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What the GOP tax plan could mean for average taxpayers

The House and Senate are getting to work on reconciling the differences between their tax plans. How will the provisions proposed by Congress affect middle- and lower-income taxpayers? Miles O’Brien gets analysis from Lisa Desjardins, Veronique de Rugy of George Mason University and historian and political analyst Thomas Frank.

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  • Miles O’brien:

    We start tonight with the first of several deeper dives we plan in coming days into the particulars of the Republican tax plans, as the House and Senate get to work reconciling the differences between the two.

    A number of provisions found their way into the bills along the way, some related to taxes, some not.

    Tonight, we will focus on a handful of them, paying particular attention to how each might affect middle- and lower-income taxpayers.

    For that, I am joined by our own Lisa Desjardins, who’s been following the process closely on Capitol Hill. Veronique de Rugy, she is senior research fellow at the Mercatus Center, a free-market research institute at George Mason University. And political analyst and historian Thomas Frank, his 2004 book “What’s the Matter With Kansas?” explored the rise of populist conservatism in the U.S.

    Lisa, you had a long weekend. How you doing?

    (LAUGHTER)

  • Lisa Desjardins:

    I’m doing all right.

  • Miles O’brien:

    Up late while this was all unfolding.

    There is lots to talk about as far as differences between the two bills. Let’s get kind of top line. What are some of the key differences that this so-called conference committee, the two sides of Capitol Hill, as they get together to try and figure out what the bill will be that will go to the White House?

  • Lisa Desjardins:

    That’s right. That is what they are doing right now.

    The House and Senate, each will appoint select members to join this conference committee. It will be part of duking out what ends up being, they hope, the final bill.

    Let’s talk about the most important big sweeping parts of this. How about you and I, individuals? What is happening here? Well, in these bills, both plans would cut tax rates, but also limit deductions.

    So, while most people would see a tax rate go down, the effect on you really depends on how many deductions, if any, you take. That is why we see some people with a big cut. Some people maybe might see their taxes go up.

    The big difference also too, Miles, to remember there is that, for the Senate, those individual tax cuts are temporary. The Senate says they’re counting on those being extended later, but it really isn’t quite clear.

    So, let’s also talk about the other big, you know, gorilla in the room here, the corporate tax cut. That is what the Republicans are the most excited about. So, for businesses, what these two plans do, one, they both cut the corporate tax rate to 20 percent from the current 35 percent.

    And then also the Senate — one difference here is that the Senate would have a larger tax cut for so called pass-through businesses. Those are businesses that sometimes are owner-operated, usually small S-corps and different kinds of businesses that might be owner-operated, like an accountant, or could be Donald Trump himself. He has got a pass-through.

  • Miles O’brien:

    If we were just talking about what you just mentioned, without getting into the real details of the plan, do you think the two bodies can come together? Are they close enough?

  • Lisa Desjardins:

    Yes, they’re very close. And they both have incredibly high motivation levels to pass these tax cuts.

  • Miles O’brien:

    All right, so the devil is always in the details. Let’s go into them.

    First of all, we know that the Affordable Care Act came front and center and the mandate for coverage. Tell us what each side has determined on that.

  • Lisa Desjardins:

    This is actually one of the trickier issues. The Senate has repealed the individual mandate requiring all Americans to get health insurance. There would be no penalty, if the Senate version of this tax cut bill went through.

    The House bill, however, didn’t touch health care at all in this particular way. And that is a big difference, not just in philosophy, but also in dollars. By doing that, the Senate raised over $300 billion that they put into tax cuts.

    But, Miles, the issue on the House side is, they have a lot of moderate members who are worried about people losing health insurance or not signing up for health insurance if the mandate is not in place.

  • Miles O’brien:

    All right, Tom, the individual mandate, which is part of Obamacare, the Affordable Care Act, that is something that gets right into middle-class country.

    Based — there is obviously still a conference report that needs to come out here. What is this going to mean for the middle class, do you think?

  • Thomas Frank:

     Well, I want to take a step back first, because, of course, Donald Trump, as we all know, was elected by sort of a remarkable series of events — well, blue-collar voters who left the Democratic Party and went and voted for him.

    It’s very similar to the phenomenon that I documented in Kansas many years ago, populist conservatism. And Trump did it by talking to these people about what had happened to their communities, de-industrialization, the bad trade deals, the sort of raw deal that working-class people have got in this country for a long time.

