GOP Tax Reform: Some States Will Get Cuts While Others Could Pay More

WASHINGTON, DC — Despite President Trump's pledge to lower taxes for the middle class, the Republican tax proposal as currently devised in a plan released Wednesday could lead lead people in some states to pay more in taxes, while other states would largely see cuts.

The far-reaching plan would cut taxes for individuals and corporations, simplify the tax system and increase the standard deduction that most Americans use. The proposal's rhetoric employs the themes of economic populism that the president trumpeted during the presidential campaign to win support from working-class voters. (For more information on this and other political stories, subscribe to the White House Patch to receive daily newsletters and breaking news alerts.)

One of the most significant changes will be the elimination of a deduction for state and local taxes. This allows people to subtract what they pay below the federal level from their taxable income; in high-income states, typically those run by Democrats, the local deduction is frequently the large deduction for individual taxpayers.

According to the Tax Foundation, an independent research nonprofit, eliminating this deduction could raise an additional $1.8 trillion in revenue over 10 years, with the largest increases coming from New York, California and New Jersey.

However, the proposal as it stand has many gaps and unspecified amounts at this point, so it's unclear what the distributive effects of the plan would be.

Congressional Republicans officially revealed their proposal for a complete overhaul of the American tax code at a press conference Wednesday afternoon as they try to push forward after the devastating defeat of Obamacare repeal. Ahead of the planned release, several media outlets, including Axios and The Associated Press, obtained copies of the document.

You can read a full copy of the Republican tax proposal at Axios.

The plan nearly doubles the standard deduction to $12,000 for individuals and $24,000 for families. This basically increases the amount of personal income that is tax-free.

As Josh Barro of Business Insider explains, while the plan would increase the standard deduction taxpayers can take, the tax rate on the lowest income bracket would rise from 10 percent to 12 percent. This means many people could end up paying higher tax rates on the income that surpasses the standard deduction.

The plan says these people will receive "additional tax relief," but it has no indication where that money will come from. Two major deductions will be preserved: the charitable deduction and the mortgage interest deduction.

The plan eliminates the $4,050 exemption for dependent children. The plan says the it will increase the Child Tax Credit, which could be a big financial help to parents — but it doesn't not say how much the credit would increase by.

This is a huge deal, because it could mean the difference between a middle class person paying more or less in taxes if the plan passes.

"Families are an afterthought for this plan," said Ramesh Ponnuru, a senior editor for the conservative magazine National Review. "High earners, corporations get a definite number. Parents? We'll get back to you."

Corporations would see their top tax rate cut from 35 percent to 20 percent. For a period of five years, companies could further reduce how much they pay by immediately writing off their investments.

The individual tax rates would be 12 percent, 25 percent and 35 percent. Wealthy people would presumably benefit from the fall in the top tax rate from 39.6 to 35 percent. However, the plan recommends a surcharge for the very wealthy.

Trump and the Republicans have repeatedly said that their plans will reduce taxes for middle class people. However, many experts believe that adhering to the principles the Republicans have laid out is not workable without shifting the tax burden from wealthy people to people with lower incomes.

“It’s impossible to say what the precise distributional effects will be without more details, but I don’t think it is at all plausible that the framework will maintain the current level of progressivity,” Lily Batchelder, a professor of law at New York University and a former aide to the President Obama, told Vox. "It’s about as likely as the president never tweeting again."

The GOP plan for the first major rewrite of the U.S. tax code in 30 years also says corporations will be stopped from shipping jobs and capital overseas. The plan says, "Too many in our country are shut out of the dynamism of the U.S. economy." That's led to what the plan says is "the justifiable feeling that the system is rigged against hardworking Americans."

This story is being updated. The Associated Press contributed to this report.

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