On December 2 at 2:00 a.m. ET, the Senate passed the new tax overhaul (HR1) by a 51-49 vote. Earlier in November, the House passed a similar, though not identical bill. Before the bill can be sent to the president for his signature the House and Senate bills must be conformed in a conference committee.
With the Republican majority in the Senate, they did not need any Democrats to vote for the bill, and only one Republican senator (Corker R-TN) voted against HR1. Forbes notes that the bill was continually worked on into the early hours of Saturday morning and even sported hand written marginalia in the final copy. Each tax cut will expire on December 31, 2025 in order to be compliant with the Byrd Rule that states that bills impacting the federal budget cannot add to the deficit beyond the ten-year budget window. The tax plan, at this stage, will add over $1 trillion to the deficit in ten years.
In theory, this new tax plan was designed with the middle class in mind. However, the Tax Policy Center estimates that 15-20 percent of people earning $86,000-$300,000 will see an immediate tax increase due to what Forbes describes as “…the confluence of lost itemized deductions, eliminated personal exemptions, and slower indexing of the individual tax brackets.” The aforementioned three items are the reason why taxes will go up for those people.
The first point will lower the amount people can deduct from their income, so you will ultimately have to pay more. For example, if I make $100,000, I used to be able to deduct about $10,000 for various reasons and then I would only have to pay taxes on the $90,000 rather than the complete sum. In this new case, those deductions would become moot and I would have to pay taxes on the full $100,000, effectively paying more. Now, people would be paying on the sum rather than the subtotal – therefore responsible for a higher percentage of money.
Furthermore, inflation will be calculated differently in this new plan.
The way people calculate inflation would become less. People don’t pay the same amount of tax on everything they earn. The increment at which they make more money gets taxed at a higher rate with a slower inflation rate. Slower inflation (indexing) but consistent income rates makes for higher taxes on that income rate.
The above talks much about the macro-level of the new bill. But we must not forget the micro-level, especially for us college students who are graduating into this new fiscal world.
The previously noted House bill puts students at a large disadvantage. CFO of Bates, Geoff Swift notes, “[t]his proposed tax legislation increases pressure on both higher and continuing education. Repealing deductions on student loan interest and employer-provided assistance and eliminating vital credits restricts access to affordable undergraduate and graduate education. Raising the standard charitable deduction and levying an excise tax on endowment investment income pulls directly from the critical funding sources that colleges and universities leverage to support their underlying mission to educate students, including important student services and financial aid.”
Similarly, President Spencer notes, “current efforts to overhaul the U.S. tax code in the House and Senate represent an unprecedented assault on students, educational opportunity, and our nation’s innovation economy. Cuts directed at students – to the tune of an estimated $71 billion over ten years – will eliminate a range of tax benefits for undergraduates and their families, hike taxes on graduate students by thousands of dollars, and place undue burdens on colleges and universities. Impairing the ability of students at every level to access higher education is a deeply misguided strategy in legislation that purports to stimulate economic growth in a knowledge economy.
“By increasing the cost of education for both students and institutions, the tax bill will constrict access to education at a time when it has never been more vital to individual advancement and national prosperity. Bates has communicated these concerns to our Congressional delegation and we will continue to work with other colleges and universities to resist these wrongheaded policies.”
There are important differences in these two bills. This Senate bill, opposed to its sibling in the House, is better for college students. The Washington Post notes that the Senate bill, as of now, will keep in place two vital pieces of legislation that the House bill abolished. It would no longer repeal the tax deduction for student loans and college graduates and there will be no tax on tuition waivers as income.
Ultimately, the public will not know anything for sure until the conference committee is complete and the bill is re-voted on the House and the Senate and the two bills are conformed into one.