December 17th, 2018 Dominique Molina (Taxloopholes.com Tax Strategist)
Depending on your perspective, the 2017 Tax Cuts and Jobs Act was either a reasonably-balanced tax cut that favored the middle class or a reverse Robin Hood (stealing from the poor and giving to the rich). But everything is temporary. Again depending on your perspective, these latest tax law changes could go up in smoke as soon as 2021.
The early Presidential field includes names like Elizabeth Warren, Joe Biden, Kamala Harris, and Bernie Sanders. Any one of them could pose a significant challenge for the GOP. On Capitol Hill, the Democrats already control the crucial (for income tax policy purposes) House of Representative and are ever-so-close in the Senate. So, let the speculation begin.
This option could become a reality if, in 2020, American voters repudiate all things Trump. That means a resounding Presidential victory, a new Senate majority, and an expanded (possibly veto-proof) House majority. Even the most optimistic Democrat would concede that this combination is the longest of long shots, at best.
Politically, it’s very difficult to take something back that people already have. If they repeal the TCJA, that’s what the Democrats would do. The tax cuts may only contain negligible middle-income tax cuts, but they are definitely there. The Democrats have probably learned from the Obamacare repeal debacle that outright reversal is a tough row to hoe.
Partial Rollback/Partial Expansion
A number of Democrats are already mulling this option, and California Senator Kamala Harris has already introduced legislation to this effect. Her proposed LIFT the Middle Class Act (Livable Incomes for Families Today) would do away with some of the upper-income tax cuts, such as the capital gains index and lower top tax bracket, and add to the middle-income tax cuts. Specifically, her proposal would give a $3,000 tax credit to individuals who earn less than $100,000 a year.
Her proposal would cost an estimated $2.7 trillion a year. To put that pricetag into perspective, the government’s tax income is about $3.5 trillion per year. Doing away with the upper-income cuts would offset some of LIFT’s cost, but these moves would certainly not pay for all of it.
So, the partial rollback/partial expansion option clearly has some question marks. Nevertheless, this possibility is the early favorite.
When Democrats take the House gavel in January 2019, expect to see even more of these bills materialize. Under the Constitution’s Origination Clause, all revenue-related bills must start in the House. Right now, none of these initiatives have any chance of becoming law. However, their reception could help gauge public enthusiasm for the TCJA and set the agenda for future debate.
Repeal and Replace
This approach did not help the Republicans much in their efforts to undo the Affordable Care Act. Nevertheless, it might gain traction with regard to the TCJA. As mentioned, it’s almost impossible to take something away without giving something in return. But what if the “something in return” was an ambitious social or economic program?
Progressive Democrats are already making plans like these. Some plans include Medicare for all, an extremely-ambitious infrastructure renewal project, and even guaranteed employment. Universal Medicare is a pretty good example. Instead of paying thousands of dollars in health insurance premiums per year, your taxes might go up several thousand dollars. Progressives hope that Americans are willing to make that investment.
The tax policy debate is by no means over. This issue is something we will continue to watch closely, so you can get ahead of changes and make sure they are in your favor.