Explainer

What You Need to Know About the Republican Tax Plan

What’s in it, what it means and why Republicans passed it.

United States Capitol Washington
United States Capitol in Washington DC, January 15 (DoD/William Lockwood)

Republicans in the United States have enacted the final version of their tax plan.

The reforms cut corporate and income tax by a magnitude of $1.5 trillion, with the biggest gains going to the highest incomes.

Included is a repeal of the individual mandate from Obamacare, which could throw millions of Americans off health insurance.

Here are the most important things you need to know about the changes.

What’s in it?

As borrowed from Axios:

  • Across-the-board income tax reduction from which the wealthiest Americans benefit the most.
  • Doubling of the child tax credit from $1,000 to $2,000.
  • $10,000 cap on state and local tax deductions, which will mostly affect middle-class households in high-taxed Democratic states.

In order to avoid a filibuster in the Senate, Republicans used an arcane legislative instrument to enact the tax cuts, which means that most will expire in a decade. It is unlikely future Congresses will let the lower rates lapse, but the uncertainty makes it harder for businesses and individuals to make long-term plans.

  • Repeal of the individual mandate from Obamacare, which could cause millions of Americans to lose health insurance.
  • The orphan drug tax credit, which gives drugmakers an incentive to research treatments for rare diseases, will be cut in half, covering only 25 — down from 50 — percent of clinical testing expenses.
  • Reduction of the corporate tax rate from 35 to 21 percent.
  • Elimination of the corporate alternative minimum tax.
  • Switch to a territorial tax system, where income is only taxed by the country where it is earned. This is a huge boon to multinationals that make profits overseas.
  • A permanent tax credit for research and development.

What does it mean?

Far from a “middle-class tax cut,” the reforms are a giveaway to corporations and the rich.

Matthew Yglesias of Vox goes so far as to call it the wholesale looting of America.

[I]nstead of taking on the special interests as promised, it gives away the store to almost every lobby shop in town — with last-minute additions that personally enrich the [president’s] family and a decent chunk of the members of Congress voting for it.

Americans know it. Polls show the tax plan is hugely unpopular. FiveThirtyEight reports that the cuts are less popular than the tax increases enacted by George H.W. Bush and Bill Clinton.

So why did Republicans pass it?

There are two theories:

  1. Republicans needed a win. They failed to repeal Obamacare. They aren’t building a Mexican border wall. They haven’t come up with an infrastructure plan. Midterm congressional elections are only a year away. They needed something to satisfy their base.
  2. Their campaign contributors demanded it. One lawmaker admitted to The Hill, “My donors are basically saying, ‘Get it done or don’t ever call me again.'”