Try Again on Tax Reform
By Stephen Tuttle | Oct. 21, 2017
We have a tax reform plan. Cobbled together in secret by six Republicans and supported by President Donald Trump, it promises much and delivers much less.
We're told it's going to cut almost everyone's taxes, including those of corporations, while stimulating the economy and creating job and wage expansion. That's what the advocates claim.
Their proposal reduces the number of brackets for personal income tax from seven to three: 12 percent, 25 percent, and a top bracket of 35 percent — down from 39.6 percent. Unfortunately, there is nothing in it that tells us where the income cutoffs are for the three brackets, so analysis and comparisons are tricky.
It would also nearly double the standard deduction for individual filers to $12,000, and for a married couple filing jointly, to $24,000. The sponsors are claiming it would increase the child tax credit, but they've yet to say by how much. It would eliminate estate taxes altogether.
The plan would retain deductions for home-mortgage interest payments and charitable contributions but eliminate nearly all others, including those for state and local taxes.
On the business side, corporate tax rates would be reduced from 35 percent to 20 percent. That's a bit less dramatic than it seems; according to Americans for Tax Fairness, the top 300 largest U.S. corporations actually paid a tax rate of about 19.6 percent in 2015.
It would be logical to assume they'll figure out a way to pay less than 20 percent, too, but the tax reformers tell us their plan will eliminate nearly all previous corporate deductions. We'll see. The Washington Post reports corporate America is already planning its assault on the reforms in what could be a $1 billion boon to lobbying and consulting firms.
So who benefits from these alleged reforms? Guess. No, not you. The Tax Policy Center reports that the top 1 percent of income earners will account for fully 50 percent of the tax savings. And a third of households making between $50,000 and $150,000 annually will actually see their taxes go up. The tax cut for the rest will average $50 to $80 a month. Households making less than $50,000 will get less.
To be fair, any tax cuts of high-income earners will always result in their receiving a bigger piece of the tax-savings pie; it's just math. But 50 percent is excessive and has the potential to stimulate nothing but tiny luxury markets.
The president tells us none of this will benefit him. Since he hasn't shared his taxes with us, we don't really know what he owns, how much money he and his businesses earn, and if he pays any corporate or personal taxes at all. But it's a pretty good bet his heirs will benefit greatly from the elimination of the estate tax.
This is all part of the ongoing love affair some have with supply side economics and its various offshoots. Part of it their mantra is that tax cuts grow the economy and, in so doing, pay for themselves. We're always promised business expansion and job and wage growth of such dimensions that new revenues will flow into state and federal coffers. Any temporary lost revenue, adherents say, will be made up by the soon-to-be-booming economy.
It never seems to work out quite like that. The Reagan tax cuts didn't pay for themselves or expand business. Nor did the George W. Bush tax cuts, enacted during a war. Both increased annual deficits and the national debt.
What did happen is individuals paid down debt instead of buying more stuff. Corporations bought back their own stock and created or increased dividends to shareholders. Those are sound personal and business decisions but a far cry from economic expansion.
There isn't any reason to believe anything different will happen with another round of tax cuts. And they won't pay for themselves: Congressional budget analysts put the lost revenue at $2.4 trillion over the next decade, with another $1.5 trillion added to the national debt. If history is a reliable guide, there won't be a multi-trillion-dollar economic expansion to offset the losses.
We're looking at tax reform that most helps those needing it least and least helps those needing it most. As a bonus, it will strip away a quarter-trillion dollars of revenue every year. It's hard to see how the American economy will benefit.
But it's not clear if the plan will even survive in its current form, if it survives at all. The language is vague, and opponents are already lining up while lobbyists cry for deductions lost. The Republicans are still splintered, and Democrats mostly act as if they'd rather be someplace else.
This is tax reform that benefits too few while putting the country further in debt. Congress and the president should try again.