Latest news with #Urban-BrookingsTaxPolicyCenter
CNBC
3 days ago
- Business
- CNBC
House GOP passed trillions in tax cuts. How Trump's 'big bill' could change in the Senate
House Republicans passed a multi-trillion-dollar tax and spending package after months of debate, which included many of President Donald Trump's priorities. Now, policy experts are bracing for Senate changes as GOP lawmakers aim to finalize the "big bill" by the Fourth of July. If enacted as currently drafted, the House's "One Big Beautiful Bill Act" would make permanent Trump's 2017 tax cuts, while adding new tax breaks for tip income, overtime pay and older Americans, among other provisions. More from Personal Finance:What the House GOP budget bill means for your moneyHouse bill calls for bigger 'pass-through' business tax breakWhat Medicaid and SNAP cuts in House bill mean for benefits The House bill also approved historic spending cuts to programs for low-income families, including Medicaid health coverage and SNAP, formerly known as food stamps. "Overall, the [Senate] bill is not going to be that much different," said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center. But there will be "a lot of debate" about the Medicaid provision, as well as other changes, he said. Here are some other issues to watch during negotiations, policy experts say. With control of Congress, Republicans are using a process called "budget reconciliation," which bypasses the Senate filibuster and only needs a simple majority vote to clear the upper chamber. But some GOP senators have cost concerns about the House-approved bill. "We have enough to stop the process until the president gets serious about spending reduction and reducing the deficit," Sen. Ron Johnson, R-Wis., said last week on CNN's 'State of the Union.' An earlier version of the House package could raise the deficit by an estimated $3.8 trillion over the next decade, according to the Congressional Budget Office. However, the agency hasn't released an updated score to reflect the bill's last-minute changes. Other cost estimates for the House-passed reconciliation bill have ranged between $2 to $3 trillion over 10 years. Under reconciliation, the Senate bill also must follow the "Byrd Rule," which bans anything unrelated to federal revenue or spending. After the Senate vote, House lawmakers must approve changes to the bill, which could be tricky with a slim Republican majority. "That's where the fight is really going to happen," Gleckman said. One sticking point during the House debate was the current $10,000 limit on the federal deduction for state and local taxes, known as "SALT," which is scheduled to sunset after 2025. Enacted by Trump via the Tax Cuts and Jobs Act, or TCJA, of 2017, the $10,000 cap has been a key issue for certain lawmakers in high-tax states like New York, New Jersey and California. Before TCJA, filers who itemized tax breaks could claim an unlimited deduction on state and local income taxes, along with property taxes. But the so-called alternative minimum tax reduced the benefit for some higher earners. After lengthy debate, House Republicans approved a $40,000 SALT limit. If enacted, the higher cap would apply to 2025 and phase out for incomes over $500,000. But the SALT limit is likely to be lower than $40,000 after Senate negotiations, experts say. Staying closer to the current $10,000 cap "seems like a very natural place to start," but the final number could be higher, said Alex Muresianu, senior policy analyst at the Tax Foundation. The Senate could also expand the child tax credit further, policy experts say. If enacted in its current form, the House bill would make permanent the maximum $2,000 credit passed via the TCJA, which will otherwise revert to $1,000 after 2025. The House measure would also make the highest child tax credit $2,500 from 2025 through 2028. After that, the credit's top value would revert to $2,000 and be indexed for inflation. But some senators, including Josh Hawley, R-Mo., have called for a bigger tax break. Vice President JD Vance also floated a higher child tax credit during the campaign in August. With the House-approved tax breaks favoring higher earners, "there's some recognition that they need to do a little more" for families, Gleckman said. "That's going to be a fun one to watch," he said of the upcoming Senate debate.
