UPDATE 11/13/2017: According to The Hill, House Republicans say they have the votes they need to pass their tax package; a floor vote is expected in the House this week. Now is the time to tell Rodney Frelinghuysen what you think.
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This week, the Republicans unveiled the House and Senate versions of competing tax bills. They share the same vision of what’s good for America: a fat, juicy tax cut for corporations and the biggest investors, while waving away a loss of revenue so big it will rip a gaping hole in the budget and inevitably lead to cuts in programs, services, and institutions that benefit the rest of us. Rewards in the tax code for “good behavior” -- like going to college or getting a graduate degree, buying a house, taking care of your health, or giving your money away, are all eliminated as if these no longer interest the majority party.
In fact, a look at the tax cuts proposed across the next decade shows that they aren’t cuts at all for many Americans. By Year Ten, the evaluation of the House bill by the Tax Policy Center, a nonpartisan think tank, shows the bill for what it is: a $900 billion corporate cut, a $400 billion break for non-corporate business owners, a $127 billion estate tax break. What little is left over falls squarely in the pockets of the richest 1%.
As for balancing the budget . . . that looks like a nonexistent priority in these tax bills. Yet should this tax overhaul pass, suddenly the money will have to come from somewhere. The obvious place is entitlements - Medicare, Medicaid and Social Security - but nothing is sacred.
Of the People: While polling reveals that most Americans want to raise corporate tax rates, the House and Senate bills emphatically do the opposite, even though most Americans don’t buy the idea that corporate tax cuts are going to help them. Only 31 percent of Americans in a recent poll think that they would personally benefit from that particular tax break. Only 27 percent consider taxes an important issue. Digging deeper, a mere 25 percent of those polled like what they’ve heard of the current tax reform bill.
Yet the Congressional leadership doesn’t seem to care. For them, it’s “full-steam ahead.”
As for those middle-class tax breaks that were promised, even Senate Majority Leader Mitch McConnell has had to walk that one back. “I misspoke on that,” he said a few days ago. “You can’t guarantee that no one sees a tax increase.”
Ahem. What you can guarantee is that corporations and the ultra-rich will have their taxes lowered. Considerably. Here are the highlights.
The Corporate Tax Cut: Here’s the money shot, folks. Both bills want to cut corporate rates from 35 percent to 20 percent. This would blast a $1.46 trillion hole in the federal budget. (Gone are the days of fiscally conservative Republicans insisting on the importance of a balanced budget.) On his website, Rep. Rodney Frelinghuysen writes: "We have the highest marginal corporate tax rate in the world, which makes us uncompetitive with other countries seeking to increase their international trade, a key area for future job creation."
But the truth is many companies pay much lower effective rates, using all sorts of tax loopholes or parking their money in offshore tax havens. A recent op-ed in the New York Times estimated that $7.6 trillion floats in such havens right now, thanks to already legal tax evasion methods. While it’s hard to track this money, resulting revenue loss for the U.S. is likely in the hundreds of billions of dollars a year.
Last year, U.S. tax revenue as a share of economic output was 26 percent, the fourth-lowest among countries in the Organization for Economic Cooperation and Development. So there goes that talking point that we aren’t “competitive.”
Reducing Itemized Personal Deductions: Currently, the House bill eliminates deductions for:
- student loans; child and dependent care
- medical expenses
- personal casualty (except in federal disaster)
- tax preparer costs
- and caps the mortgage-interest deduction to new loans of $500,000.
The House bill also eliminates the deduction for paid income tax (to New Jersey and New York e.g.), which together with property taxes are known as SALT (State and Local Tax) deduction. As many have pointed out, deduction elimination hits hardest at states where local taxes are highest, which also happen to be blue states like New Jersey. After outcry (and the inevitable loss of votes) the House bill put back some of the property tax credit capped at $10,000. But since property tax bills in our district are among the very highest in the country, the cap does little to mitigate the damage.
For balance, the Senate bill doesn’t bother with a cap, completely removing all state and local tax credits (SALT). Neither, however, eliminates SALT deductions for businesses.
