ITEP Statement & Resources on the Senate Tax Bill

Contact: Jon Whiten ([email protected])

Senate Finance Committee Republicans have released their version of the tax changes they are seeking to include in the so-called “big, beautiful” bill. The tax changes closely resemble those that the House of Representatives passed by a single vote last month. Our analysis found the tax provisions in the House bill would give 69% of the first-year benefits to the top 20%, with the richest 1% getting a total of $124 billion in net tax cuts in 2026.

We at ITEP are busy modeling what the Senate version of this bill will mean for families in different economic circumstances across the country and in every state, but one thing remains the same: this is a recklessly expensive bill that will expand economic inequality in America by making the tax code more tilted to the top, and pay for it in part by stripping health care from millions of Americans and rolling back critical climate investments.

Statement from Amy Hanauer, Executive Director of the Institute on Taxation and Economic Policy:

“This bill takes healthcare and food away from millions of Americans and gives trillions in tax cuts, mostly to those who already have the most in our country. It’s hard to imagine a more misplaced set of priorities. Families will see their health coverage spike in cost or go away. The emerging clean energy economy will be curtailed and for what? In order to benefit millionaires. Our communities will be worse off as a result of this legislation.”

ITEP analyses of the House bill:

• Analysis of Tax Provisions in the House Reconciliation Bill: National and State Level Estimates
• The House Tax Plan, By the Numbers
• House Tax Bill Enlists the Wealthy to Spread Private School Vouchers
• House Tax Bill Would Create a Parallel, Harsher Tax Code for Immigrant Filers and their Citizen Family Members
• House Bill’s Deduction for Car Loan Interest Would Not Offset Tariff-Related Auto Price Increases for Most Buyers
• House Bill’s $164 Billion Giveaway to Multinational Corporations Puts America Last
• House Tax Bill Would Encourage Dynastic Wealth Hoarding by Further Weakening the Estate Tax

Among the major components of the Senate tax bill:

• The 2017 changes to personal income tax rates and brackets would be made permanent. These rate and bracket changes would result in a tax cut for some people in all income groups, but the richest families would receive the most.
• The 20 percent deduction for income individuals receive from “pass-through” businesses would be made permanent. Proponents of this subsidy sometimes characterize it as a break for “small” businesses but the vast majority of the benefits go to the very wealthy.
• The Alternative Minimum Tax (AMT), which was designed to ensure that high-income earners pay some minimum amount of tax, would be watered down.
• The exemption for the estate tax would increase to $15 million per spouse from $13.99 million per spouse and continue to increase with inflation. In other words, a couple could leave $29.99 million to their heirs in 2026 without paying a cent of estate tax. The reach of this tax is already at historic lows. In 2019, for example, only 8 of every 10,000 people who died left an estate large enough to trigger the tax.
• The Child Tax Credit (CTC) would be increased to $2,200 per child from $2,000 per child — an amount less than its inflation-adjusted value at the start of 2018 when the $2,000 credit first took effect. But millions of children whose parents earn too little to receive the full CTC would be denied this benefit.
• Corporate tax subsidies for research expensing, bonus depreciation, and bigger deductions for interest payments would be permanently reinstated starting this year.
• The very generous low tax rates for multinational corporations claiming Global Intangible Low-Taxed Income (GILTI), Foreign Derived Intangible Income (FDII), and the Base Erosion and Anti-Abuse Tax (BEAT) would be made permanent, effectively taxing American corporations half as much, at most, on profits they book overseas compared to those booked in the U.S. This is a tax break compared to the original 2017 tax law, which scheduled higher rates on these types of incomes to come into effect in 2026. Multinationals that choose to invest overseas stand to gain the most as the more they invest elsewhere, the less they pay in tax under these policies.
• An unprecedented dollar-for-dollar tax credit for people steering money into nonprofit groups that distribute private K-12 school vouchers would be created. In addition to the tax credit, contributors to these groups would also be able to reduce their taxes further by avoiding capital gains tax on contributions of appreciated stock, with the result being a profitable tax shelter overall. Unlike the House version, the Senate would make this tax credit permanent.
• The 2017 change to the standard deduction would be permanently expanded to $16,000 for individuals, $24,000 for taxpayers filing as head of household, and $32,000 for married couples.
• A new, temporary deduction of $6,000 would be provided to seniors for the next four years. The deduction would be available to both itemizers and standard deduction claimants and would phase out starting at incomes of $75,000 for individuals and $150,000 for married couples. Taxpayers without Social Security numbers would be ineligible for the deduction.
• Certain earned income (tips and overtime) will be temporarily exempt from tax for four years, subject to limitations based on income. These provisions would amount to an unprincipled tax preference that favors people working in certain professions over all others.

To help pay for these tax cuts, the legislation uses a budget gimmick known as the “current policy baseline,” which makes extending the 2017 Trump tax provisions appear to have no cost. It also proposes the following changes, among others:

• Personal and dependent exemptions, which had been temporarily suspended under the 2017 law, would be permanently repealed.
• The cap on deductions for state and local taxes (SALT) paid “is the subject of continuing negotiations,” according to Senate Finance Committee documents, and placeholder language currently keeps the cap at $10,000.
• Most of the Inflation Reduction Act tax credits for electric vehicles, residential energy-efficient upgrades, and other green energy technologies would be terminated.
• New restrictions would be placed on health insurance premium tax credits, making it difficult for some families to afford health insurance.
• A tiered tax increase on colleges and universities would be put in place based on the size of their per-student endowment. The tax would amount to 1.4% of net investment income for institutions with per-student endowments of $500,000 per student and would top out at 8% for institutions with per-student endowments of $2 million or above.
• A new 3.5% excise tax would be created on some remittances sent to other countries by undocumented immigrants and others without Social Security numbers. Payments made with U.S.-issued credit or debit cards or via many U.S. banks would be exempt.

 

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