The Herald Scotland
23-05-2025
- Business
- The Herald Scotland
'No tax on tips' closer to reality after House passes Trump's tax bill
"A relatively small number of workers are going to see any significant tax savings from this proposal," said Joseph Rosenberg, a senior fellow at the left-leaning Urban-Brookings Tax Policy Center. Who qualifies for no tax on tips? The tax bill would create a temporary tax deduction through 2028 for employees and independent contractors in occupations that "traditionally and customarily received tips" - servers, for example. Should the bill pass, those occupations would be hashed out by the treasury secretary. Highly compensated workers who make at least $160,000 in 2025 would be ineligible. How much would tipped workers save through no tax on tips? Some tax policy experts have criticized the idea because of its limited scope. Kyle Pomerleau, a senior fellow at the American Enterprise Institute, a center-right think tank, said it would be an unfair policy. For instance, why should a restaurant's tipped server have access to more tax breaks than the untipped chef working in the kitchen? "It's good news for the workers out in Nevada, where there are a lot of tipped workers," Pomerleau said. "But you are isolating one segment of the population." Even tipped workers may find themselves ineligible for the tax break. The proposed tax cut applies only to income taxes, not payroll taxes. That means the estimated 37% of tipped workers in the country who didn't make enough money to face federal income taxes in 2022 would see no benefits from the proposal, according to an estimate from the Yale Budget Lab. "It is also going to do very little for workers, even that receive tips, at the low to middle part of the income distribution," Rosenberg said. The Tax Policy Center last year found ending taxes on tips would benefit about 2% of all households, or 60% of households with tipped workers, with an average tax cut of about $1,800 a year. Rosenberg said the analysis has not been updated since the tax plan was unveiled on May 12, but he expects figures to be similar. Another 2024 analysis from the Yale Budget Lab had similar results, finding an estimated 4 million tipped workers - 2.5% of the total working population - would benefit from no taxes on tips. The average tax cut for families who benefit would be roughly $1,700, while the bottom fifth of earners would save $200. How much will it cost to implement no taxes on tips? Overall, the tip provision is estimated to cost about $40 billion over four years, according to the Joint Committee on Taxation. It's a small fraction of the tax bill, which is estimated to add roughly $4 trillion to the deficit, but still a notable figure, according to Alex Muresianu, a senior policy analyst at the Tax Foundation, a center-right tax policy think tank. "If you're going to drive a hole in the tax base for no reason, you'd rather that hole be the size of VW Bug instead of a semitruck," he told USA TODAY. "But at the end of the day, you're still driving a hole in the tax base." Meanwhile, the Republican tax bill as a whole could cause low-income families to lose hundreds of dollars in after-tax income by cutting spending on programs like Medicaid and the Supplemental Nutrition Assistance Program, formerly known as food stamps, according to a new analysis from the Penn Wharton Budget Model. The top 0.1% of earners would gain $389,280 on average next year, but Americans making between $17,000 and $51,000 stand to lose $705 on average, according to the analysis, first reported by The New York Times. Those with an income of less than $17,000 would lose more than $1,000 on average, with losses worsening over time. Americans could be squeezed further if the tax breaks have employers and workers lean more heavily on tips, exacerbating post-pandemic tipping fatigue. Though the proposal has guardrails that would limit the ability to restructure pay, "certainly in tip-eligible industries there would be a tax incentive to shift income toward tax-exempt tips instead of taxable wages," Rosenberg said. Separate 'No Tax on Tips Act' passes the Senate The Senate on May 20 passed a separate bill, dubbed the "No Tax on Tips Act," that would create a new tax deduction on cash tips worth up to $25,000. Introduced by Sen. Ted Cruz, R-Texas, and brought up for a voice vote by Sen. Jacky Rosen, D-Nevada, the bill passed with unanimous consent. Highly compensated employees - or those who made more than $160,000 in 2025 - would not be eligible. The "No Tax on Tips Act" could prompt lawmakers to scratch the "no tax on tips" language in Republicans' tax bill. It would need the House's stamp of approval before becomes law. "Whether it passes free-standing or as part of the bigger bill, one way or another, 'No Tax on Tips' is going to become law and give real relief to hard-working Americans," Cruz said on the Senate floor. What happens next? Republicans' tax bill, dubbed the "one big, beautiful bill," heads to the Senate next, which has already signaled it plans to make changes. If the two chambers work out details capable of winning majority votes, it would then head to Trump's desk to be signed into law. Trump urged the Senate to work fast. "It's time for our friends in the United States Senate to get to work, and send this Bill to my desk AS SOON AS POSSIBLE!" Trump said in a social media post. Contributing: Riley Beggin
Yahoo
22-05-2025
- Business
- Yahoo
A tax cut for the "merely wealthy" finds bipartisan support in Congress
