Death and taxes. As the saying goes, they’re the two inescapable facts of life on this Earth. And maybe glitter, too. I’ve heard it said glitter is the herpes of the arts and crafts world, and having been the victim of glitter’s stickiness in the past, I appreciate the analogy. There’s so much you could say about death and its inevitability, more than could fit in one post and not exactly the kind of topic I’d cover in a blog about current events and politics anyway. There’s less you could say about glitter. It’s shiny—yay? Taxation in the United States, meanwhile, is an issue off which we can reasonably bite and chew. Taxes, be they local, state, or federal, are almost always relevant in some way to our daily lives, but currently exceedingly so in light of a recent resolution narrowly passed by the House of Representatives that paves the way for a Republican-led Congress to try to jam a tax reform bill through the legislature. After the GOP’s failure to get an ill-crafted replacement of the Affordable Care Act through both the House and Senate, the pressure is on Mitch McConnell, Paul Ryan, and the rest of the party’s leaders to devise something that will find success and uphold a pledge of both theirs and President Donald Trump’s to lower taxes.
Back at the end of September, Trump and the “Big Six”—House Ways and Means chair Kevin Brady, National Economic Council director Gary Cohn, Senate Finance chair Orrin Hatch, Mitch McConnell, Treasury Secretary Steve Mnuchin, and Paul Ryan—unveiled a rough cut of what a Republican tax reform bill would look like. David Floyd, writing about the “Trump tax reform plan” under the Investopedia.com banner, offers a fairly good primer on what the forthcoming bill might look like. Among the salient points of agreement among the Big Six and made evident to reporting media:
For personal taxes
- Three brackets: In what may seem as somewhat of a welcome change given the U.S. tax code is often derided as too complex and ridden with loopholes, a GOP tax bill is expected to reduce the number of tax brackets applicable to personal filers from seven brackets to just three: 12%, 25%, and 35%. Perhaps the most notable change herein would be the reduction of the top bracket from 39.6%, because, as with charges levied against the Republican plan for “repeal and replace,” the intimation is that the primary intent of this legislation is to give the wealthiest Americans a tax cut. Well, this aspect sure doesn’t help.
- Higher standard deductions: From the looks of things, much higher. For current 2017 tax law, the standard deduction for single filers is $6,350, and $12,700 for married filing jointly. Under the proposed reform, the Single standard deduction would rise to $12,000 and the MFJ deduction would shoot up to $24,000. As for the Head of Household deduction, um, what Head of Household deduction? Seriously, though, the GOP tax plan doesn’t mention anything about it, which could presage an elimination of this option. Sorry, single parents—this is Trump’s family-oriented America now.
- No additional standard deduction: A forthcoming reform bill is likely to eliminate the additional standard deduction (currently at $1,550) for single filers who are either 65+ years of age or blind. Sorry, old and blind people—this is Trump’s America now. The disabled and elderly don’t get priority.
- No personal exemption: That apparent good news about your standard deduction? It stands to be tempered by the likelihood that the personal exemption will evaporate. That’s $4,050 which would suddenly become unavailable. Harsh, bruh.
- Elimination of itemized deductions: Not all itemized deductions, but a number of them, particularly that applicable to deducting state and local taxes. Which would disproportionately affect filers in “blue” states, but that’s just a coincidence, right? Already, the dramatic increase for the standard deduction would be anticipated to reduce the number of couples/individuals making use of itemized deductions, which would only be useful if these individual deductions surpass the given standard deduction. Eliminating the so-called SALT deduction would, in all probability, further increase that trend.
- Increasing the child tax credit: Increasing the child tax credit—what’s bad about that? Well, not much, from what I can tell, but this is probably a concession designed to make the legislation more palatable from a political standpoint. This is to say that the main reason this bill is being proposed by Republican leadership is most likely not related to concern for the average parent and his or her child/children.
- Cutting the AMT and estate tax: Yeah, this is straight-up, good-for-the-wealthy-type shit right here, especially concerning the latter, which affects less than 1% of American estates and only those worth more than $5.5 million. The Trump Family, in particular, would benefit handsomely from a repeal of the estate tax. Yup, no conflicts of interest here—move it along, people. Nothing to see here.
