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Trump’s tax plan: These middle-class households could pay more

Extending the 2017 tax cuts that expire next year will cost roughly $5 trillion over 10 years, but, even with that hefty price tag, making the law permanent will still leave millions of U.S. households with bigger tax bills.

That’s according to a new analysis from the Tax Policy Center, which estimated that extending the Tax Cuts and Jobs Act would leave 13% of middle-income households with higher taxes than they would have if provisions expire as scheduled.

That’s because the 2017 tax-code revamp doubled the child tax credit to $2,000 and increased the standard deduction but eliminated or reduced personal exemptions and several other deductions that many middle-class households had relied on.

Those include the law’s putting a new $10,000 cap on deductions for state and local taxes, moving expenses, casualty and theft losses, and alimony payments. The law also required that taxpayers provide a Social Security number for their dependents, eliminating the ability of taxpayers to claim a child tax credit for noncitizens.

Households that would lose out on an extension of the law “are mainly going to be itemizers without dependents under 17,” Benjamin Page, senior fellow at the Tax Policy Center, told MarketWatch.

The analysis also shows that the vast majority of the $5 trillion in tax cuts would go to households earning more than $450,000 and shift the overall burden of funding the U.S. government to middle- and lower-income Americans.

According to the Tax Policy Center, extending the law in full, as Republicans say they plan to do if they win back the White House and Senate in November, would save Americans in the top 0.1% about $278,240 in taxes per year, while families in the middle of the income spectrum would save on average $1,030 per year.

The Trump campaign didn’t immediately respond to a request for comment.

The study aligns with a recent analysis by the Tax Foundation that also found that making the 2017 law permanent would create a less progressive tax system.

“We estimate that in 2026, taxpayers would see an average increase of 2.9% in their after-tax incomes; the bottom quintile’s increase would be slightly below the average at 2.2%, while the top quintile would be above the average at 3.4%,” Erica York, senior economist at the conservative Tax Foundation, told MarketWatch.

“By increasing after-tax income more for higher earners than for lower earners, it would make the tax system less progressive,” she added.

Given the high cost of making permanent all of the 2017 tax reductions, the skewed benefits of the law may become a political consideration even if Republicans take back full control of Washington.

Analysts say that Republicans are unlikely to be willing to add $5 trillion to the national debt during a time of already historic budget deficits, and some in the GOP have warmed to raising the corporate tax rate slightly as a means of offsetting the cost of extending individual rate cuts.

Upwards of 10 House Republicans are now open to lifting the top corporate tax rate, according to a report last week by Semafor.

House Republican Chip Roy of Texas, a member of the right-wing Freedom Caucus, told the publication that he doesn’t think Congress should “rubber stamp” the 21% corporate rate, which was permanently reduced from 35% by the 2017 law.

“This isn’t 2017 anymore. This is 2024,” Roy told Semafor. “We need to come up with a tax policy that’s holistic, and everything should be on the table. There’s nothing sacrosanct about 21%.”

Another measure that may be on the chopping block is a provision to enable pass-through business owners to deduct up to 20% of their business profits from their taxable income. The measure was tacked on to the tax-cut bill as a way to reduce taxes for smaller businesses at scale, as the bill did for corporations.

The allowance is expensive, however, and more than 50% of the benefits end up accruing to the top 1% of earners. 

“The business deduction is really big at the upper end,” Page said. “It’s one of the harder provisions to justify.”

Even organizations like the Tax Foundation, which advocate for lower taxes, argue that the pass-through deduction distorts the economy by encouraging owners to reclassify their businesses, as well as how they distribute profits, draining tax revenues without significantly boosting economic activity. 

With a cost of $700 billion over 10 years, allowing this deduction to expire would enable lawmakers to extend other potentially more popular provisions of the 2017 law.

Read on:

Biden wants ‘tax fairness’ as cuts expire next year. Here’s who would pay more.

Trump wants to extend 2017 tax cuts. Here’s how much that could cost.

Extending Trump-era tax-code overhaul could stick these 6 groups with a big bill

Companies race to borrow ahead of election, with cost of 2017 tax cuts in focus

Cost of Trump tax cuts soars 50% amid ‘abuse’ of business loopholes

SALT tax deduction: Here’s why taxpayer relief is still likely next year

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