Self-described moderates in the GOP are rallying behind a policy favored by centrists of both parties and which economists consider a major tax cut for America's 'merely wealthy' professionals. At the same time, President Donald Trump, who is now attempting to push through the bill as is, appears to have flipped on the issue multiple times. In the current GOP budget bill, expected to go to a floor vote as soon as this week, GOP 'moderates' appear to have successfully tacked on a major increase to the State and Local Tax Deduction cap, a policy that allows households to deduct their state and local taxes on their federal tax filings. As it stands, the SALT deduction cap is set at $10,000. House Speaker Mike Johnson, R-La., now says that he's reached a deal with a group of Republicans hailing from New York, New Jersey and California to raise the SALT deduction cap to $40,000. The issue of raising the SALT cap has long been a hobby horse for both Republicans and many Democrats from the three states, with proponents of the policy, like Rep. Mike Lawler, R-N.Y., claiming that it's an affordability issue in their districts. 'We want to be able to provide real tax relief to middle-class and working-class families,' Lawler told News 12 Westchester. Democrats like Rep. Tom Suozzi, D-N.Y., have also championed the issue, with Suozzi saying at a press conference Wednesday that he supports eliminating the SALT cap as a way of encouraging wealthy New Yorkers to stay in the state instead of leaving to lower tax states like Florida. He also said he supports raising the top marginal federal tax rate alongside any change to SALT to prevent the change from being a tax break for the wealthy. The current version of the GOP bill contains no such provision to recoup tax revenue lost through an increased SALT deduction cap. Trump has met with congressional Republicans to pressure them to accept the current form of the bill, a pivot from his campaign promise of "restoring the SALT deduction." Earlier this week, Trump slammed the changes to SALT saying, "The biggest beneficiary, if we do that, are governors from New York, Illinois and California." In Trump's first term, he and the Republicans oversaw the lowering of the SALT cap to $10,000, which at the time was considered a slight against states like New York, California and other Democratic states where taxpayers disproportionately take advantage of the SALT deduction. The problem for members from both parties, however, is that the policy has almost nothing to do with middle-class and working-class families, but everything to do with some of the highest-income households in the United States. Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, said in an interview with Salon that for the vast majority of tax filers, even in states with higher tax rates like New York and California, the SALT deduction 'doesn't do them any good.' The main reason the SALT deduction doesn't matter for most filers in these states, Gleckman said, is that few households have enough yearly income for raising the cap to have much or any impact on the taxes that they will have to pay. 'Remember that many states have essentially a flat income tax, so it doesn't make a lot of difference if you're making $100,000 a year or making a million dollars a year, you're paying essentially the same state income tax rate. Think about the number of people who are paying $30,000 or more in [state or local] taxes. It's just not a lot of people,' Gleckman said. An analysis of various proposals for raising the SALT cap performed by Gleckman and the Tax Policy Center earlier this year divided up American households by income to calculate who stood to benefit the most from raising the SALT cap. The analysis, which used raising the SALT cap to $20,000 for the purposes of the analysis, found that the policy would overwhelmingly benefit the top 20% of households by income. The analysis also found that Americans in the bottom 60% of households by income would see little to no changes in their taxes paid, while Americans in the fourth quintile of income would see a modest decrease in federal taxes paid. In real terms, this means households making $200,000 or less a year would see basically no change in their after-tax income. Meanwhile, households making between $430,000 and $1 million a year, which represent the top 95% to 99% of earners, would see a substantial tax cut, and collect around 90% of the benefit of an increase in the SALT cap. Members of this group aren't members of the super-wealthy; Gleckman referred to them as the 'merely wealthy.' Gleckman said that people should think about professionals like partners at law firms, doctors or very successful business owners as being representative of this group. To be clear, the proposal percolating in Congress goes beyond the $20,000 cap used in the model, with Congress apparently on track to pass a $40,000 cap, increasing by 1% every year for ten years. Politico also reports that Republicans are looking to limit the new cap to households making below $500,000 a year, though how exactly this would work remains unclear. Michael Madowtiz, an economist at the Roosevelt Institute, pointed out that in order to even take advantage of the SALT deduction, people need to be in a situation where itemizing their returns makes sense, which isn't the case for most American households. Madowtiz said that, although you could imagine situations where there are households with two working parents in high-cost-of-living areas like Manhattan, where they might be able to take advantage of a higher SALT cap while not being considered wealthy for their area, though he said that this is 'deeply stretching the definition of middle class.' He also noted that these members of the 'professional class' in urban areas were exactly the people Republicans were trying to 'stick it to' in 2017, when they imposed the $10,000 SALT cap. 'For most families, SALT is irrelevant because the sales taxes they pay aren't even eligible for a SALT deduction," Madowitz added, "so you have to be in pretty rarified air before this is even about you.'