For business taxes
- Cutting the top corporate tax rate to 20%: Corporations, so onerously plagued by taxes that a number of them find ways to pay little to nothing in this regard, will apparently have this burden further reduced by the Trump/Big Six tax plan. Here’s the thing about this tax cut: the cost. Taxes collected are tax revenues, and with a drop in the highest corporate tax rate from 35% to 20%, the estimated cost to the United States is some $2 trillion over a decade. Trillion. With a T. It’s doubtful the brain trust behind the forthcoming bill will be able to find a plug that large to fill the void.
- Establishing a top “pass-through” rate of 25%. With pass-through entities, such as sole proprietorships, partnerships, and S-corporations, owners pay based on personal tax rates. As with the intended shift on the top corporate tax rate, the reduction in the top rate for pass-through entities would be substantial, down from the aforementioned 39.6% highest bracket threshold. Under the guise of this bill, this reduction is meant to give a break to America’s small businesses. Not only would a majority of small business owners not benefit anyway under the proposed plan, making this—surprise!—a boon predominantly for wealthier business owners, but defining what organizations/what type of work qualifies for classification in this way was already cumbersome. Meaning the IRS, already besieged by cuts over the past few years, will likely have that much more trouble sifting through returns if this bill comes to pass. It’s OK, though—your refund will get to you eventually. We hope.
- Establishing a “territorial system” for foreign-based revenues: This applies to multinational corporations, and would allow these businesses to be subject to taxation based on where the money was made, rather than be subject to U.S. taxation, including a 35% tax on overseas profits for American corporations when they bring them back home. This might actually be a good element of the reform, as a large consensus seems to favor this treatment for multinationals, arguing that it will improve the American corporate tax system and could potentially make U.S. firms more competitive with their foreign counterparts. As they say, though, the Devil is in the details, and thus far, the details have been decidedly murky. What would a minimum foreign tax to discourage revenue shifting look like, exactly? For a supposed low, one-time tax rate to bring existing foreign revenues ashore, what is the proposed rate? If multinational corporations don’t want to shift them to the United States, do they even have to pay the tax at all? I’m asking you, the reader, because I’m not sure the Republican brass in charge of crafting this legislation have really thought through all the implications.
I say the details have been murky on the territorial system, but as with the various awful iterations of the GOP health care bill that did not get passed, there is a lot that is unclear about this tax plan concocted by the Trump administration and Co. What income ranges will get assigned to which of the three proposed tax brackets? Will the deduction from 39.6% to 35% actually survive the drafting process given obvious tax breaks for the wealthiest Americans are unpopular with most of the population? What itemized deductions actually stand to be preserved by the Republican tax reform bill? How will abuses of the reduced top pass-through rate be curbed? And how exactly are we going to pay for these tax cuts? How exactly are we going to pay for these tax cuts? No, really—how the f**k are we going to pay for these tax cuts? I’m asking this three times because it’s important, and because a shortfall in tax revenue is to be expected relative to current rates, will this mean cuts in other areas to offset these losses? Also like with the health care bill voting process, it is doubtful that GOP lawmakers will have the time and wherewithal to read and comprehend what they’re potentially voting on—or much less be asked to. Keeping in mind the Republican Party’s penchant for legislative chicanery and desire for a victory regardless of the eventual fallout, anything less than full speed ahead is considered a liability for those who bleed Republican red. By this token, Trump and the Big Six probably hope their Republican Party underlings are as in the dark about this bill as we are.
As much as we don’t know about the fine details, however, and as accelerated a timeline under which the Republicans in Congress will aim to operate to keep as many people as unaware as possible, the broad strokes are enough to tell that the forthcoming tax reform legislation, like the deficient health care bills that preceded it, is something about which calling and writing one’s elected representatives merits the effort. Because this is legislation which is primarily designed to benefit wealthy business owners and other wealthy individuals—let’s not sugarcoat the matter. But don’t just take my word for it. John Komlos, professor emeritus of economics and economic history at the University of Munich, states outright that the GOP tax cuts would make the rich even richer. In an opinion piece appearing in PBS’s economic segment, “Making Sen$e,” Komlos argues that any theoretical gains to be enjoyed by members of the middle class from these revisions and cuts are easily outpaced by the windfalls to be realized by the most well-to-do. The professor explains:
Take a median household of two earners with an income of $59,000. The best estimate is that their after-tax income will increase by 1.2% or by $704. To be sure, that is nothing to scoff at. It is twice as much as their income gains during the previous 17 years but it is hardly enough to be a game changer for them. Their likelihood of affording college for their kids will not increase, for example. Their consumption will be not increase the economy’s aggregate demand appreciably either.