Simplifying The Tax Code: Traditionally for the Senate, “simplicity” has meant reducing the number of tax brackets. No more. While the House bill shrinks the number from seven to four, the Senate bill keeps all seven brackets but pushes the kick-in rate of the top bracket to $500,000 for single filers and $1 million for couples.The House bill also kicks the highest bracket up.
Remember the goal of the bill? Here it is again: Those who make the most money, particularly through investments, will pay less tax.
The House bill lets a passive investor in a business (an angel investor, say) pay a lower rate on income than someone who actually works for their money (doctor, lawyer). The Senate bill instead includes a neat trick that allows owners of sole proprietorships like S-corps (you can be a business too!) who pay themselves a salary to deduct 17.4% of their pass-through income (i.e., the profit of their sole-proprietor business, that is, their income). To be clear, if a sole proprietor just takes the profit at the end of the year as they likely do now, no pass-through deduction. But if they pay themselves first from the profit, there's a 17.4% deduction on all the rest. This is a great “simplification.” Even so, one wonders why these additional top-bracket reductions are necessary, since the effective tax for these top earners and investors is already lower than for many middle-class taxpayers. For evidence, see Trump’s taxes. Oh, wait …
The Estate Tax: Both the House and Senate plans eventually repeal the estate tax entirely. As of today it only kicks in at $5.49 million, which affects about 5,500 estates. The elimination will save them (and cost us) an estimated $172 billion over the next 10 years. Back of the envelope, Rodney’s heirs could clear an extra $8 million when he goes. Maybe we should take Forbes magazine’s word for it: “Yes, this is a tax cut for the rich.” It’s also another hole blown in the budget, one that will have to be filled somehow.
Education: Whatever values these tax bills may represent, support for education is not among them. For example:
- Eliminating the SALT deductions will directly impact our states’ abilities to fund good public schools.
- University endowments are now subject to tax for the first time limiting our institutions’ ability to grant scholarships.
- Tuition waivers that allow many graduate students to pursue a higher degree will now be taxed like income (please remember right here how many reductions passive investors get).
- Abolishing the estate tax will hurt not only University giving, but all charities. Doubling the standard deduction, will dis-incentivize charitable contributions, since only 5 percent of filers will itemize, down from 30 percent currently. Combining these losses with the estate tax elimination, non-profit leaders estimate it will cost them over $13 billion annually.
Sour Cherry on Top: Two noteworthy provisions in the bills complete the sour taste in the mouths of most Americans, the majority of whom support reproductive choice and oppose politicking by not-for-profit institutions.
- An Attack on Reproductive Choice: In a sneaky provision of the House bill, a fetus at any stage of development can be designated as a 529 education account beneficiary. It’s a naked attempt to establish “fetal personhood” and strip women of their reproductive rights.
- In the original bill, houses of worship were granted the ability to engage in limited political activity, but an amendment presented by Ways and Means committee Chair Kevin Brady (R-Texas) would allow all charitable organizations to engage in political activity. As the Chronicle of Philanthropy warns, “Any loosening of the rule would fundamentally change the nature of nonprofit organizations and civil society at large.” Longstanding institutions stand to lose their independence and integrity. For example, an individual -- for example, David Koch -- could make a contribution to a charitable organization like the American Museum of Natural History (as he has), take the tax deduction, and then pressure them to make a political endorsement. The AMNH might stand strong, but others would not. Perhaps charities like the Trump Foundation could become fronts for political candidates. Oh, wait ...
Change: Neither we nor his staff have heard yet from Frelinghuysen about his position on this bill. Nor have we heard his response to the overwhelming swell of new candidates elected last Tuesday night to seats in the district never or rarely held by people not of his own party.
We did hear from his paid professional spokesman, Mike DuHaime, who told Politico, "It should serve as a wake-up call for any Republicans who are pretending there's not a political problem going into next year. Republicans in Virginia and New Jersey worked hard and knew the challenges, but voters were sending a message.”
Will Frelinghuysen hear it and vote “no” on the Tax Bill?