Yahoo
22-05-2025
- Business
- Yahoo
A tax cut for the "merely wealthy" finds bipartisan support in Congress
Self-described moderates in the GOP are rallying behind a policy favored by centrists of both parties and which economists consider a major tax cut for America's 'merely wealthy' professionals. At the same time, President Donald Trump, who is now attempting to push through the bill as is, appears to have flipped on the issue multiple times. In the current GOP budget bill, expected to go to a floor vote as soon as this week, GOP 'moderates' appear to have successfully tacked on a major increase to the State and Local Tax Deduction cap, a policy that allows households to deduct their state and local taxes on their federal tax filings. As it stands, the SALT deduction cap is set at $10,000. House Speaker Mike Johnson, R-La., now says that he's reached a deal with a group of Republicans hailing from New York, New Jersey and California to raise the SALT deduction cap to $40,000. The issue of raising the SALT cap has long been a hobby horse for both Republicans and many Democrats from the three states, with proponents of the policy, like Rep. Mike Lawler, R-N.Y., claiming that it's an affordability issue in their districts. 'We want to be able to provide real tax relief to middle-class and working-class families,' Lawler told News 12 Westchester. Democrats like Rep. Tom Suozzi, D-N.Y., have also championed the issue, with Suozzi saying at a press conference Wednesday that he supports eliminating the SALT cap as a way of encouraging wealthy New Yorkers to stay in the state instead of leaving to lower tax states like Florida. He also said he supports raising the top marginal federal tax rate alongside any change to SALT to prevent the change from being a tax break for the wealthy. The current version of the GOP bill contains no such provision to recoup tax revenue lost through an increased SALT deduction cap. Trump has met with congressional Republicans to pressure them to accept the current form of the bill, a pivot from his campaign promise of "restoring the SALT deduction." Earlier this week, Trump slammed the changes to SALT saying, "The biggest beneficiary, if we do that, are governors from New York, Illinois and California." In Trump's first term, he and the Republicans oversaw the lowering of the SALT cap to $10,000, which at the time was considered a slight against states like New York, California and other Democratic states where taxpayers disproportionately take advantage of the SALT deduction. The problem for members from both parties, however, is that the policy has almost nothing to do with middle-class and working-class families, but everything to do with some of the highest-income households in the United States. Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, said in an interview with Salon that for the vast majority of tax filers, even in states with higher tax rates like New York and California, the SALT deduction 'doesn't do them any good.' The main reason the SALT deduction doesn't matter for most filers in these states, Gleckman said, is that few households have enough yearly income for raising the cap to have much or any impact on the taxes that they will have to pay. 'Remember that many states have essentially a flat income tax, so it doesn't make a lot of difference if you're making $100,000 a year or making a million dollars a year, you're paying essentially the same state income tax rate. Think about the number of people who are paying $30,000 or more in [state or local] taxes. It's just not a lot of people,' Gleckman said. An analysis of various proposals for raising the SALT cap performed by Gleckman and the Tax Policy Center earlier this year divided up American households by income to calculate who stood to benefit the most from raising the SALT cap. The analysis, which used raising the SALT cap to $20,000 for the purposes of the analysis, found that the policy would overwhelmingly benefit the top 20% of households by income. The analysis also found that Americans in the bottom 60% of households by income would see little to no changes in their taxes paid, while Americans in the fourth quintile of income would see a modest decrease in federal taxes paid. In real terms, this means households making $200,000 or less a year would see basically no change in their after-tax income. Meanwhile, households making between $430,000 and $1 million a year, which represent the top 95% to 99% of earners, would see a substantial tax cut, and collect around 90% of the benefit of an increase in the SALT cap. Members of this group aren't members of the super-wealthy; Gleckman referred to them as the 'merely wealthy.' Gleckman said that people should think about professionals like partners at law firms, doctors or very successful business owners as being representative of this group. To be clear, the proposal percolating in Congress goes beyond the $20,000 cap used in the model, with Congress apparently on track to pass a $40,000 cap, increasing by 1% every year for ten years. Politico also reports that Republicans are looking to limit the new cap to households making below $500,000 a year, though how exactly this would work remains unclear. Michael Madowtiz, an economist at the Roosevelt Institute, pointed out that in order to even take advantage of the SALT deduction, people need to be in a situation where itemizing their returns makes sense, which isn't the case for most American households. Madowtiz said that, although you could imagine situations where there are households with two working parents in high-cost-of-living areas like Manhattan, where they might be able to take advantage of a higher SALT cap while not being considered wealthy for their area, though he said that this is 'deeply stretching the definition of middle class.' He also noted that these members of the 'professional class' in urban areas were exactly the people Republicans were trying to 'stick it to' in 2017, when they imposed the $10,000 SALT cap. 'For most families, SALT is irrelevant because the sales taxes they pay aren't even eligible for a SALT deduction," Madowitz added, "so you have to be in pretty rarified air before this is even about you.'
