in dollars isn’t necessarily helpful, since high earners already pay a majority of taxes. Another way to measure it would be to say whether higher earners shouldered more of the tax burden after the tax change. Yet another metric would be whether the rich got a larger boost in after-tax income than lower-income earners.
By some measures, for instance, the Bush tax cuts were progressive, because they reduced millions of people’s liability to zero by expanding tax credits, in addition to cutting tax rates for high earners.
Republicans haven’t said which standard they will use to gauge their tax bill.
One difficulty, however, is that some of the changes they favor are guaranteed to provide large tax breaks for high earners.
Among other items, they want to repeal the estate tax, which only kicks in for bequests worth more than $11 million. Also, they seek to create a new special tax rate for businesses that file through the individual side of the code. That rate would provide big benefits to high-earners like hedge fund managers and doctors.
