Rushing to pass a tax bill last week, Senate Republicans worsened its harmful provisions and highlighted the worst elements of their process for enacting it.
As the Senate began considering the Finance Committee-approved bill on Wednesday, Congress was already moving on a fast track on legislation to give large tax cuts to the wealthy and corporations, raise taxes for many low- and moderate-income people, boost the number of uninsured Americans by millions, and expand deficits, according to the Joint Committee on Taxation (JCT), Congress’ official scorekeeper. The process that Republican leaders were pursuing was designed to ensure that the public didn’t fully understand the bill, with major new provisions advanced without the benefit of hearings or expert analysis.
Revising the bill before passing it early Saturday, the Senate expanded provisions that overwhelmingly benefit the wealthy while rejecting proposals to improve the Child Tax Credit (CTC) for low-income working families with children and reduce the bill’s cost, which will exceed $1 trillion even under the most optimistic reasonable scenario. And they passed the bill only hours after releasing new language, a step that both prevented legislators and the public from understanding the bill’s impact and will likely have unintended consequences, resulting in a bill that’s even more costly and tilted towards the wealthy and large corporations than it now appears.
The Finance Committee-passed bill would have let business owners deduct 17.4 percent of their pass-through income from their taxable income, meaning that it would be tax free (subject to certain restrictions). That deduction is heavily skewed to the most profitable businesses and wealthiest business owners, who receive a greater share of their income from pass-throughs and enjoy a larger tax break per dollar of deductions since they are in higher tax brackets.
In response to demands by Senators Ron Johnson and Steve Daines, Senate Republican leaders raised the deduction percentage by nearly a third, to 23 percent. The underlying pass-through tax cut would cost $362 billion over ten years; the expansion cost an additional $114 billion, according to a JCT estimate released after the Senate passed the bill. (These estimates assume that the provision expires as scheduled at the end of 2025.)
Repealing most of the SALT deduction would strain state budgets, over time putting funding for education, health care, and other services at risk, or prompting states to raise more revenues from low- and middle-income households.
But Republicans moved forward without making any improvements for low-income working families, effectively continuing to give giving millions of families only a token CTC increase in order to protect an extra corporate tax cut.
Some amendments also raised the bill’s potential cost. For example, by expanding the pass-through deduction, the Senate raised both the bill’s official cost and its potential cost if policymakers later make the deduction permanent, as congressional Republicans say they favor. To cover some of the cost of this and other amendments, the final bill increased the one-time tax on multinationals’ offshore profits. But because policymakers can use this revenue-raiser only once, it can’t help offset the ongoing cost of the pass-through deduction or other temporary tax breaks if policymakers extend them. And in the final hours before passage, the “manager’s amendment” — that is, the final bill — added provisions offering targeted tax breaks for oil and gas companies, mortgage bankers, and auto dealers, among others.
Since Senate Republican leaders didn’t release the bill to lawmakers or the public until immediately before the vote, it may well include other provisions that increase its cost and tilt towards the top — among other problems. Congress has an opportunity to address some of these problems when a House-Senate conference fashions a final bill out of the separate House- and Senate-passed versions. But without a more open, deliberative process, a final bill will likely have harmful effects even above and beyond the provisions we now understand.