Caution: A First Look at Tax Cuts
Terry H. Schwadron
Sept. 28, 2017
We got a first look at an actual outline for tax cuts. It is not “tax reform,” as the Republicans like to call it, but “tax cuts.”
For me, any “tax reform” should involve aggressive moves to lessen the income inequality between the very top and the 99% of us; this program structurally keeps the status quo intact.
The nine-page summary said taxes should be a bit simpler, eliminate some taxes for the wealthy, cut income taxes for many in the middle class, largely by doubling household exemptions for those who don’t itemize, and certainly to reduce taxes for businesses, even while preserving deductions for home mortgage and charitable donations.
The President and congressional Republicans who offered the plan does not say how the government will pay for this, other than to suggest the general bromide that reducing corporate taxes will prompt general economic growth, and therefore jobs aplenty, and more than fill in for the eliminated tax revenues.
Just vote for it, he says.
Two problems: One is political — there will be a substantial amount of disagreement before approving a bill, including a whole lot of lobbying for individual legislator tax desires, and two, there is no agreement that the kind of growth envisioned will result. So, expect a passel of spending cuts to help defray the literal cost of political aspiration.
Some Democrats want a lot of the same results, but there will be oodles of discussion about making sure the “reforms” are not a giveaway to the wealthy, and that we are paying for the program without cutting out needed services. But there will be plenty of meat for people to haggle over.
Just who wins and who loses in this bill can’t yet be determined; there are too many holes in such an outline. And, it is early in what will be a multi-month process.
The White House and GOP leaders negotiated agreed in large part only on the taxes they want to cut.
The details are almost too general: Corporate taxes would go from 35% of profits to 20%, not the 15% that the President had indicated at first. But few companies pay 35%; the average is less than 25% nationally. Seven categories for individual tax brackets would collapse to three; more people could qualify for the Child Tax Credit.
That’s where the debate picks up between the Republican claim that this package favors middle-class households against the Democratic claim that it favors the wealthy. Collapsing the brackets, for example, likely will deliver modest tax cuts for middle-class earners, but larger monetary results for the wealthy. Wealthier folks would also benefit from such proposed changes as eliminating the alternative minimum tax and estate taxes, keeping a lower tax rate for money earned through capital gains, allowing for lower taxes for “pass-through” partnerships (which redefines income from law or real estate partnerships as business expenses rather than individual income) and elimination of state and local taxes as a common deduction from taxable income. Alternative minimum tax would have eliminated about 85% of the tax Donald Trump paid, according to the two pages from 2005 made public a few weeks ago.
“Repatriating” corporate monies from overseas will mean a one-time amnesty on taxes to lure the money back to U.S. shores; clearly business owners of multinational companies benefit, though Republicans say this is exactly the new money that will drive growth and new jobs.
There will be plenty of coverage of these individual item (if you can’t wait, check out columnist Michael Hiltzik’s column in the LA Times here) , but in aggregate, the argument is that they each and all favor richer taxpayers, Donald Trump’s protestations notwithstanding.
The biggest issue overall, however, centers on the total costs and how the government will cover the cost — through whopping new deficits, spending cuts, or elimination of selected tax benefits. The tax cuts will cost somewhere between $2–5 trillion in revenue over 10 years, depending on what combination of proposals emerge, though most seem to think adding 1.5 trillion over 10 years is “acceptable.” So, some tax benefits, never spelled out here, will have to go. Therefore, expect and expensive and nearly endless debate on the details.
Again, many of the specifics split along party lines. Republicans said they would curb some benefits from interest on debt, though they favor allowing companies to expense all investments in technology and equipment for five years and keeping tax benefits for research and development. Unclear is how the package would affect tax benefits for retirees or students, benefits favored by Democrats.
To start this process, Congress must pass a budget resolution that would enable consideration of the tax bill in the Senate to pass with a 51-vote majority under “reconciliation” with the new budget. Without the perceived savings from a health care repeal and replace bill, that budget no doubt will aim more harshly at current spending programs.
Hang on, this will be a bumpy ride.