ITEP Statement: House’s Recklessly Expensive Tax Bill Would Expand Inequality

House Republicans today will begin marking up their so-called “big, beautiful” tax bill. We at ITEP are busy modeling what this bill will mean for families in different income ranges across the country and in every state, but one thing is clear: this is a recklessly expensive bill that would expand economic inequality in America 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 gives enormous additional tax cuts to wealthy people and corporations, spikes the deficit, and strips health care from millions of Americans. Reckless tax cuts for the top and new corporate loopholes appear to be the big features of this bill, and they’re paid for by cutting our health care and making American communities more vulnerable to floods, fires, and storms. The revenue raisers – which don’t stop this from being extremely expensive – seem to be about picking winners and losers, rather than passing rational, consistent policies.”

Among the major changes:

• 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 nearly two-thirds of the benefits would go to the richest fifth of taxpayers, and more than a quarter would go to the richest 1 percent.
• The deduction for income individuals receive from “pass-through” businesses would be made permanent and increased from 20 to 23 percent. Proponents of this subsidy sometimes characterize it as a break for “small” businesses but most of the benefits go to the richest 1 percent.
• 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. 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 temporarily increase to $2,500 per child from $2,000 per child for four years — an amount slightly below 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. And 4.5 million U.S. citizen kids would lose access to the credit entirely under new restrictions requiring that all filing parents must have Social Security numbers.
• Corporate tax subsidies that supposedly encourage innovation and investment – tax breaks for research expensing, bonus depreciation, and bigger deductions for interest payments – would be reinstated for five years starting this year.
• The very generous version of a tax break for offshore profits (the GILTI deduction) would be made permanent, effectively taxing the foreign profits of American corporations half as much (at most) as their domestic profits are taxed. This is a tax break compared to the original 2017 tax law, which scheduled a less generous version of this provision to come into effect in 2026.
• 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. (The credit is a somewhat scaled back version of a bill that ITEP analyzed earlier this year.)
• The 2017 change to the standard deduction would be made permanent, and a temporary four-year boost would bump it up to $16,300 for individuals, $24,500 for taxpayers filing as head of household, and $32,600 for married couples.
• A new, temporary deduction of $4,000 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 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 would be extended past its planned expiration at the end of this year, though the current $10,000 cap will be boosted to $30,000 for married filers and $15,000 for individuals. Those amounts would phase down to $10,000 and $5,000, respectively, for high-earning households. Some pass-through businesses would also be subject to the SALT cap, though C corporations will not.
• The Inflation Reduction Act tax credits for electric vehicles, residential energy-efficient upgrades, and other green energy technologies would be terminated at the end of 2025.
• 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 21% for institutions with per-student endowments of $2 million or above.
• A tiered tax increase on private foundations’ net investment income would be put in place. The current rate of 1.39% would be increased for foundations with assets of at least $50 million. The top rate of 10% would apply to foundations with assets of $5 billion or more.
• A new 5% excise tax would be created on remittances sent to other countries by undocumented immigrants and others without Social Security numbers.