In contrast, the super-rich will become amazingly even richer. If the GOP had its way, the top tax rate would decline from 39.6 percent to 35 percent for a married couple earning more than $470,000. Take a typical CEO of a major corporation who earns, say $20 million. With a typical effective tax bill of 25.6 percent for someone in that position, their take home pay currently would be around $14.8 million. Under the new plan, the tax bill would decline by 4.6 percent, or roughly $900,000. However, according to the nonpartisan Tax Policy Center, the gain would be even more — roughly $1.2 million.
Either way, in this scenario the windfall would leave the CEO with disposable income of around $16 million. This would certainly be enough to buy some political influence. So, the tax cuts feed a vicious circle that lead from the windfall to political power and the ability to influence the public’s worldview and thereby gain further profits and additional power both political and economic.
Prof. Komlos sees the Trump tax plan as another version of Reaganomics and to be rightly derided as “voodoo economics.” As it has been a linchpin of conservative economic theory for some time, the central mechanism here is trickle-down theory, and experience has shown it doesn’t quite work as specified. From the Reagan tax cuts, we got a “$2 trillion increase in the government deficit and the hollowing out of the middle class,” earning us respectable but only incremental growth. The majority of growth experienced under George W. Bush prior to the Great Recession benefited the top 1%, and the deficit ballooned yet again. All this is an erosion of the middle class and its power, while income and wealth inequality widen, with the growing chasm threatening to swallow the bottom 99% whole. As for the idea the drop in corporate tax rates will stimulate growth, Komlos argues that what is limiting additional investments by American businesses is not burdensome taxation, but lack of demand for the product. No amount of lining the pockets of the wealthy can magically spur demand from the public.
John Komlos’s closing remarks strike an ominous tone, even if they leave the door open for something better:
At its core, the tax plan was made by the 1 percent for the 1 percent. Apparently greed has no limits. Make no mistake about it: this is nothing less than class warfare. And as Warren Buffett, the second richest man in America, so astutely recognized, “my class has won.” We were fooled by Reaganomics. We were fooled by George W. Bush tax cuts. Will the 1 percent fool us again? Or will Abraham Lincoln be proved was right, when he said that you can’t fool all of the people all of the time.
The hope, of course, is that the American people will realize how lopsided this bill is and will demand something fairer, not just in terms of the alignment of specific income brackets with specific percentages, but in terms of the distribution of wealth and power across the American economic spectrum. The major reservation, however, is that some distraction like terrorism or Hillary Clinton or the difficulties of daily life will come along to make too many of us ready to forfeit our bargaining power. History has repeated itself with the Republican presidents leading up to Barack Obama. It can easily repeat itself after the fact, change and hope aside.
Speaking of distractions, as is so often the case with Donald Trump, he and his Republican cronies have utilized their brand of misdirection to try to minimize public attention to how terrible their tax plan will be. At about the same time we were hearing that the resolution narrowly passed which would allow Republicans to fast-track tax reform legislation through Congress, our attention was diverted to concerns about the release of the JFK assassination files, of all things, as well as Trump’s blathering about Hillary Clinton and sales of uranium to Russia. These may very well be worth the scrutiny, mind you, but the timing of their release/publicizing functions to obscure the fact that wealthy people masquerading as authentic representatives of the American people are intent on catering to their wealthiest benefactors first, leaving the scraps for the rest of us. The intersection of Trump administration proceedings, Republican legislative machinations, and the rantings and ravings of a spoiled brat who was elected to be—but does not act like—the President creates a shell game by which all options are vaguely appealing, but the contents of one have the unique power to do quantifiable damage to our country and the balance of power within it. In this case, it’s the GOP-led Congress’s shell that covers their mad dash of an attempt to give the wealthiest Americans an unnecessary tax break, and to get a bill passed before we’re singing “Auld Lang Syne” to ring in 2018. This means that, following any elections individual states, counties, and municipalities may have this November, the timeline for voicing opposition to any proposed legislation will be slim.
Thus, even while indictments are being issued by Robert Mueller in the investigation into Donald Trump and his potential ties to Russia, the details of this whole Republican tax shebang will be critical to pursue in the coming days, weeks, and months. Particularly so we can find out what the hell, if anything, is being done to our 401(k) plans and their associated limits. The Republican tax plan is going to suck. It’s up to us to find out just how bad it will suck and which representatives/senators to contact and pressure in the hopes it won’t be passed.