Let’s be totally clear. I don’t expect this bill to pass the House and the Senate. At least not as it’s currently written. But, y’all should know what are the current thoughts. (I’m being generous here, since so many have no idea what’s in this bill, and that’s for representatives from BOTH parties. Note further that this was written on 2 November 2017.)
You gotta love the name of this bill. Tax Cuts and Jobs Act. While it is labelled tax reform, I’ll let you decide. It does, indeed, revise the Internal Revenue Code of 1986, among other tax issues. In particular, this bill penalizes the residents of all the states that did not vote for the GOP in the last national election.
Why would I say this? As you will see from studying the issues in this bill over the next four (blogging) days, here are the targeted changes in this law…
- Mortgage deductibility will be limited to $ 500K. That means only more expensive homes are targeted. (There is a rumor this limit will be raised to $ 750K to stave off a revolt by the NY, NJ, and CA GOP representatives.)
- SALT- state and local taxes- will be limited (removed) in deductibility. Those states that voted against the GOP are those that have the highest state and local tax collections.
- More folks who work for companies (even public ones) or have two wage earners which when combined are in the higher tax brackets live in states which did not favor the GOP.
- More professionals (physicians, attorneys, accountants, etc.) who earn at the higher levels are residents of states that didn’t vote for the GOP.
All told, these changes are going to increase our national debt by $ 1.5 trillion- unless the GOP really does slash $ 500 million from Medicare and $ 1 trillion from Medicaid. Which means the poor and the aged are REALLY taking it on the chin, because the poor are not getting a tax break and at least half of our seniors are barely eking by.
Then, there’s this healthcare wrinkle. With no medical deductions possible, seniors (or the children of seniors who pay the bills for mom and/or dad) will not be able to deduct those sky high costs for nursing homes, assisted living, and/or long-term in-patient hospital care. (Just so you know, these bills are not really the problem of the rich. 49% of seniors with family incomes under $ 50 K have been taking this deduction; 69% had incomes of $ 75 K or less. Oh, and at these income levels, itemized deductions have no limit- right now.)
As you can see in the above chart, the retirement plan benefit is the largest suck on the US Treasury. But, there supposedly was going to be an additional limitation to 401(k) plan deductibility; that evaporated before publishing HR-1. A tax on employer provided health care benefits would yield even more than the tax on 401(k) plans (since it’s worth about $ 160 billion and 401(k)’s are just a portion of the retirement programs); such a tax probably would make more Americans cognizant of the true cost of health care, to boot. Instead the plan focuses on SALT (mostly to get even with those states that vote for the opposite party), yet it increases the child tax credit.
This tax cut lops off $ 1 trillion from corporate tax payments- despite the fact that businesses submit less than 10% of the total federal inflows! Then, the rich will get a $ 200 billion estate tax cut (which covers only those with the top 0.2% of the US incomes).
Of course, the GOP wants you to believe they are yielding $ 660 in tax cuts to most taxpayers. But, that’s an average. (Most of those in the bottom 50% will pay more in taxes.) That average tax cut seems reasonable only because the top 1% folks are getting $129K more each year- but at the very top, the 0.1%…the gain is just about $ 723K.
Just as an aside, if anyone were SERIOUS about reducing our deficit, it would be fairly simply to raise our tax rates by 3.5% of GDP. The same percentage that this year’s deficit accrues from the GDP. That still wouldn’t make our taxes equal to the average that the civilized world imposes on its citizens. (OECD is the abbreviated name for the Organization for Economic Cooperation and Development.)
Or, maybe they’d adopt my plan to tax world-wide corporate income. Like the rest of the OECD will be doing next year. Then, the cost to the US treasury to provide that reduction in corporate tax rate would be a wash. And, still be able to lower the fictional 35% tax rate. (Actually, SMALLER companies have a 39% marginal rate- and they, unfortunately, do pay it. Larger firms manipulate their income to end up paying much, much less.)
There is a hint of my plan in this bill. It’s a 20% excise tax imposed on a subsidiary of a firm subject to US taxes, when that subsidiary sells goods or services to a foreign affiliate. Up to now, this is how folks like Apple have hidden their taxable transactions from the IRS (in plain sight, of course). Now, those “royalties” that tech firms and big pharma “pay” their subsidiaries to shelter the profits from US taxation will seemingly be subject to this 20% levy. Not quite as good as my plan- but it’s better than a poke in the eye.
By the way, the only jobs this bill is certain to create is for lawyers, accountants, and financial specialists who will develop yet ways to expand the loopholes that this bill LEFT in for businesses, but removed for individuals. (Moving- deductible for businesses, even if they are moving a plant overseas; for individuals- nope! Tax preparation costs are deductible for corporations and not individuals. State and local taxes- deductible for business and not for individuals. You get the idea.)
But, fiscal responsibility only seems to be an issue when the GOP is OUT of power. As you will see over the next few days when we review HR-1.