- The GOP’s proposed tax reform bill will give a boost to the wealthiest in the country.
- Repealing the estate tax and the alternative minimum tax (AMT) are just two of the ways rich Americans could benefit.
- Meanwhile, the typical American family will get a tax cut of $1,182.
Since the House tax plan was first presented, Republican leaders have said that tax reform is for middle-income earners, highlighting the fact that a typical American family will get a tax cut of $1,182.
But the GOP’s tax reform proposal also gives a few boosts to the wealthiest in the country, including the proposed repeals of the estate tax and the alternative minimum tax (AMT).
The House voted to pass their 429-page GOP tax plan, called the Tax Cuts and Jobs Act, in November. And early Saturday, the Senate passed their own version of tax reform legislation. Republican leaders are likely headed to a conference committee to combine the separate plans into a final tax reform bill.
Business Insider outlined seven different perks for the wealthy from the House Republicans’ bill below.
Higher-income taxpayers will get the largest tax cuts.
The House GOP’s legislation would reduce taxes on average for all income groups in 2018 as well as ten years from now, but higher-income households would get the largest cuts – both in terms of dollar amounts and as a percentage of after-tax income, according to the nonpartisan Tax Policy Center.
Taxpayers in the top 1% – defined as those making over $730,000 – would receive 20% of the total tax cut, the think tank found. They’d get an average cut of $37,000, which translates to about 2.4% of their after-tax income.
The estate tax, which benefits about 5,500 taxpayers a year, will be eliminated.
The House GOP plan would eliminate the estate tax, under which people who give money or assets such as real estate or stocks to their children or other heir when they die have to pay a 40% tax. Currently, the tax only applies to estates larger than $5.49 million, but the House plan would double that threshold to over $10 million. Then, the plan would phase out the tax completely after six years.
Trump has touted the repeal as a perk for farmers and small businesses owners. An analysis by The Washington Post, however, found that only 5,500 estates out of about 3 million will pay any estate tax in 2017. And within that 5,500, only about 80 are farms or small businesses.
The AMT, which increased Trump’s leaked 2005 tax bill from $5.3 million to $36.5 million, will be repealed.
The alternative minimum tax (AMT), which was enacted in 1969 to “prevent taxpayers from escaping their fair share of tax liability through tax breaks,” would be eliminated.
Most of the people affected by the AMT earn over $500,000, according to Tax Policy Center. It is more likely to affect those who are married, have large families, or live in high-tax states.
Trump’s leaked tax bill from 2005 has been shown to have increased to $36.5 million from $5.3 million because of AMT.
Private school tuition could be paid through a 529 plan.
Families would be able to withdraw up to $10,000 per year from their 529 plans, tax-advantaged college savings accounts, and use it for tuition and other expenses at K-12 schools.
That effectively creates a benefit for people who would be sending their kids to an expensive private school, anyway.
Rich people will still be able to reduce their taxes by donating to charity.
The House GOP’s bill eliminates most personal itemized deductions and many credits, but the only deduction preserved explicitly in the plan is for charitable gifts and edited home-mortgage interest.
Charitable deductions are a popular strategy for super wealthy people to lower their tax bills.
“Hedge fund guys,” as Trump called them, and other fund managers will still have access to a loophole that allows them to pay a lower tax rate on investment profits.
With the carried interest provision, investment fund managers can pay a lower capital gains tax rate on their share of their fund’s profit. Usually it’s around 20%, below the 39.6% rate. The loophole (so far) remains unchanged in the House and Senate bills.
Notably, during his campaign, Trump said he would close the loophole.
“The hedge fund guys didn’t build this country,” he told John Dickerson on CBS’s “Face the Nation.” “These are guys that shift paper around and they get lucky.”
The stock market could go up thanks to a one-time repatriation tax included in the bill.
The one-time repatriation tax is designed to incentivize US-based companies that do business overseas to bring those profits back stateside.
There are several things that companies can do with that cash once it’s back in the US. They can reinvest into core businesses, which is probably the option policymakers would prefer since it might lead to economic growth.
Alternatively, companies can repurchase their shares, which would be a boost for the stock market. But, remember, the stock market is not the economy.
The last time the US government issued a repatriation tax holiday in 2004, corporations primarily spent the money on buybacks.
BONUS: The Senate bill would keep the home-mortgage-interest deduction.
Our post walks through the House GOP’s bill. However, the Senate’s version includes another detail that would also benefit the wealthy: it keeps the home-mortgage-interest deduction, under which Americans can deduct interest payments on mortgages up to $1 million.
The House version, meanwhile, edits that limit down to $500,000.