A television commercial by Democrat Raphael Warnock incorrectly states that Republican Senator Kelly Loeffler "supports the tax hike for Georgia's middle class." This is a reference to the 2017 Republican Tax Act, which temporarily lowered individual income taxes. However, Loeffler supports the definition of permanent provisions that are to expire after 2025.
The Law on Tax Cuts and Employment, which Loeffler also advocated, initially lowered taxes on average, but will increase them for most taxpayers after 2025 unless the legal provisions are expanded.
Loeffler says on her campaign website that she: "wants to make the tax cuts of the law on tax cuts and jobs for working and middle-class families permanent."
Warnock and Loeffler face each other in one of them two runoff elections in Georgia, that will determine which political party has control of the US Senate. Loeffler, a wealthy businesswoman, was appointed to her place after Republican Senator Johnny Isakson retired in December 2019 for health reasons. The winner of the upcoming January 5th election will serve that Last two years from Isakson's six-year tenure.
Loeffler has not been able to vote on the law on tax cuts and employment since taking office in January 2020, but has spoken out in favor of the law. When Republicans passed it in December 2017, they were drafting the law with expiring individual income tax rules so they could keep the cost of legislation down to pass it by simple majority. At the time, they said they expected a future Congress to extend these tax cuts instead of allowing taxes to go up for many.
Loeffler announces, however, that she wants to make the tax cut provisions of the law "permanent for working and middle-class families". She says that in an economic plan that she presented at the end of April.
The Warnock campaign argues that their statement is correct, as Loeffler did not put laws in place to extend individual income tax cuts. The campaign points to bills that Loeffler introduced in June that are tied to their economic plan and notes that they do not take into account the expiring tax cuts.
However, this does not mean that Loeffler will not initiate or support efforts to extend these cuts in the future, especially given that the provisions will not expire until after 2025.
Loeffler has also signed a pledge of tax reform with the Americans, in which she said she would "reject any effort to increase marginal tax rates for individuals and / or companies". In a press release, her campaign said she was "determined to reject all federal tax increases".
However, no action is required for the individual income tax rules of the Republican Tax Act to expire. Instead, Congress would have to act to maintain these provisions.
Law on Tax Cuts and Jobs
Warnock's ad begins by highlighting a September 11 salon article about Loeffler's work as an executive at finance company Intercontinental Exchange. (Her husband, Jeff Spokesman, is the company's founder and CEO and chairman of the New York Stock Exchange.)
The ad reads: "After the Great Recession, Loeffler made millions helping big banks get offshore tax breaks by setting up an intricate corporate network in the Caymans that allows banks to hide assets there, to avoid paying US taxes. " This echoes the Salon article calling the deal "offshore tax evasion". We have repeatedly asked Loeffler's campaign about the Warnock ad and Salon article, but we have received no response. A spokesman for Intercontinental Exchange told Salon that US taxation was not bypassed at all in the holding company in question.
We'll focus here on the ad's next claim: Loeffler is "in favor of raising taxes on Georgia's middle class". The ad cites a New York Times statement on the Tax Cuts and Jobs Act dated October 31 and a radio interview dated December 30, 2019 in which Loeffler expressed support for the law two days before taking office.
Loeffler, December 30, 2019: I think President Trump's tax cuts have been incredibly helpful in making America more competitive from a business perspective. If you look at companies' ability to return money to the US, they have had to stay offshore because of improper tax implications. All of these things add up and have created more jobs.
As for individuals, the Tax Reduction and Employment Act has reduced taxes on average for all income groups after it came into force. An analysis of the legislation by the Urban-Brookings Tax Policy Center showed: "Compared to current law, taxes in 2018 would fall on average for all income groups and increase the average after-tax income by 2.2 percent overall."
The TPC found that only 5% of taxpayers would pay more tax under the law in 2018. Those in the middle quintile who earn between $ 49,000 and $ 86,000 would receive an average tax cut of $ 900, the TPC said.
In 2025, all income brackets would, on average, still see a tax cut from the previous law, with the middle quintile still receiving an average cut of about $ 900.
But after that year most of the statutory income tax rules will expire, resulting in higher taxes for 53% of taxpayers in 2027. The bottom three quintiles (those earning up to $ 93,000) would see marginal tax increases of $ 20 to $ 40 on average over the previous law.
Mark J. Mazur, director of the Tax Policy Center, told us the tax law is a "very idiosyncratic" law. Whether or not a taxpayer saw a tax cut or a tax increase depended on his personal circumstances.
By 2025, most taxpayers – 76% – will still get a tax cut from the law, but 9% will get an "average tax increase of nearly $ 2,500," according to TPC analysis.
