In Charts, How These 7 Taxpayers’ Bills Would Change If Tax Reform Were Enacted

By Rachel Greszler, Senior Policy Analyst, Center for Data Analysis at The Heritage Foundation.

How will you fare if the GOP tax plan is enacted?

Well, on net, most Americans will see a significant tax cut under the proposed plans from Republican lawmakers, including virtually all lower- and middle-income workers and a majority of upper-income earners.

Both the House and Senate versions of the Tax Cuts and Jobs Act would, on average, provide immediate tax cuts across all income groups, according to analysis from Congress’ Joint Committee on Taxation.

This analysis does not, however, show how those tax cuts would vary based on factors such as total income, type of income, number of children, and itemized deductions.

 While the plans lack a pro-growth cut to the top marginal tax rate (the Senate plan slightly lowers the top rate, but the House keeps the top rate and adds a higher bubble rate), both bills achieve significant reductions in business tax rates. This will help make America more competitive with the rest of the world, and will result in more and better jobs as well as higher incomes for all Americans.

To get a better idea of how some workers, families, and small businesses would fare under the proposed tax reform, The Heritage Foundation has estimated the tax bills of a range of taxpayers under current tax law, the House’s Tax Cuts and Jobs Act, and the Senate’s modified mark of that bill.

 

Tom Wong: Single teacher with median earnings of $50,000 per year. Under the current tax code, Tom pays $5,474 each year in federal income taxes. His tax bill would decline by $914, or 17 percent, (to $4,560) under the House’s plan and by $1,104, or 20 percent, (to $4,370) under the Senate’s plan.

These tax cuts come primarily from a higher standard deduction of $12,000 and from lower marginal tax rates. Currently, Tom’s marginal tax rate is 25 percent. But under both the House and Senate plans, his tax rate would become 12 percent.

John and Sarah Jones: Married couple with three children, homeowners, and $75,000 in annual income. John is a sales representative and earns an average of $55,000 a year. Sarah is a registered nurse. After having children, Sarah cut back to part-time work and she earns $20,000 a year. Under the current tax code, John and Sarah pay $1,753 each year in federal income taxes.

But under the House’s tax plan, their tax bill would decline by $1,033, or 59 percent, (to $720). Under the Senate’s plan, their bill would be reduced by $2,014, or 115 percent, (to $0, plus a refundable credit of $261).

Even though John and Sarah would have more taxable income under the proposed plans (as a result of not being able to deduct all of their state and local taxes and not being able to claim personal exemptions), they would still receive a tax cut because they would face lower marginal tax rates and receive larger child tax credits.

Their current marginal tax rate would decline from 15 percent to 12 percent under both the House and Senate plans. Their current child tax credits of $1,000 each would increase to $1,600 each under the House plan and $2,000 each under the Senate plan. The House plan would also provide $600 in family credits to John and Sarah.

The numbers listed in the above example for John and Sarah’s current tax payments assumes John and Sarah own a home and live in a state with average tax levels. Under the current tax code, if they did not own a home but instead rented, their federal tax bill would be higher ($2,375 instead of their current $1,753 tax bill).

This would mean that their subsequent tax cuts—as renters—would be larger: $1,655, or 70 percent, under the House plan and $2,636, or 111 percent, under the Senate plan. The House plan would partially eliminate and the Senate plan would fully eliminate an inequity in the current tax code that provides bigger tax breaks to homeowners, wealthy individuals, and people who live in high-tax states.

If the John and Sarah rent, their new tax bills would remain the same under both the House and Senate plans (because the larger standard deduction would mean they would not itemize regardless of whether they owned a home or rented).

Peter and Paige Smith: Married couple with two children, homeowners, $1.5 million annual income. Peter works for a technology startup company and Paige is an accountant. Although Peter’s income fluctuates significantly from year-to-year, this was a big year for his company and he received a very large bonus, bringing his total earnings to $1.4 million. Paige’s stable income of $100,000 provided their family the financial stability they needed for Peter to take a risk and follow his dreams.

Under the current tax code, Pater and Paige pay $439,275 in federal income taxes. Their tax bill would increase by $87,993, or 20 percent, (to $527,268) under the House plan and would remain relatively the same, decreasing by just $1,313, or 0.3 percent, (to $437,962) under the Senate plan.

Peter and Paige’s taxable income would increase under both the House and Senate plans because they would lose some or all of their state and local tax deductions. Their total exemptions and child tax credits would remain the same—at zero—as their income is too high to claim any exemptions or credits under the current code or the proposed plans.

