Reconciliation debate to test 'tax cuts for the rich' narrative

Caitlin Reilly, CQ-Roll Call on Jan 13, 2025

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WASHINGTON — If Democrats want to dust off their 2017 playbook as they mount an offensive against Republicans’ efforts to extend expiring tax cuts, this month has provided them plenty of fodder.

Democrats derided the 2017 tax law, much of which is expiring this year, as a giveaway to the wealthy, a message that played well in the 2018 midterms when they reclaimed the House. Now, Washington is poised once again to return to united Republican control, and the GOP is preparing to extend the 2017 law paired with deep cuts to federal programs that lower-income households rely on.

A menu of more than $5 trillion in potential spending cuts circulated by House Budget Republicans became public this week. The list of possible cuts draws heavily on Medicaid, the joint federal-state health care benefit for the poor, food stamps and other social welfare programs.

The document is causing a stir among Democrats and progressive groups, who are already pouncing although Republicans haven’t yet unveiled a draft bill or said which proposals they favor. House Democrats’ campaign arm and party lawmakers on both sides of the Capitol released a series of blistering statements after the outline became public.

“Republicans are gearing up for a class war against everyday families in America,” Senate Finance ranking member Ron Wyden, D-Ore., said Friday. “This list outlines a plan to increase child hunger, boot tens of millions off their health insurance and lay off hundreds of thousands of clean energy workers to fund tax handouts for the wealthy.”

Democrats are likely to seize on another document, released Friday by the Treasury Department’s Office of Tax Analysis, to bolster their case that Republicans are looking out for wealthy donors. The report compares the cost and distributional effects of extending all of the expiring individual tax cuts to extending the tax breaks just for those making less than $400,000, as Democrats vowed on the campaign trail.

Extending all of the expiring tax cuts would lead to tax savings at every income level, a dynamic Republicans have pointed to as they prepare legislation to avert the cliff, but the biggest benefit would go to those making the most, who have the highest tax bills.

Extending the individual cuts for all income levels would cost $4.2 trillion from 2026 to 2035, with the top 1% by household income — starting at $743,000 for a family of two — taking home about 30% of the total tax benefit. A family in the top 0.1%, with a minimum $3.5 million income, would see their average tax bill drop by $314,000, compared with an average of about $2,000 across all households.

Everyone wins?

House Budget Chairman Jodey C. Arrington, R-Texas, defended his party against accusations of using spending cuts to fund tax cuts for the wealthy, pointing out that taxpayers in every income bracket would see a tax increase if Republicans don’t act to extend the 2017 law.

“The people who benefited most in this country from the tax cut were people at the lower end of the income spectrum, but the fact is, it will be a $400 billion tax hike immediately if we don’t extend TCJA (Tax Cuts and Jobs Act), not to mention some of the other proposals the president has put out there,” Arrington said last week.

President-elect Donald Trump pitched additional tax cuts on the campaign trail that could provide benefits to lower- and middle-income brackets, if tailored correctly, including exempting tips, overtime and Social Security benefits from income tax. Incorporating those proposals could help Republicans counter accusations that their tax legislation mainly benefits the well-off.

Treasury’s estimate, along with prior independent analyses, provides some backup for Arrington’s points. The bottom 95% of households — those earning less than $320,000 — would see about half the tax benefit in terms of dollars saved, Treasury said. The Joint Committee on Taxation said something similar when the law initially passed.

But for the Biden Treasury Department as well as Hill Democrats, allowing taxes to rise for those earning more than $400,000 would concentrate the benefit in households under that threshold. Letting the upper-income tax cuts expire while imposing a few extra tax increases on that group would shrink the cost to about $1.8 trillion over 10 years, Treasury said.

Treasury included a few new proposals not previously included in the president’s annual budget request to bring down those costs. Those included phasing the alternative minimum tax back in for high earners and blocking those making more than $400,000 from reaping the benefits of lower tax rates on earnings below that threshold.

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