While the tax plan would provide enormous new tax breaks for billionaires, House Republican budget proposals would also leave 14 million more people without health insurance by 2034, make historically large cuts to the Supplemental Nutrition Assistance Program (SNAP), and deny the families of 4.5 million U.S.-citizen children eligibility for the child tax credit, among other measures that steal from the most vulnerable. This column details some of the new loopholes for the wealthy included in the tax plan.
Increasing the estate tax exemption, which benefits just the top 0.1 percent of taxpayers
Under the TCJA, the estate tax exemption was temporarily doubled for individuals, despite these taxes being levied against just 1 in every 500 estates prior to the bill being signed into law. The law’s estate tax provisions, like its individual income tax rates, are set to expire at the end of 2025. In 2025, under the TCJA, individuals are exempt from paying estate taxes on estates valued up to $13.99 million; couples are exempt on estates valued twice as much. The new House Republican plan calls for not just extending the enlarged estate tax exemption—a massive windfall for the heirs of those supremely large estates—but also increasing the exemption even further, up to $15 million for individuals and $30 million for couples in 2026. This will result in millionaire heirs receiving tens of thousands of dollars in tax breaks beyond those to which they are currently entitled.
Increasing the pass-through deduction from 20 percent to 23 percent and making It easier for wealthy Americans to claim it
The TCJA created a new tax loophole for owners of pass-through businesses—partnerships, sole proprietorships, and S corporations—to deduct 20 percent of their qualified business income (QBI) when calculating their taxes. According to the Bipartisan Policy Center, “By reducing the amount of [qualified business] income subject to taxation, the 20% deduction effectively lowers the top tax rate on pass-through business income from 37% to 29.6%”—saving some of the wealthiest taxpayers tens of thousands of dollars per year. According to the Center on Budget and Policy Priorities, the gains from this provision of the 2017 law flow overwhelmingly to those at the top, with the top 1 percent of Americans receiving 61 percent of the pass-through deduction’s benefit. In the 2021 tax year, more than 53 percent of the total pass-through deduction was claimed by filers reporting more than $500,000 in income. The new plan proposes not just to extend this wasteful loophole but to enlarge it, increasing the deduction on QBI from 20 percent to 23 percent. This would leave pass-through businesses with a rate of 28.49 percent, rather than paying what the proposal envisions as the top income tax rate of 37 percent. The plan would also reduce the phaseout of the deduction for couples with QBI exceeding $394,600 and individuals with QBI exceeding $197,300, providing an even greater break to higher-income taxpayers.
Allowing wealthy investors to avoid paying capital gains taxes to subsidize private school vouchers
Under the House Republican tax proposal, taxpayers are eligible to claim a tax credit of up to 10 percent of their annual gross income or a maximum of $5,000 by making charitable contributions to scholarship-granting schools, including private schools. The proposal includes a specific loophole that would benefit billionaires and other wealthy investors. Specifically, the scheme would allow taxpayers to make contributions using marketable securities to schools in the form of unrealized capital gains. By allowing these taxpayers to ultimately claim the contribution as a tax credit on their federal returns, the proposal would allow investors to realize capital gains without having to pay taxes on them. As the Economic Policy Institute notes, wealthy families are already far more likely to send their children to private schools, making them far more likely to claim this credit. Further, in a state such as Maryland, a $5,000 tax credit would cover just about one-third of the cost of the average K-12 private school tuition, meaning it would still leave families hoping to take advantage of the credit scrambling to find nearly $10,000 per year in order to afford the cost of tuition.
Conclusion
House Republicans’ budget and tax proposals would lead to nearly 14 million people losing health care coverage by 2034 and would raise costs for millions of working families while giving even more wasteful tax breaks to the wealthiest Americans than those signed into law in 2017. These tax giveaways will add trillions of dollars to the national debt while dampening long-run economic growth.
The author would like to thank Bobby Kogan, Natalie Baker, Emily Gee, Joe Radosevich, Madeline Shepherd, Meghan Miller, and Audrey Juarez.