Under the current tax code, Peter and Paige face a top marginal tax rate of 42.5 percent (39.6 percent, plus the 2.9 percent Obamacare surtax). Under the House plan, their top rate would rise to 48.5 percent (39.6 percent, plus the 6 percent “bubble” tax, plus the 2.9 percent Obamacare tax), and under the Senate plan, it would fall to 41.4 percent (38.5 percent, plus the 2.9 percent Obamacare tax).

Those marginal tax rates do not include Social Security’s 12.4 percent payroll tax, which can lead to extremely high combined marginal tax rates for second earners that are part of a high-income family like Peter and Paige. Because Paige makes less than Social Security current taxable maximum income of $127,200, her combined federal income and payroll tax rate is 54.9 percent under current law and would be 60.8 percent under the House plan and 53.8 percent under the Senate plan.

Although Peter and Paige would have the most taxable income under the Senate plan, the Senate plan’s lower top marginal tax rate does the most to remove the tax penalty on work and investment. The more Peter and Paige work and invest, the more jobs and income growth they help create across all income groups.  Peter and Paige would also benefit under the Senate plan’s lower marginal tax rates in the bottom brackets.

The above example assumes Peter and Paige live in a state with average taxes. Currently, however, their federal tax bill could be tens of thousands of dollars higher or lower, depending on whether they live in a state with higher- or lower-than-average taxes for them to write off. This is not the case under the proposed House and Senate tax plans, because the Senate plan fully eliminates the state and local tax deduction and the House plan eliminates all but a $10,000 property tax deduction (and at their income level, they would likely claim that full amount in any state).

Jose and Marie Fernandez: Married couple with two children, owners of JM Blinds and Shades LLC, homeowners, $250,000 annual income. Jose owns and manages JM Blinds and Shades manufacturing company. Marie primarily stays home with their young children, but she also helps out significantly with the business when needed. Under the current tax code, Jose and Marie pay $35,588, which is their alternative minimum tax (AMT) amount.

The AMT is a separate tax system, created back in 1982 to make sure that millionaires paid their “fair share” in taxes. However, because the AMT was not indexed for inflation until 30 years after it was enacted, it now hits a significant number of middle- to upper-income Americans with a higher tax bill than they would otherwise pay. That’s because under the current tax code, taxpayers pay the larger of what they owe under the regular income tax system and the AMT.

Both the House and Senate plans eliminate the AMT. Under the House plan, Jose and Marie’s federal tax bill would increase by $799, or 2.3 percent, (to $36,387) and under the Senate plan, their federal tax bill would decrease by $9,325, or 26 percent, (to $26,263).

Jose and Marie’s marginal income tax rates would vary significantly under the different tax plans. Their current marginal tax rate of 35 percent would decline to 30 percent under the House plan and 19.8 percent under the Senate plan.

Under the House tax plan, Jose and Marie would face a good deal more complexity. As a small business, they would face the top rate of 25 percent, but only on 30 percent of their income. The other 70 percent (counted as wages) would be taxed at the regular income tax rates (which range from 12 percent to 46.5 percent). At their current income level, that top rate would also be 25 percent. However, on top of that, Jose and Marie would face an additional 5 percent tax due to the phaseout of their child tax credits.

Under current law, Jose and Marie make too much to claim the $1,000 per child tax credits. Under the House plan, they would be able to claim $1,100 of each $1,600 child tax credit, and under the Senate plan, they would receive the full $2,000 credit per child.

Also, because Jose and Marie make $250,000, their next dollar of income would be subject to the 2.9 percent Obamacare tax under both the current and proposed tax plans. That would bring their marginal tax rate on any additional income to 37.9 percent under the current tax code, 32.9 percent under the House plan, and 22.7 percent under the Senate plan.

The above examples seek to show how some common taxpayers—including some wealthy individuals who are less common—would fare under the proposed tax reforms. Actual individuals’, families’, and businesses’ tax bills could vary significantly.

On net, however, most taxpayers—particularly lower- and middle-income taxpayers and businesses—will pay less in total taxes. Even more important than total taxes paid, however, is marginal tax rates. That’s because a lot of decisions are made at the margin.

For example, a worker is far more likely to work an additional hour if it counts as overtime and provides the equivalent of 1.5 hours’ worth of pay. And an individual is more likely to make a $1,000 contribution to his retirement savings account if that savings goes tax-free and means he can put all $1,000 away, instead of first having to pay between $100 and $400 in taxes on the savings.

Lower marginal tax rates are a big driver of economic growth, and the lower the rates, the higher the growth. Under the House bill, lower- and middle-income earners and businesses face lower marginal tax rates, but some high-income earners face higher marginal tax rates. The Senate proposal reduces the top marginal tax rate for an overwhelming majority of taxpayers, with the largest reductions occurring for businesses and for lower- and middle-income Americans.

