'Cuts Cuts Cuts' for Everyone?
The House GOP has released its tax reform package, and it would make some big changes.
Moving like greased lightning — at least by congressional standards — House Republicans yesterday released the tax plan that President Donald Trump wanted to call the “Cut Cut Cut Act.” Perhaps that’s just good branding, but after lawmakers backed off a proposal to restrict contributions to 401(k) plans at Trump’s behest and kept many of the cherished ideas that he campaigned on last year, it might make sense to use his pet name. Granted, certain sectors of taxpayers may pay a little bit more, but that name’s offense to the language would pale in comparison to that of the Affordable Care Act.
While what the House is calling (more sedately) the Tax Cuts and Jobs Act did away with the proposed additional tolls on retirement accounts, there are still a number of features sure to raise the ire of specific groups. For one, the reviled top tax rate of 39.6% is unchanged, although the threshold to reach it is increased significantly for married couples — $1 million in annual income. By that same token, there are certain income levels and situations where the tax rate will increase, hitting the extremely poor and upper-middle class in strange ways.
The proposed rates are 12%, 25%, 35% and 39.6% — four rates instead of the current seven.
In addition, home builders and realtors hate the bill because it caps the mortgage deduction to loans of $500,000 or less and eliminates the deduction for a second home. The proposal is “a direct assault on the American Dream of homeownership,” complained National Association of Home Builders chief executive Jerry Howard. A compromise to allow up to a $10,000 deduction for property taxes, while effective for most of the nation, wasn’t the restoration of full deductibility of state and local taxes that Republicans who represent high-tax states wanted to preserve.
Overall, Speaker Paul Ryan is right to tout the plan as one “for the families who are out there living paycheck to paycheck who just keep getting squeezed.” With increases in the amount and scope of the standard deduction (up to $12,000 for individual filers and $24,000 for married couples) and child care credit (up to $1,600 from $1,000) — albeit at the loss of the individual exemption and certain deductions — families may find they benefit greatly. House Ways and Means Committee chair Rep. Kevin Brady termed the package “the beginning of the end of this horrible tax code in America.” Indeed, it’ll make tax time less onerous for most taxpayers.
The Daily Signal reports, “We estimate that doubling the standard deduction would roughly cut the percentage of taxpayers who itemize their deductions in half — from 30 percent to 15.5 percent — saving about 22 million taxpayers from the headache of keeping track of all their itemized deductions.”
The bill also has some sweeteners for business owners. Corporate tax rates would plummet from 35% to 20%, while small business owners who earn what’s known as pass-through income would also see a rate decrease to 25% — although for them the devil is in the details. Those who wish to pass on their businesses to their heirs get some immediate help, as the asset exemption from the estate tax would double to over $11 million. But this is another compromise, as the “death tax” would remain on life support through at least 2024.
Needless to say, Democrats and their media allies are already running hard against the bill. “This bill is like a dead fish — the more it’s in sunlight, the more it stinks,” Sen. Chuck Schumer panned.
Others are complaining for the oddest of reasons: “The tax reform proposal unveiled today does not … reflect the goals President Trump and I have discussed over the last several months,” claimed West Virginia Sen. Joe Manchin. “It puts investors ahead of workers, raises rates on the small businesses who create most of our jobs, and dramatically increases our national debt.” Never mind his inaccurate claims — since when were Democrats concerned about the national debt?
It’s quite likely the (up to) $1.5 trillion in additional deficits over the next decade would be largely made up for in additional tax revenue based on increased economic activity, just like that which occurred in the 1980s.
President Trump set the ambitious goal of wrapping up tax reform by the holidays, touting the “big, beautiful Christmas present in the form of a tremendous tax cut, which will be the biggest cut in the history of our country. It will also be tax reform and it’ll create jobs.” That “biggest in history” line is typical Trump overstatement, and “Christmas present” may be overpromising. So far his track record on legislation has been subpar due to GOP defections in the Senate, where they haven’t created a tax cut bill yet. A bill that already has hurdles aplenty in the House may face a more difficult road in the Senate by the time John McCain, Susan Collins, Lisa Murkowski and the other usual suspects get through with it.
For this bill to be a success to us regular folks, though, it has to do away with many thousands of pages in our nation’s abominable tax code. Simply moving brackets around and removing a few deductions won’t get that done.