The House of Representatives on Thursday passed a comprehensive GOP tax-reform bill that seeks to cut taxes by $1.5 trillion.
The bill, named the Tax Cuts and Jobs Act, passed by a vote of 227-205 with 13 Republicans voting against the plan and everyone else voting along party lines. Ohio State students and faculty protested the bill this week on campus for its restructure of tax brackets that could affect graduate students’ taxable income.
The section of the bill that has caught the most ire on college campuses like Ohio State is section 1204, which seeks to tax tuition waivers of graduate students.
Rea Hederman, a tax expert at the right-leaning think tank Buckeye Institute said to be careful when taxing capital, especially student capital, because it could lead to less economic growth, but provided what he saw as the rationale for the policy.
“The idea is basically you want to tax compensation,” he said. “The bill is saying that is compensation therefore it should be taxed.”
In what came closest to an agreement between two differing sides, Wendy Patton, a senior project director at the left-leaning policy research institute Policy Matters Ohio, called the plan to tax tuition waivers a horrible idea.
“The states that do the best in terms of economic growth and wages are states with the most highly educated populations. This provision works directly against expanding America’s supply of the most highly educated people,” she said. “The graduate students have every right to be stressed.”
But the bill has been lauded by conservatives as a way to lower individual and corporate taxes and simplify the tax code in the process.
“A couple of different things I think will happen; one of those things is it will make the United States more competitive for investment for the rest of the world,” Hederman said. “For individuals, you are going to see a simpler tax code, you are going to see a lot of credits and deductions that confuse the tax code go away and instead we are going to see lower tax rates, a bigger child tax credit and a better standard deduction.”
The GOP tax plan will still face more hurdles. A separate bill is being voted on by the Senate Friday and the two chambers will have to bridge the differences — particularly the provision in the Senate’s version that would repeal the Affordable Care Act’s individual mandate — but this was a major step forward in what would be the first major tax overhaul since 1986.
To demonstrate his belief in the importance of the bill, House Speaker Paul Ryan cast a vote in its favor Thursday. The speaker by custom does not usually vote unless the vote would be decisive or the matter is of great importance.
“This is about giving families who are struggling with peace of mind,” Ryan said in a press conference after the vote. “It’s about getting this economy to grow faster so we get bigger wages, more jobs and we put America in the driver’s seat in the global economy once again.”
The bill is not without its many critics, evidenced by the lack of any support from Democrats. One of the chief criticisms is that the plan will not help the middle and low-income families as its proponents claim, but will instead create greater income inequality.
“There are several things about [the House and Senate bills] that are of deep concern to us. First and foremost is that these bills will dramatically increase inequity, inequality in our economy,” said Patton. “This bill would give dramatic tax cuts to the top one percent while the benefits to people of middle income and lower are dramatically smaller and, in many cases, they will face tax hikes.”
People on different sides of the issue have come to no agreements on the effects of any of the major points of the plan, ranging from disagreements on corporate tax rates to disagreements on the number of tax brackets. What proponents call a $1.5 trillion tax cut, detractors are calling a deficit increase.
A fundamental disagreement is who the bill will help. Backers of the bill believe the middle class is in for a boost.
“I think this will create economic growth in part because it will make investment much more affordable,” Hederman said.
Patton, however, believes the plan will help the wealthy and is just an attempt to bring back trickle-down economics, a theory which she said has been proven wrong.
“In some cases, the House bill in particular, we see benefits to middle and lower income families actually shrink over 10 years. So how is this called a benefit to the middle class?” Patton said. “I suppose it’s based on the trickle-down theory.”
Hederman pushed back strongly against any characterization of this plan as trickle-down economics.
“I strongly disagree with that,” he said. “The OECD has basically said ‘What’s the most harmful taxes for growth?’ and the answer is the corporate tax rate.”
Supporters of the GOP plan believe the cutting of the corporate tax rate is long overdue and needed to make the U.S. globally competitive, noting its similarity to tax policies in Europe.
“We have one of the highest corporate tax rates in the industrial world and that’ll take the tax rate down from 35 to 20 percent,” Hederman said. “All we’re basically trying to do is make the United States more competitive.”
Patton disagrees with this estimation and sees this policy as a swipe at the average American.
“This is the one piece they want to make permanent,” she said. “This is what is driving the deficit creation, and in order to pay for the enormous increase in the deficit they are going after the Affordable Care Act, in order to fund this long-term permanent corporate tax cut. It is really a pretty devastating blow at Americans that live in fear of getting sick, losing their income, losing their job.”
The vote on Thursday set nothing in stone yet, with all eyes turning to the Senate’s ability to pass a tax plan, then to the ability of the two chambers to agree on a final plan to put on the president’s desk.