While the proposed tax reforms do not achieve 100 percent of the potential pro-growth impacts that they could, they go a long way in helping to jump-start America’s struggling economy and put it on a pathway toward higher long-term growth.

*To read this article on The Daily Signal, click here.


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By Sondra Clark, Managing Director of Communications and Grassroots at Heritage Action for America. Americans have always fostered a spirit of entrepreneurship. We take pride in pulling ourselves up by our bootstraps. Unfortunately, our complicated and restrictive tax code is limiting innovation and growth in this country. One of the…

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This Key Change Will Bring Money Pouring Back Into the US

By Sondra Clark, Managing Director of Communications and Grassroots at Heritage Action for America. President Donald Trump once called our tax code a “giant self-inflicted wound.” He’s right—and one of the worst aspects of our broken code is the “worldwide” system of taxation. Under current tax law, U.S. businesses are…

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A Revised Tax Code Could Make Filing Your Taxes Much Faster, Cheaper

By Sondra Clark, Managing Director, Communications and Grassroots, Heritage Action for America. Keep it simple. This mantra of simplicity has been ignored for far too long in Washington, D.C. Elites in the nation’s capital have a high tolerance for nuance, caveats and complexity, and for preserving the status quo. I get…

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Only a matter of time before GOP fulfills promise to kill ObamaCare

By Tommy Binion, Director, Congressional and Executive Branch Relations at The Heritage Foundation. The problems created by ObamaCare will outlast the latest effort to repeal the bill. The GOP has not yet fulfilled its oft-repeated promise to repeal ObamaCare, and pundits are busy declaring that the GOP has failed for…

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Americans Still Wait for Trump to Protect Health-Care Conscience Rights

By Elizabeth Slattery, Legal Fellow and Appellate Advocacy Program Manager, Meese Center for Legal and Judicial Studies at The Heritage Foundation, and Melanie Israel, Research Associate at The Heritage Foundation. The legislation creating Obamacare left lots of policy “details” to the discretion of the executive branch. And so the Department of Health…

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What Needs to Change in the Graham-Cassidy Health Care Bill

By Jean Morrow, Research Assistant, Domestic Policy Studies at The Heritage Foundation, and Marie Fishpaw, Director, Domestic Policy Studies at The Heritage Foundation. Since January, Republicans in Congress have been working on efforts to repeal and replace Obamacare using the budget reconciliation vehicle. As a last-ditch effort to utilize this…

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Doctors Legislative Strategy Call 09/28/17

Last week, conservatives working in the medical community all came together for our monthly Legislative Strategy Call. During the call, we heard from Heritage Action’s Wesley Coopersmith, Policy Manager, and Matt Lauer, Grassroots Director.  Wesley walked through updates on the state of health care reform and tax reform. Matt provided action items for…

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VIDEO: Tax Reform for Middle Class Americans

Following an introduction by Heritage Action CEO Michael Needham, Ways and Means Committee Chairman Kevin Brady (R-TX) will discuss how he and the Committee – working together with President Trump and the House and Senate – are moving forward on transformational tax reform that will help middle-class Americans throughout their…

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VIDEO: “Tax Week” at Heritage Action: Individual Rates

Sondra Clark and Andrea Palermo kicked off "Tax Week" at Heritage Action by discussing how lowering and simplifying the individual tax rates will save you and your family time and money!…

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‘Deregulation Day’ Spotlights Big Changes Trump Is Bringing to Washington

By Diane Katz, Senior Research Fellow in Regulatory Policy, Roe Institute for Economic Policy Studies, Institute for Economic Freedom and Opportunity. Monday is “Deregulation Day” for the federal government as declared by President Donald Trump, and thus is an opportune time to deliver the findings of The Heritage Foundation’s latest tracking…

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How the Current Tax Code Disfavors American Workers

By Scott Asbjornson, executive of AAON, Inc., an HVAC company based in Tulsa, Oklahoma. The U.S. tax code is 4 million words long, so it’s no surprise that millions of Americans look for help every year just to keep appraised of the ever-changing, complex maze of laws and regulations—and yet few actually…

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Deregulation Day

By Sutton Truluck, Research Assistant at Heritage Action for America. The new federal fiscal year began yesterday, October 1st. While not marked on most American calendars, the date is significant in Washington because it begins the annual "budget season." For federal agencies, this means finalizing budgetary and regulatory proposals for…

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PRESS RELEASE: Heritage Action Applauds GOP Tax Proposal