    Now, ironically, it looks like the one big thing Donald Trump is going to get done his first year in office is deliver a huge corporate tax cut. And there is an enormous irony in this, but this is how it plays out again and again and again with these guys, is that they act populist to get elected. And then, once they are in office, of course, they turn around and do these stupendous favors for their friends in the C-suites.

    As for the individual mandate, this is going to make — ultimately make health care more expensive in this country. I don’t think it will — repealing the individual mandate, which is — by the way, is the most unpopular part of Obamacare.

    But the rest of Obamacare, the Affordable Care Act, really depends on it. You take that away, it’s going to be — I don’t think it will kill Obamacare, but it’s not going to be healthy.

  • Miles O’brien:

    Veronique, what do you think about removing the mandate? Is that something that is absolutely essential to make this whole tax plan work?

  • Veronique De Rugy:

     The short-term impact on getting rid of the Obamacare mandate is one that is definitely beneficial for lower-income people.

    Something that people don’t quite think about is that 80 percent of the people who are paying the mandate are American families making under $50,000, right? So these are people who, for whatever reason, maybe because health care is still too expensive, those premiums are higher, they can’t afford them or whatever, they decide not to buy insurance.

    They have to pay a premium. They have to pay an extra tax. So these — in the short-term, talking just specifically about this bill, these are the guys who are going to be benefiting from repealing the mandate.

  • Miles O’brien:

    Let’s go to Lisa for a second.

    Lisa, walk us through what both House and Senate have done here to focus, of all things, on students, and graduate students in particular.

  • Lisa Desjardins:

    Colleges and universities, there’s two things.

    There is a lot of details here, but the two biggest ones, first of all, that student interest loan deduction that almost elected Bernie Sanders president, because he wanted to change all that, well, the House would actually remove that deduction. So those who have student loans can no longer deduct the interest.

    The Senate keeps that provision. Now, in an also kind of similar philosophy, the graduate student measure that you’re talking about, graduate students right now get free tuition, even though they are technically employees, they teach their own classes.

    The House would tax the value of that tuition, so that say you work — you are a graduate student at MIT, tuition there $49,000. That would be taxed as income under the House plan. The Senate wouldn’t tax that. That is a very big hit to those graduate students’ bottom line.

  • Miles O’brien:

    It seems — why are they going after the poor grad students?

  • Thomas Frank:

    Well, you have got the key word there- poor.

    These are people who are politically weak, who are powerless, who are identified as with the Democratic Party. You look at universities and who they donate to, the sort of top donors of Barack Obama and Hillary Clinton, it’s going to be all of your research universities.

    And so this is a political target, and it’s people that can’t really defend themselves.

    I was a graduate student once, by the way. And in case your viewers don’t understand this, this is strictly a paper transaction that we’re talking about. It’s not like the university gives you the money, and then you give it back to them. No, you never actually see the money.

    And so it is going to force the university to do some accounting work-around or something like that. But, no, it is just a way — it is just making a vulgar gesture at the other guys’ core constituency.

  • Miles O’brien:

    Veronique, vulgar gesture, would you agree?

  • Veronique De Rugy:

    You know, I don’t know. I won’t question their motives, because I just don’t know what their motives are.

    But one of the things I find questionable is that they have left — and there is no doubt, economically, that this is income. This is income. And, by the way, under the tax plans, these guys who benefit for doubling of the standard deduction, lower marginal rates, and so be and so forth, right?

    So it may not actually end up being as bad as they think. But what I find questionable is that they have left otherwise a lot of money on the table of, like, tax preferences that they could have gone after that clearly benefit higher-income individuals.

    For instance, they made this deal about the state and local tax deduction and the exemption, the $10,000 exemption, right? This benefits people who itemize, who are majority — vast majority are in the top income bracket.

    Same thing with the mortgage interest deduction. There is just a lot of tax preferences that they have left on the table that would have actually gone towards more simplification, and that it would have been, you know, maybe better to focus on this.

  • Miles O’brien:

    All right. We are going to have to leave it there.

    Veronique de Rugy, Tom Frank, Lisa Desjardins, thank you all for this wonderful, taxing discussion.

    (LAUGHTER)

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