5 Myths About Tax Reform (And Why They’re Wrong)
Next week, the House and Senate will take their final votes on tax reform. The president’s goal is to sign the legislation into law before Christmas.
Although there are still some unknown details, the important parts of the bill for most Americans are already known and would greatly improve our current, woefully out-of-date tax code.
The bottom line is that taxpayers across America can expect a tax cut. The bill would lower tax rates for individuals and businesses, double the standard deduction, and significantly increase the child tax credit.
The bill is also pro-growth and pro-American worker. The economy could grow to be almost 3 percent larger at the end of 10 years. That translates to more than $4,000 dollars per household, per year. American families could finally get a real raise.
Americans deserve to know the truth about the proposed tax reform packages. There are several myths going around about what the proposed plan would do.
Here are a few of them, and why they’re wrong.
Myth 1: This is just a tax cut for the rich, and it will actually raise taxes for everyone else.
The truth is in fact the opposite. The Senate tax bill increases the amount of taxes paid by the rich and, according to the liberal Tax Policy Center, 93 percent of taxpayers would see a tax cut or no change in 2019. It found similar results for the House bill.
Both tax bills would actually increase the progressivity of the U.S. tax code. That means fewer people at the bottom will pay income taxes, and people at the top will see their share of taxes paid increase.
The Cato Institute’s Chris Edwards notes that the Senate tax bill cuts income taxes for people making $40,000 to $75,000 a year by about 37 percent. People making over $1 million see a cut of only 6 percent.
In two recent Daily Signal pieces, we calculated how 12 different taxpayers would fare under each of the tax plans. The results show that almost everyone will see a tax cut, and only the wealthiest families are at risk of their taxes going up.
Under the current tax code, the top 10 percent of income earners earn about 45 percent of all income and pay 70 percent of all federal income taxes. The U.S. tax code is already highly progressive, and these tax reforms will only increase the trend of the wealthy paying more than their share of income earned.
Myth 2: Repealing the individual mandate will raise taxes on the poor, raise insurance premiums, and kill 10,000 people a year.
Only in Washington can removing a tax penalty be considered a tax increase.
Tax reform will likely repeal Obamacare’s individual mandate, which imposes a tax penalty anywhere from $695 to upward of $10,000 for not purchasing the type of health insurance mandated by the federal government.
Depending on income and available health insurance options, the federally mandated health insurance comes with subsidies paid to the insurance company that can range from no more than a few dollars to over $12,000 a year per individual, and upward of $20,000 per year for families.
Repealing the mandate would not force anyone to give up their coverage or forego their current tax credits. It would just make the Obamacare insurance optional, and thus increase health care choices.
Eliminating the Obamacare individual mandate will not reduce any taxpayer’s income by a single cent. It will, however, reduce the tax bills of many individuals and families—based on their own choices—by hundreds, if not thousands, of dollars.
The individual mandate with its penalties is also not the “glue” that holds Obamacare together, as some have claimed. It never was.