In the middle quintile of income recipients, 87% will receive an average tax cut of $ 1,220 in 2025, while 11% will pay an average of $ 1,040 more in tax compared to the previous law. This is an increase from the 7% in this group who pay higher taxes in 2018.
One reason the law's benefits for some wear off over time is a change in the indexation of tax thresholds for inflation.
Mazur stated that several individual income tax provisions, including the tax bracket thresholds and the maximum earned income tax credit, are indexed for inflation. Before the Tax Reduction and Employment Act, this measure of inflation was the consumer price index for all urban consumers (or CPI-U). Tax law changed this to what's called the chained CPI, which is a slower inflation adjustment.
"Economists think it's a better measure of inflation," Mazur said, because it allows for changes in the basket of goods people buy. Consumers could buy more apples, he said, if the cost of oranges went up instead of buying more expensive oranges.
But this change in CPI reduces the measure of inflation "by about two tenths or 0.25% a year," he said. This means that over time, people will be pushed into slightly higher tax brackets or receive “slightly smaller” tax credits.
Hence, some people will experience slight tax increases due to the change in inflation that is an integral part of the law. Mazur said the effects of this are small but "increase over time".
However, the big impact that leads to a tax hike for the majority of taxpayers – and 70% of those in the middle quintile – is the expiry of most individual income tax rules after 2025.
"Without action by Congress, individuals will face a higher tax burden in 2026," said the corporate-backed tax foundation.
As we said earlier, Loeffler supports extending these expiring tax rules so that they are not "in favor of increasing taxes on Georgia's middle class" as the ad claims.
Process of individual tax regulations
Why are these individual tax cuts expiring? As discussed earlier, Republican lawmakers couldn't add more than $ 1.5 trillion to the deficit over a 10-year period to pass its tax burden through a budget vote that only required a Senate majority. Nor could they have a bill that increased the deficit beyond that 10-year window.
So "the" simple "options" for achieving this, the Committee on Responsible Federal Budget noticed, Some of the tax cuts should expire.
Democrats, including the Warnock campaign, have criticized Republicans' move to keep corporate tax cuts in law while individual income tax cuts expire. The campaign directed us to a CNN Money article dated December 20, 2017, entitled, "Enjoy your tax cuts while they last."
"The Republicans have temporarily made individual tax cuts so they can comply with budget rules that allow them to pass their tax revision without democratic votes," the CNN Money article reads. "But don't worry, they say. A future Congress won't let middle class tax cuts expire. Recent precedents – like Bush's often sweeping tax cuts – suggest they may be right. But there is no guarantee of that. After all, it can a lot will change in eight years. "
Warnock's ad cited a New York Times statement from Joseph E. Stiglitz, an economist and professor at Columbia University. In that article, Stiglitz wrote that those earning between $ 10,000 and $ 30,000 "are among those expected to pay a higher average tax rate in 2021 than in the years before the tax cut was passed," citing Congressional estimates Budget Office and the Joint Tax Committee.
But Garrett Watson, a senior policy analyst with the Tax Foundation, called this "misleading" in a November 18 post. He explained that the apparent increase in JCT tables is due to fewer people using Affordable Care Act tax credits. The tax law removed the fine for not having insurance and reduced the incentive for some people to get insurance coverage.
In fact, the TPC analysis, which shows no average tax increases for some income brackets through 2027, does not include any health insurance tax credits, confirmed Mazur. According to Mazur, removing the penalty for failure to cover will mean "fewer people sign up for the Affordable Care (Act) plans through the marketplaces so they are less likely to get a tax credit for them" and "fewer people sign up Medicaid on. "
We asked Stiglitz about his claim about the 2021 tax rates. In an email, he replied, “The main point of my post is that tax increases in 2027 – increases compared to the average tax paid in 2019 and the average tax rates paid under previous law – have already been regulated by law and most people will are unaware of that.
"In terms of using the language of increasing or decreasing taxes, in economic analysis we look at net changes (e.g. taking into account, for example, reductions in tax spending)," he continued. “I followed the practice of my colleagues and the Joint Tax Committee in looking at net payments. My use of "average tax rates" (and changes to those tax rates) is exactly the same as that of the Joint Tax Committee. "
Regarding Warnock's position on tax law, Michael J. Brewer, a campaign spokesman, said Warnock “believes that permanent tax cuts for the rich and corporations should be lifted and that Congress should make tax breaks for the middle class permanent which would otherwise expire. "
In other words, both candidates support making the “middle class” tax breaks – however they define it – permanent.
It is not clear if any of the candidates would be given the opportunity to change the GOP tax law in the near future.
Mazur noted that given that the expiration dates won't go into effect until 2026, it would likely be 2024 when we see some action by Congress.
By then, the first term of whoever wins that runoff election in Georgia – Warnock or Loeffler – would be over. The winner must start a re-election campaign in 2022.
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