SEPTEMBER 27, 2017 Washington — Today, Republicans will unveil new details of a sweeping overhaul of America’s tax code. The plan would unleash economic growth, create American jobs, increase wages for American workers, allow families to keep more of their hard-earned money, and make U.S. businesses competitive across the globe. It…

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Conservatives Encouraged by Republican Framework for Tax Reform

By Rachel del Guidice, reporter for The Daily Signal. Any tax reforms passed by Congress should give relief to middle class families and small businesses, bring jobs and capital back to the United States, and make the tax code more fair by ending loopholes and breaks for special interests, congressional…

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A tax cut for all Americans

By Dr. Ed Feulner, founder and president of The Heritage Foundation. When you hear the phrase “corporate tax cut,” what do you picture? Middle-class workers, or Uncle Moneybags, the character from the Monopoly board game? Probably the latter, unfortunately. Too many Americans buy into the popular misconception that such a cut…

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Jimmy Kimmel Knows Comedy, Not What Ails Obamacare, Conservatives Say

By Rachel del Guidice, reporter for The Daily Signal. Jimmy Kimmel may be a funny man, but he doesn’t understand Obamacare, according to a U.S. senator who the late-night TV host slammed this week as dishonest in describing a Republican alternative to the health care law. Sen. Bill Cassidy, R-La.,…

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Full Expensing and Meaningful Tax Reform

By Sutton Truluck, Research Assistant, Heritage Action for America. The Trump presidential campaign and congressional Republicans made numerous promises to Americans throughout the 2016 election cycle. Second only to repealing Obamacare, the most recurring promise was to deliver pro-growth tax reform by the end of this year. Unfortunately—now nine months…

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VIDEO: Michael Needham talks Jimmy Kimmel and Senate Health Care Bill

Heritage Action CEO Michael Needham discusses Jimmy Kimmel and the Senate health care bill on Fox & Friends September 21, 2017.…

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Bernie Sanders Introduces Single-Payer Health Care

By Casey Ryan, member of the Young Leaders Program at The Heritage Foundation. Sen. Bernie Sanders, I-Vt., is pushing a single-payer health care bill that would give Americans health insurance through Medicare. “Today, we begin the long and difficult struggle to end the international embarrassment of the United States being…

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Obama’s ‘Julia’ Will Have Better Life Because of Tax Reform

By the Video Team at The Daily Signal. Julia and her husband, James, are worried about their future. James lost his job and can’t find work. Julia has not received a raise in many years and is unhappy at her job. They are struggling just to make ends meet and…

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The GOP’s Last-Ditch Effort to Partially Repeal Obamacare

By Rachel del Guidice, reporter for The Daily Signal. Republican senators are pitching one last-ditch effort to repeal Obamacare regulations before a Sept. 30 deadline. A bill, drafted by Republican Sens. Lindsey Graham of South Carolina, Bill Cassidy of Louisiana, Dean Heller of Nevada, and Ron Johnson of Wisconsin, along…

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Why Bernie Sanders’ Single Payer Health Care Plan Is a Total Disaster

By Robert E. Moffit, Senior Fellow in The Heritage Foundation's Center for Health Policy Studies. Americans face a stark choice on what their health care will look like in the future. They can adopt a government-run health-care system, financed by new and heavy federal taxation, with federal officials making all…

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VIDEO: Adam Michel on CNN to Discuss Tax Reform

Adam Michel, Policy Analyst, Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation, Appears on CNN's At This Hour with Kate Bolduan to Discuss Tax Reform.…

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Weighing Options on Obamacare

Congress reportedly has until September 30th to use the fiscal year 2017 budget reconciliation tool to repeal and replace Obamacare without Democrat support. With this looming deadline, Congressional Republicans are scrambling to form a healthcare bill that will get 50 senators to “yes”. Last week, Senators Lindsey Graham (R-S.C.) and…

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Cruz Highlights 7 Ideas for Tax Reform

By Rachel del Guidice, reporter for The Daily Signal. Sen. Ted Cruz thinks tax reform can help the average American. Tax reform is all about “the promise to remodel our antiquated, bureaucratic, ineffective tax system with the objective of creating more jobs, higher wages, more opportunity, with the objective of…

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Trump’s September Budget Deal Could Move Tax Reform

By Romina Boccia, Deputy Director, Thomas A. Roe Institute at The Heritage Foundation. This week’s budget deal is fiscally irresponsible. But it just may have cleared the legislative schedule for serious action on much-needed tax reform. The lamentable budget deal suspends the debt limit—and continues all discretionary spending at current (FY 2017)…

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In Woodrow Wilson Fashion, Here are 14 Points for ObamaCare Repeal

By Tommy Binion, Director, Congressional and Executive Branch Relations at The Heritage Foundation. Woodrow Wilson had his 14 Points. Here are 14 more — this time about one of the most pressing issues in Washington today: ObamaCare repeal. First, Republicans have control of the House, the Senate and the White House.…

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I Went to a ‘Remembering Our Fallen’ Memorial in DC. Here’s What I Saw.

