On the morning of November 16th, a few hours before a vast majority of
Republicans in the House of Representatives voted for their party’s
tax-reform plan, four Republican congressmen from New York held a press
conference to express their displeasure with the bill. “A lot of the
numbers we’ve seen over the last few days don’t apply to New York,”
Representative Daniel Donovan, of Staten Island—the only Republican congressman from New York City—said. He and his
colleagues had gathered to make a point that has become one of the
sharpest criticisms of the legislation: that it penalizes states that
tend to vote for Democrats over Republicans. “There was a study I saw
showing four states will end up paying sixteen billion dollars more in
taxes, and forty-six states will pay less,” Donovan said. “Those states
are New York, New Jersey, California, and Maryland. Those are the people
that are subsidizing this tax break for the rest of America.”

Donovan and others who are making this argument have focussed on the
proposed elimination of tax breaks that many Americans
currently take advantage of to offset state and local taxes, including
property taxes. Additionally, the real-estate lobby has called attention
to the proposed capping of the mortgage-interest deduction. Getting rid
of these tax breaks would affect people in every state, but it would
disproportionately hit residents of states with high real-estate values
and local tax rates. New York, California, and other Democratic
strongholds just happen to fit that description.

This blue-state argument has been persuasive—Donovan and twelve other
Republicans from New York, California, New Jersey, and North Carolina
bucked their party and voted against the House bill. Yet it risks
missing the provision that might have the most devastating effect on
middle-class taxpayers nationwide: the elimination of the personal
exemption. Currently, married couples earning up to around three hundred
and twenty thousand dollars in adjusted gross income can deduct a
personal exemption of approximately four thousand dollars from their
taxable income per family member (for self, spouse, and dependents). The
elimination of these exemptions—which was part of the bill the House
passed, and is part of the bill now making its way through the
Senate—will translate to a roughly $1.6 trillion tax increase over the
next ten years. “That is by far the single largest tax increase in the
bill,” Michael Linden, a tax-policy fellow at the Roosevelt Institute,
who has been studying the legislation, told me recently. Eliminating the
personal exemption could affect many more families, in more parts of the
country, than most critics of the bill have previously made clear to the
public. This change could especially penalize families with more than
one child. And while many analyses of the Republican plan have looked
ahead to its effects five or ten years from now, dropping the personal
exemption will have repercussions from the outset. “Looking at the first
year, or couple of years, many families, especially families with
children, will get a tax increase,” Linden said. “Roughly half of
families with children get a tax increase, and about half get a tax cut.
But for many of those who get a tax cut, it’s very small, less than a
hundred dollars.”

In drafting their tax plan, Republicans set a difficult task for
themselves: they wanted to introduce vast, permanent tax reductions for
corporations, and significant rate reductions for those at the higher
end of the income scale, while also, in theory at least, providing tax
cuts for middle-class taxpayers. To pass the bill in the Senate with
just fifty votes—and thus without any Democratic support—it also
couldn’t add more than $1.5 trillion to the deficit. To reconcile all
this, the legislation proposed eliminating or capping many deductions
that people currently take. To make these concessions more palatable to
the public, the bill increases the current “standard deduction” to
taxpayers—which for 2018 is sixty-five hundred dollars per person and
thirteen thousand dollars per couple—to around twelve thousand dollars
per person and twenty-four thousand dollars per couple. While this
increased standard deduction sounds good, it is not enough to make up
for all of the other kinds of deductions that are being lost (or
capped), including those for mortgage interest, local taxes, medical
expenses, and personal exemptions. Republicans are effectively giving
many taxpayers a tax break while taking it away at the same time.

When I spoke with Donovan this week, he talked through the math many
taxpayers will face using the 2017 deduction limits as a starting point.
“When you think about a family of four, if their standard deduction is
$12,700 and they’re able to deduct over $16,200 in personal exemptions,
that’s $28,900 they can deduct, right now, besides the property and
other taxes,” he said. “That’s getting replaced with the new
twenty-four-thousand-dollar standard deduction.” This same family might
land in a lower tax bracket as part of the Republican plan, he conceded,
but his calculations suggested that those benefits would not offset the
deductions the family was losing, either. “It’s going to affect every
American,” Donovan said. “And nobody is talking about it.” (Families
with children stand to gain from a slightly higher child tax credit
included in the Republican plan, but only some families will be eligible
for it.)

The higher standard deduction would also greatly reduce the
incentive—and, for many taxpayers, the ability—to itemize deductions.
Forty-six million taxpayers currently itemize deductions, according to
an estimate from the Tax Policy Center, but only thirteen million would
continue doing so if the Republican plan becomes law. This could have
consequences for the country’s charities and other nonprofit
institutions: according to the Tax Policy Center, “the House bill
would significantly reduce the tax incentive to donate, increasing the
after-tax price of giving by about 8 percent.” Naturally, this is likely
to lead to a significant drop in charitable donations. The T.P.C.
estimates that the bill could reduce charitable donations by as much as
eighteen billion dollars in 2018 alone. A related phenomenon can be
expected with real-estate values, as the loss or limitation of the
mortgage-interest deduction could lead to a potential correction in the
middle-class housing market, as home prices typically reflect the tax
benefits buyers are likely to receive on their investments.

Donovan said that he was generally supportive of his party’s goal of
lowering taxes; he cited the corporate tax rate as one that was
especially worthy of a significant reduction in order to give companies
a financial incentive to keep jobs in America rather than outsourcing
them. “I.B.M. told us last month for the first time in history that they
have more employees in India than they have in the United States,”
Donovan said. “That’s great for India but means less people in America
are working.” But he said that he couldn’t abide the other costs of the
bill, and the way that they disproportionately fall on Americans in the
middle of the income spectrum.

Until now, the Republican strategy has been to offer headline-grabbing
lip service to middle-class tax reductions, but taking most or all of
them away through small maneuvers that are difficult to assess, in order
to preserve the cuts that will benefit corporations and the wealthy. The
question now, as the bill faces perhaps its toughest remaining hurdle in
the Senate, is whether enough Republican senators, many of whose own
constituents are likely to pay higher taxes, will notice and acknowledge
what’s happening. “It is a flat-out lie that everyone gets a tax cut,”
Linden told me. “There will be people who pay more in taxes in every
state, in every district. The reddest state in the country, and the
reddest district in that state, will have people who pay more in taxes.”