Is a bigger federal income tax break on the way? Here’s the bill moving through Congress
An extra $4,000 added to the standard deduction if you file your federal taxes jointly? And $2,000 more for single filers?
That’s the Republican plan headed for a vote in the House as part of a big GOP-authored tax cut bill. While Democrats see the proposal as deeply flawed, they also say that they’re open to talking about a major tax bill this year.
The Republicans’ “guaranteed deduction bonus” would increase the standard deductions in tax years 2024 and 2025 for joint filers with modified adjusted gross income–that is, income after certain credits and other adjustments– up to $400,000 for single filers, $300,000 for single heads of households and $200,000 for joint filers.
The bonus would be added to the current standard deduction. In 2023, that’s $13,850 for single filers and $27,700 for married taxpayers.
The deduction was increased significantly by the Republican-authored 2017 tax cut, as many itemized deductions such as state and local taxes and mortgage interest were limited.
About nine of 10 taxpayers take the standard deduction. Penn Wharton, an independent economic analysis organization, estimated that the new GOP plan “would cut taxes for a majority of households in 2024.”
Congress’ bipartisan Joint Committee on Taxation estimated that the biggest tax cuts would be available for those earning between $15,000 and $40,000.
People with incomes in the top 1% or below about $19,500 would not benefit. The bill’s authors didn’t include those making less than $15,000 because they generally do not pay federal income tax.
Rep. Michelle Steel, R-Orange County, is a chief sponsor of the bonus plan. She said it would “help ease the burden of inflation and allow families to spend their hard-earned wages the way they see fit.”
What about inflation?
There’s a lot of disagreement about that.
The nation’s inflation rate hit a 40-year high last year, and though price increases have slowed, the Federal Reserve is expected to continue raising interest rates as a way to cool economic growth and stabilize prices.
An analysis by the conservative American Enterprise Institute called the standard deduction idea a “poorly designed policy response” to inflation that’s likely to increase demand at a time when the Fed is trying to do the opposite.
But Kent Smetters, faculty director of the Penn Wharton Budget Model, contended “the impact would likely be quite minor,” and if the bonus is available for only two years, people would be inclined to save part of the additional money.
The plan stirred other concerns.
When the House Ways and Means Committee approved the bill last month, it also approved other legislation that provides tax breaks to businesses.
The Republican initiatives came shortly after conservatives demanded tough spending cuts as their condition for approving a suspension of the debt limit. The bonus plan would cost an estimated $96 billion over two years.
“Apparently, the debt only matters if it’s about spending, never about tax cuts,” said Rep. Richard Neal, D-Mass., top Ways and Means Committee Democrat.
Democrats also protested what they saw as unfair legislation. “They have the nerve to justify this tax cut as an assistance for families struggling with inflation. Believe me, it’s no such thing,” Neal said.
Neal left an opening to discuss a tax bill this year. “We would be prepared to discuss some of the proposals here in a balanced, legislative, professional manner if the opportunity might avail itself for the purpose of discussing some of our priorities as well. Good legislators find common purpose in common ground,” Neal said.
The tax plan is expected to pass the Republican-run House. In the Democratic-run Senate, Finance Committee Chairman Ron Wyden’s thoughts were similar to Neal’s. He said he’s willing to discuss a tax plan, but it needs to be balanced and fair.
“They passed a partisan bill….I expected it from day one,” said Wyden, D-Oregon. “The question now is do they want to pivot and get a bipartisan bill?”.
This story was originally published July 17, 2023 at 3:24 PM with the headline "Is a bigger federal income tax break on the way? Here’s the bill moving through Congress."
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