A One-Page Tax Plan
Terry H. Schwadron
The tax plan was certainly dramatic, with huge corporate tax cuts and a streamlined approach for individuals. But perhaps it reflects alternative math.
What it all means is hard to tell, since — once again — it is a single sheet of paper with no real practical plan about how it will work, how it will be paid for, and who really will benefit if it actually passes.
It does make one wonder about all the build-up if there actually is no plan. One would have hoped for more of an actual program here.
Still, there are some immediate takeaways:
· Corporations and family-run “pass-through” businesses will pay 15% rather than 35% of profits as federal tax to make the U.S. competitive with other countries. That’s it, that’s the whole program. At least you can see who will benefit, including the Trump Organization, one presumes, although with no previous tax returns shown, who knows. Nevertheless, corporate America is going nuts with joy reflected in immediate rises in stocks and bonds. Still, most companies use various loopholes and shelters to avoid paying 35% now; the average is said to be closer to 27%, in line with the rest of the world. Pass=throughs include law firms and lots of other companies that are not the family-run plumbing business.
· Individuals get three income brackets, at 10%, 25% and 35% rather than seven current brackets, with much higher individual or family standard deduction, and eliminating tax on the first $24,000 of income. The big gain is simplicity. It is unclear whether this actually means less tax for you or me, since some deductions (home mortgage) are in, some (estate taxes) are out, and no income levels were attached. In other words, we learned nothing new yet. It would eliminate the alternate minimum tax and support child care costs with tax credits. Out are deductions on state and local taxes.
· Paying for it. Team Trump expects that cutting rates will massively goose the economy, more than doubling the rate of growth and the addition of millions of jobs. Cutting taxes will add anywhere from $2 trillion to $10 million the national debt over the next decade, with no way to cover the cost. Indeed, some of the cost recovery was supposed to be through health care costs, but those bills have gone nowhere. Specifically, the White House rejected a border tax on imported items, a provision opposed by big retail, among others.
· Politics. The biggest benefit of the tax proposal will be an immediate and lasting rise in political talk. Since it is unclear what the proposal actually includes, it is difficult to judge the politics, but generally, Republicans are resistant to growing debt, and Democrats are resistant to the spending cuts that this tax proposal will necessitate. Trump supporters will see that their champion is trying to do something, especially something that upsets the status quo, and opponents.
· Winners. Corporate America, particularly wealthy owners, who get a gift with absolutely no requirement to take the winnings and re-invest them in American jobs. Indeed, in various more local tax cut situations, it is demonstrable that wealthy owners took the saved money overseas or put it into non-taxable partnerships and other tax shelters. Neveretheless, the proposal includes a one-time “tax holiday” to allow companies to bring back or “repatriate” money housed overseas. I’d like to be able to say that some middle-class taxpayers will benefit, but it is too difficult to judge right now.
· Losers. There will be tons of losers, perhaps starting with both Paul Ryan, who has been steamrolled by the President on tax reform, and CPA’s who may lose out to postcard-like tax forms for individuals. Indeed, Ryan got no notice that the White House was going to move ahead with the President’s tax plan before Mr. Trump announced that there would be an announcement. For a while, it appears that anyone depending on home building, sales and mortgages would lose, but that deduction was saved. Likewise, charities were about to cry foul, but those deductions seem alive for now as well.
The biggest winner is the President himself, who already was preening about the boldness of the “largest tax cut in history” well before anything actually becomes law, but in time for parading before rallies and interviews scheduled to mark 100 days in office. It looks as if the President is doing something to cut taxes, when the politics of actual legislation look extremely shaky for adoption. There will be no unanimity among Republicans and near-total resistance among Democrats, whose votes will be needed in the Senate.
What is remarkable is that top Trump officials are insisting their tax plan need not be paid for, rejecting Ryan’s stance that any package should not add to the deficit.
The Baltimore Sun said, “This is not a serious proposal for overhauling a bloated, convoluted and frequently unfair tax code.”
The New York Times editorialized that while some growth may result, the more certain effect of the unpaid tax cuts will be to bloat the national deficit, require more borrowing, which, in turn, will increase investment in U.S. Treasury notes and further strengthen the U.S. dollar against other currencies. That too will slow the economy and cost jobs.
It is all made more confusing by presenting simple answers to complex questions.
Beyond the tax plan, what made this week more confusing were a series of announcements on NAFTA, health care and others, all later virtually rescinded, all in an apparent rush to meet the artificial deadline of first 100 days.
Mr. Trump, slow down and figure out what you’re doing.