Yahoo
21-05-2025
- Business
- Yahoo
Who benefits most from the state and local tax deduction and why raising the cap is contentious
Increasing the $10,000 cap on the state and local tax deduction could benefit millions of tax filers. But a proposal to do just that has become a point of contention and a possible roadblock to House Republicans' passing 'one big, beautiful bill' that reflects President Donald Trump's agenda. That agenda includes making permanent essentially all of the individual income tax provisions from the 2017 Tax Cuts and Jobs Act, which are otherwise scheduled to expire this year. The SALT deduction, as it is known, enables federal income tax filers to deduct either their state and local income taxes or their state and local general sales taxes. In addition, they are also allowed to deduct their property taxes, assuming their income or sales taxes don't put them over the cap. The tax break, however, may only be taken by those who itemize deductions on their federal returns, which only a minority of filers do. Prior to 2017, there was no limit on the SALT deduction. But the TCJA imposed a $10,000 cap — which, when coupled with the expanded standard deduction under that tax law, meant the number of people who claimed the SALT deduction fell dramatically — from about one-quarter of filers in 2017, according to the Urban-Brookings Tax Policy Center, to less than 10% today. Going forward, it appears there will still be a cap, but it likely will be higher than $10,000. The question is just how much higher and for whom? The House Ways and Means and House Budget committees already approved a tax package that would permanently raise the cap to $30,000 for any taxpayer whose modified adjusted gross income is $400,000 or less if married filing jointly (and $200,000 or less for single filers). But anyone above those income thresholds would still be able to deduct at least $10,000, according to the Tax Foundation. But a small group of House Republicans with constituents who benefit from the tax break publicly rejected the proposal. By Wednesday morning, House Speaker Mike Johnson said a new agreement was reached with the so-called SALT caucus to raise the cap to $40,000 for a decade for households making less than $500,000. For those making more, the cap would be reduced gradually between $500,000 and $800,000. Households making more than $800,000 would be able to deduct $10,000. What's not clear is whether that compromise, if finalized, will be accepted by conservatives who dislike the SALT deduction and have been insisting on deep spending cuts. Republicans introduced the cap as part of their 2017 tax cuts bill to help pay for the sweeping legislation. And they are hoping to use it again as a revenue raiser in this year's package. For example, the $30,000 cap proposal was estimated to raise $915.6 billion over 10 years relative to simply letting the cap expire as it is otherwise set to do if lawmakers don't act, according to estimates from the Joint Committee on Taxation. A higher cap covering more households, like that reached in the tentative agreement Wednesday, will result in less revenue gained. That may further fuel the intraparty battle over the SALT deduction between GOP lawmakers from high-tax blue states, such as California and New York, and their colleagues from lower-tax red states, whose residents don't benefit from the deduction nearly as much. And even if all House GOP can get on board, it's not clear where the Senate, which is expected to amend the final House tax-and-spending bill, will come down. It's hardly the first time SALT has been the subject of dispute in modern times, said tax historian Joe Thorndike. The SALT break has been on the books since 1913, when the federal income tax code was created. It also had a decade-long stint during the Civil War as well. But there have been efforts to limit the deduction over the past five decades. While originally the SALT deduction was created so that the federal government didn't encroach upon states' ability to collect revenue, SALT today is portrayed as a subsidy to high-tax states and as regressive in that it disproportionately benefits higher-income households, Thorndike noted. In 2020, the SALT deduction was claimed on just 8.6% of all federal tax returns, according to the Tax Policy Center. But the incidence of people claiming it was most concentrated in 13 states and the District of Columbia. The deduction was claimed on more than 20% of returns from Maryland and Washington, DC; and on 10% to 20% of returns filed by residents of California, Colorado, Connecticut, Georgia, Hawaii, Massachusetts, New Jersey, New York, Oregon, Utah, Virginia and Washington State. And those who have received the biggest break — both before and after the cap was imposed — are high-income filers, especially those in high-tax states and cities. In 2017, before the cap went into effect, for example, roughly two-thirds of the benefit went to those with incomes of $200,000 or more, according to the center. The average SALT deduction was about $13,000, but it topped $30,000 in eight counties, mostly in California and New York. While the vast majority of middle- and upper-income households received tax relief from TCJA regardless of where they lived, they would have received even more, had the cap not been instituted, said Howard Gleckman, a senior fellow at the TPC. For example, the tax cut for those in the top 20% would have been $2,500 larger, on average, had their state and local tax deductions not been limited, according to the center. Their average individual income tax cut was only about $6,200, instead of $8,700. The cap had an even greater impact on taxpayers in the top 1%, whose average tax cut was $40,100, instead of $71,000. But those in the bottom 80% would not have seen much of a change in the size of their tax cut had the cap not been put in place.
