Phoenix 101: The Republican Tax Proposal

Courtesy of the Architect of the CapitolThe 2017 tax reform plan would be the first major change to the U.S. tax code since 1986, under President Ronald Reagan.

A federal budget proposal for fiscal year 2018, which began  Oct. 1, recently passed the Senate by a narrow 51-49 vote, and was adopted by the House Oct. 26. It cuts spending by $5.1 trillion over the next decade, and will lay the groundwork for the Republican-controlled Legislature to pass one of the most important items on its agenda — tax reform — without help from Democrats.

What’s in the budget?

Similar to President Donald Trump’s budget proposal earlier this year, the House budget proposal would grow defense spending by about $632 billion over 10 years, and would cut other kinds of discretionary spending — optional spending set by Congress through an appropriations bill for measures such as veterans benefits, housing and community development and education — by $800 billion.

Similar to Trump’s proposal, it cuts Medicaid — the health insurance program for low-income Americans — by about $1.3 trillion by 2028. Unlike the president’s budget, however, it also reduces Medicare — the health insurance program for people ages 65 and older — by $473 billion over those 10 years.

It’s important to note that, because this is a Congressional budget resolution, this is only a proposal for spending targets and won’t become law; it is, however, an indication of Republicans’ goals for reducing spending going forward.


Read the full proposal here.

How is a budget passed?

To begin the budget process, the president submits a budget proposal to Congress by the first week of February. The House and Senate come up with their own budget resolutions based on the president’s proposal. The proposals are voted on and combined in a conference committee — or, as in this year’s proposal, one chamber of Congress will adopt the other’s proposal.

Numerous House and Senate committees decide the actual spending amounts based on the earlier budget resolutions. Conference committees smooth out the differences between the House and Senate plans, and the end result is sent to the president for approval.

How does this impact tax reform?

Congress must pass tax reform by the end of 2017, so it’s using a method called reconciliation to speed up the budget approval process. Reconciliation will allow tax reform to be passed with only 50 votes, rather than the usual 60.

Under these rules, Democrats can’t use a delay tactic known as a filibuster because reconciliation treats the budget like a procedural change, which can’t be filibustered, rather than a bill, which can. Because Democrats are in the minority in the Senate — with only 46 seats compared to the GOP’s 52 — Democrats would likely filibuster a tax reform bill. Republicans would need 60 votes to prevent a filibuster, but only have 52, so they’re using reconciliation to try to pass tax reform without any Democratic support.

This is the same process Congress tried to use when it worked to repeal the Affordable Care Act, also known as Obamacare, earlier this year.

What does tax reform mean?

One of the most significant aspects of the tax reform plan would reduce the number of tax brackets — income categories that determine how much your income taxes will be — from seven to three. The proposed biggest cuts are for the wealthiest Americans, who would see their income tax rates decrease by more than four percent. Some wealthy and middle-class Americans would see their rates increase, while others would stay the same or be reduced.

How does this impact students?

For Loyola students working 15 hours per week at an on-campus job for $11 per hour, their federal income tax rate could increase if they are claimed as a dependent by their parents, but it’s unclear by exactly how much. The proposal wouldn’t impact Illinois’ 4.95 percent individual income tax rate, which is set independently of the federal government and would still apply to all Illinois residents.

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