A Republican tax plan has been a long time in the making, though many argued that the current $1.5 trillion tax overhaul — the biggest in 30 years — won't be great for all American taxpayers. Either way, the bill is now headed for President Trump's signature after its final passage in the House. So, how exactly would it impact Americans? Turns out, there are pros and cons of the GOP tax plan — and it will almost certainly affect you.
According to the Institute on Taxation and Economic Policy, the biggest benefits from this tax reform will primarily go to the richest people in the country, i.e. the top 5 percent of earners. That's not good news for the rest of us, of course, despite the fact that the bill is being promoted as a "massive tax cut."
According to most economists, the bill actually won't translate to massive tax cuts for the vast majority of people. Instead, large corporations, rich people, and big banks stand to benefit the most. That means Trump himself would benefit — though it's unclear how much, considering he has yet to release his taxes — as the bill, among other things privileges those with large real estate holdings.
As for the rest of us well, the tax bill so far seems to be a mixed bag — one without too many benefits for average, working Americans.
Pro: *Some* People Will Get Tax Cuts
Across the board, Americans are likely to see some sort of tax break, though it varies widely. Analysis by the Urban-Brookings Tax Policy Center found that all income groups, on average, would get a tax cut next year, and therefore have more money after taxes: "In 2018, all income groups would see their average taxes fall, but some taxpayers in each group would face tax increases." (The individual tax cuts are temporary, unlike the corporate tax cuts.)
According to the Institute on Taxation and Economic Policy, however, the final tax bill "would provide most of its benefits to high-income households and foreign investors while raising taxes on many low- and middle-income Americans." In other words, the wealthiest will reap the biggest rewards. This likely includes the president himself, who promised that he would not benefit from the plan.
The threshold for the top personal income tax bracket would rise, too — from $470,000 to $1,000,000 (for joint filers) — creating an additional tax cut of at least $23,000 for those earning $1 million or more. The bill would also lead to the eventual dissolution of the estate tax (which currently applies to only 0.2 percent of all estates).
But not everyone will see tax cuts. According to the Brookings Institution, the bill would eliminate personal exemptions and raise the lowest marginal income tax rate to 12 percent. Brookings fellow William Gale says that this produces a "mixture of effects" for low- and middle-income households: "I expect that some will see tax increases, some will have their tax situation unchanged, and some will see tax cuts."
Steve Bell, the staff director of the Senate Budget Committee during the Reagan administration, told TIME the tax bill was "a tax cut for businesses with some contradictory stuff for individuals.” Individual tax rates would drop, with the highest bracket of taxpayers paying 37 percent, compared to the current 39.5 percent. Those changes are scheduled to expire within eight years, however.
Con: The Bill Will Likely Raise The Deficit
President Trump has been highly critical of a high U.S. deficit. But many analyses have found that these tax cuts in the bill will blow up the country's deficit even further. This could be a purposeful move by Republicans, as many have noted, to call for cuts to programs like Social Security, Medicare, and welfare in the future. In a recent interview, House Speaker Paul Ryan said Congress would "have to get back next year at entitlement reform, which is how you tackle the debt and the deficit.”
Pro: Businesses Would See Tax Breaks
The bill slashes the corporate tax rate from 35 percent to 21 percent, a massive cut for companies. It would also ensure that tax rates on income from "pass-through" businesses (including partnerships, S-corps, and sole proprietorships) would go down. The tax legislation from both the House and Senate also extends tax cuts to small businesses, but only those with less than 20 employees. The corporate tax rate cuts would be permanent, unlike the individual tax rate changes.
Con: Big Banks Would Be Among The Bill's Biggest Beneficiaries
Among the biggest beneficiaries of the huge corporate tax cut would be large banks, which would see earnings grow an average 14 percent next year should the bill pass, according to a Goldman Sachs analysis. Among the biggest winners would be the scandal-plagued Wells Fargo, whose earnings could jump as much as 18 percent due to the GOP proposal.
Pro: Better Incentives Could Encourage Hiring & Pay Raises
There are a slew of business incentives laid out in the tax plan, including lower tax rates, the ability to write off investments, and taxation only on earnings made in the United States. Republicans say that these incentives mean that companies will have more capital. In turn, they'll be able to spend more on their workers, thereby increasing middle-class wages through more hiring and pay raises.
The White House Council of Economic Advisers has promised that the corporate tax cut will lead to an increase of at least $4,000 a year in the average American family's household income. According to a report released by the council, those increases could grow over time: "The increases recur each year, and the estimated total value of corporate tax reform for the average U.S. household is therefore substantially higher than$4,000. Moreover, the broad range of results in the literature suggest that over a decade, this effect could be much larger."
Con: Some People Will See Taxes Rise Over Time
If enacted, the bill would go into effect in 2018 — the provisions directly affecting you and your, however, would all expire after 2025. There's one major exception, though, to a provision that would actually raise taxes. With the biggest cuts coming in the early years, some who see a tax cut in 2019 could see their taxes rise years later.
If the bill becomes law, you'll likely pay less in taxes beginning next year — but that wouldn't last, because individual's lower tax rates are scheduled to expire within eight years. According to the Tax Policy Center, that means that in 10 years, half of all American taxpayers would actually be paying more than they are now.
According to a Monmouth Poll, half of Americans believe their taxes will go up under the plan and that Trump policies aren't helping the middle class. In a press release, Monmouth director Patrick Murray said most viewed the bill as a partisan political effort: "Many Americans see this bill more as an attempt by Republicans to gain a political victory and would rather see Congress scrap this plan and start over."
Pro: The Bill Is Likely to Grow In Popularity Over Time
Though Republicans have struggled a bit with explaining the bill to taxpayers, they'll be working hard to sell it in the coming months. Low expectations mean that public sentiment might shift over time, leading more voters and taxpayers to embrace the bill in the coming months. Congressional lawmakers say it will become more popular once it's passed — certainly a plus for the GOP, which has had very few policy wins since Trump took office.
Con: Lawmakers Simply Don't Know Exactly How It Will Affect Everyone
A number of Republicans admitted in recent days that they hadn't read the bill in its entirety, leading many to argue that it would was being pushed far too quickly. After being asked about a last-minute provision that would benefit him, Republican Sen. Bob Corker said he wasn't familiar with that piece of the legislation.
When asked about that particular provision — which would benefit Trump as well as Corker — GOP Sen. John Cornyn said the provision was slipped in to “cobble together the votes we need to get this bill passed.”
Pro: The Stock Market Will See A Boost
The stock market is set to see a big boost from the passage of the tax bill. In fact, both JP Morgan and UBS believe that the S&P 500 (a benchmark for the market as a whole) could surge as much as 25 percent as a result of the legislation's passage. When the stock market does well, the economy does well — so this benefit is two-fold.
The House voted to pass the bill on Wednesday again, after it already did so the day before (Democrats say three provisions in the bill violated Senate rules, and removed it during the Senate vote). The massive tax overhaul will now head to the president's desk for his signature.