Tax Cuts: A Campaign Response to Economics
Terry H. Schwadron
Nov. 3, 2017
The main early thing to note about the Tax Cuts bill unveiled yesterday: The summary is 82 pages long.
The immediate takeaway is that the bill is big, bulky, a complex kiss to the rich with just enough to say the rest of us will get a little taste. Most Americans would get a modest break, but some would end up paying more. And its passage in two houses, though eventually likely, actually is not guaranteed. MoveOn and others will be knocking at your door for donations to join against the bill.
The idea that the House and Senate are supposed to readily swallow this secretly constructed makeover of federal taxes with no hearings to date, and act swiftly, is, well, difficult to believe. Next to health care, this is one of those crazily complicated areas with loads of special interests each working at cross-purposes from the next to get attention for competing, singular Important Considerations.
I would say the thing to do in the next days is to watch newspaper-produced graphics (in print or online) as they try to translate the 429 pages into chunks that you and I can apply to our lives.
Politically, It seemed clear that the immediate response was that too many expected “yes” votes were wavering or thinking of voting “no,” based on the actual language of the bill and the specific choices towards retaining revenues to offset the cost of corporate tax reductions. Indeed, headlines talked of introducing the bill into political “headwinds” and other euphemisms for controversial vote counts.
It could be important to see how a small number of conservative Demorats lean on the bill, and how legislators in both parties from all states with high residential costs — California, New York, Maryland, Connecticut and others react because of threats to home mortgage deduction reductions and reduced deductions for state and local taxes, which are higher in those states.
I would watch for how amendments are proposed and whether they are given the time of day. Certainly, Democrats will offer amendments in an attempt to block various portions of the bill, and even Republicans will try to adjust some of the internal numbers. Lobbyists for home building, realtor groups, national commercial groups were starting to line up against the bill, probably to the surprise of the president
The president gleefully acknowledged the release of the details. It seems clear that he cares only about the fact that there is a tax cut bill, and that it proposes to drop the corporate tax rate — on paper at least — from 35% to 20%. The rest is negotiable, as far as he is concerned.
The math problem of trying to squeeze the cost of tax cuts into the federal budget — even with a planned 1.5-trillion-dollar overspend — has proved vexing, even to believers.
Of course, the True Believers in Trump Tax accept the myths that the corporate tax cut alone will generate so much new investment, jobs and contributions to the economy that we will be overwhelmed by new prosperity. The rest of us wonder whether the price that will be paid for the corporate taxes is just too high.
Some critics note that the main theme here, boosting the economy, seems odd because the economy is beginning to sustain growth and add jobs now without such a tax cut.
For sure, you’ll see lots of coverage that tries to translate the details, but the big points should already be familiar:
· Besides the corporate tax rate, wealthy people stand to get the vast bulk of tax credits through elimination of estate taxes, exemption from a good hunk income tax of money earned through partnerships, and elimination of alternate minimum taxes.
· Simplication of tax forms for those who forgo deductions, fewer tax brackets and a doubling of standard deductions for families.
· On the other hand, there were planks to halve the amount of home mortgage deductions, reductions in deductions for state and local taxes, lowered credits for college tuition, reductions for medical costs and the like.
Of course, the biggest effect could be on the general federal budget and social services, because cutting taxes and increasing military spending will require massive cuts in non-military spending.
There is no question that the tax cuts are manifestations of the Trump campaign married to long-time Republican legislative goals. That they favor the rich over the middle class is not even up for debate; they do. Still, there is a strong undercurrent of desire for a major stimulus to the American economy, and cutting taxes is one way seemingly to do so. For myself, I think it is a myth that American companies will share any new saved tax costs with their employees, preferring to spend any savings on retirement of debt, investment in plant and technology and higher dividends to stockholders.
The most telling headlines I saw in the first day after disclosure of the bill’s proposals suggested that the Tax Cuts raised a question: What Problem Will This Solve?