It was a good week for one of the most talked-about pieces of legislation the country has seen this year.
The Tax Cuts and Jobs Act, or H.R.1, passed through the U.S. House of Representatives and the U.S. Senate on Wednesday, and was signed into law by President Donald Trump on Friday.
The $1.5 trillion tax reform package marked President Trump’s first major legislative triumph since he took office, and according to the Tax Foundation will move the United States to a territorial system of business taxation by reforming both individual income and corporate income taxes.
According to the Tax Foundation’s Taxes and Growth Model, the plan will significantly lower marginal tax rates and the cost of capital, which would lead to a 1.7 percent increase in GDP over the long term, 1.5 percent higher wages and an additional 339,000 full-time equivalent jobs.
The Tax Cuts and jobs Act will lower most individual income tax rates, including the top marginal rate from 39.6 percent to 37 percent, and retains the current seven-bracket structure but with modified bracket widths. This will increase the standard deduction to $12,000 for single filers, $18,000 for heads of household and $24,000 for joint filers in 2018 (compared to $6,500, $9,550 and $13,000 under current law).
In California, however, the California Budget and Policy Center states that the Tax Cuts and Jobs Act is “clearly tilted to wealthy households and major corporations, while providing very little if any benefit for most middle- and low-income families.”
As part of the tax bill, the corporate tax rate will be cut from 35 percent to 21 percent – the largest one-time reduction in the corporate tax rate in U.S. history.
And while many are celebrating the end of the Affordable Care Act’s “individual mandate,” which requires most people to have health insurance or pay a penalty, the CBPC estimates that ending the individual mandate will not only cause health insurance premiums to increase, but would also mean 13 million fewer Americans will have health coverage by 2027, including an estimated 1.7 million in California.
Federal support programs like Medicaid, Medicare, SNAP (food assistance), student aid and affordable housing will also take a hit, with $5.8 trillion in cuts over the next 10 years supporting the Republican tax bill.
“However one chooses to describe the Republican tax bill… the stakes are clear: This GOP tax plan would do little if anything for middle- and low-income families across the nation, and especially in California, while exploding the federal deficit and forcing future cuts to the kinds of publicly funded supports that help these same families advance,” said Chris Hoene and Steven Bliss of the CBPC. “And, it does all this in order to bankroll major tax giveaways to wealthy households and major corporations.”
The bill passed through the House in a 224 to 201 vote. Congressman Jeff Denham gave the bill a thumbs-up, describing it as a “win for the Valley and for everyone who will see an increase in their paychecks in 2018.”
With the provisions in the bill, the average family of four making $90,000 a year in California’s District 10 will see a savings of $1,279. The Child Tax Credit will also expand from $1,000 to $2,000 for each child and provide new credits of $500 each for other dependents.
“Congress has delivered on our promise to lower taxes for the middle class by reducing rates while preserving the credits and deductions that matter most to the people I represent – like the now-doubled Child Tax Credit. The lowering of marginal tax rates means Americans will receive more money in their paychecks immediately, and at minimum, the first $12,000 to $24,000 of their paychecks will be tax-free,” said Denham. “But the biggest issue in the Valley has always been jobs. This bill will expand exports on the many things we grow in our community, which will allow our local agricultural businesses to be more globally competitive and hire more of our neighbors.”