By Jarrett Stepman, editor for The Daily Signal. In the 16 years that have passed since Islamist terrorists attacked this country on 9/11, thousands of Americans have given their lives in the conflicts that followed. On Friday, I had the opportunity to visit a “Remembering Our Fallen” exhibit at the base…

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Trump Is Right. ‘Our Tax Code Is a Giant, Self-Inflicted Economic Wound.’

By Adam Michel, Policy Analyst, Thomas A. Roe Institute for Economic Policy Studies In his second speech in two weeks on the need for tax reform, President Donald Trump again made a strong case, explaining that “our tax code is a giant, self-inflicted economic wound.” This time speaking in North…

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Why Lisa Murkowski’s Senate Vote Preserving Obamacare Riles Alaska Conservatives

By Rachel del Guidice, reporter for the Daily Signal Some Republicans in Alaska are frustrated that one of their own broke ranks to vote with Senate Democrats against repealing Obamacare. Lisa Murkowski, Alaska’s senior U.S. senator, was one of three Republicans to join forces with Democrats to defeat the Senate bill that…

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Trump Can End Congress’ Illegal Obamacare Exemption with the Stroke of a Pen

By John Malcolm, Vice President for the Institute for Constitutional Government and Michael Cannon, Director of health policy studies at the Cato Institute Congress' ongoing failure to repeal Obamacare means ordinary citizens will continue to suffer that law's rising penalties, wage cuts, reduced choice, rising premiums, eroding coverage, administrative burdens, and collapsing markets. But don't worry, members of…

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Governors Urge Greater Flexibility for States in Creating and Implementing Health Care Policy

By Rachel del Guidice, reporter for The Daily Signal. Five governors—representing both parties and from states across the country—told a Senate committee Thursday that inaction on health care is not an option and lawmakers should look to the states for solutions. Colorado Gov. John Hickenlooper, a Democrat, praised the successes of…

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Trump’s Reversal of Obama Pay Gap Rule Is Good News for Women, Minorities

By Romina Boccia, Deputy Director of the Thomas A. Roe Institute for Economic Policy Studies and Grover M. Hermann fellow at The Heritage Foundation. The Trump administration put a stop this week to an Obama-era rule that would have hurt the wage and employment prospects of all workers, and would have…

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Conservatives Should Take Full Advantage of the Debt Ceiling

By Sutton Truluck, Research Assistant at Heritage Action for America. On Sunday, the Trump administration formally requested Congress pair an 18-month suspension of our nation’s debt ceiling with much-needed emergency spending for Hurricane Harvey relief. Today, President Trump reportedly endorsed the idea of pairing Harvey spending with a short-term suspension…

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Why I and Other Lawmakers Should Live Under Obamacare

By Rep. Ron DeSantis, Republican, representing Florida's 6th District. For seven years, Republican candidates running for every office from president to dogcatcher campaigned on the need to repeal and replace Obamacare. The spectacular collapse of the repeal effort in the Senate revealed that these promises were, at least for some…

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How to Bring Real Stability to the Health Care Market

By Edmund Haislmaier, expert in health care policy and markets at The Heritage Foundation. Following Congress’ failure to enact “repeal and replace” legislation this summer, the new Obamacare buzz phrase for the fall is “market stabilization.” An ad hoc group of House members calling themselves the “Bipartisan Problem Solvers Caucus”…

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As GOP Senators, Governors Pitch Plan to Save Obamacare, White House ‘Can’t Imagine’ Backing Bailout

By Fred Lucas, White House correspondent for The Daily Signal. The White House says it “can’t imagine” supporting an Obamacare bailout, even as some Republican senators and governors are urging boosting federal subsidies to insurance companies to stabilize the endangered Obamacare exchanges. The Senate Health, Education, Labor and Pensions (HELP) Committee…

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VIDEO: Michael Needham discusses Harvey aid and the debt ceiling

Heritage Action CEO Michael Needham discussed the debate on America's debt ceiling and relief funding for Harvey on Fox News Sunday September 3, 2017.  …

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VIDEO: Dan Holler on Harvey spending package

Heritage Action Vice President Dan Holler discusses the Hurricane Harvey spending package on Fox Business's Varney & Co. September 5, 2017.…

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