The Republican tax plan: Who wins and who loses?
America’s sluggish economy may soon get the boost it has so badly needed, said Judd Gregg in TheHill.com. This week, House Republicans began marking up their longawaited rewrite of the tax code—a 429- page overhaul plan designed to kick-start the economy following years of lackluster growth. Under the Tax Cuts and Jobs Act, the corporate tax rate will be slashed from 35 percent to 20 percent, thus “leveling the playing field of international competition,” incentivizing companies to keep their profits here, and luring foreign companies to U.S. soil. That will be “a job-creating juggernaut.” Small and medium-size businesses—partnerships and S-corporations—will enjoy a new 25 percent “pass-through” rate that will enable them to expand, hire more workers, and raise wages. To pay for these cuts, Republicans plan to severely limit or eliminate a number of itemized tax breaks for individuals. But the standard deduction will almost double, to $12,000 for individuals and $24,000 for families, making it unnecessary for most middleincome taxpayers to itemize, while the entire federal income tax system will be simplified into four brackets—12 percent, 25 percent, 35 percent, and 39.6 percent. The gains from corporate tax reform “will start small but will grow year after year,” said Martin Feldstein in The Wall Street Journal. Within a decade, annual national income could rise by $500 billion—“equal to $3,500 a household.” That will outweigh adding $1.5 trillion to the national debt.
Sorry, “but the math doesn’t work,” said Matthew Yglesias in Vox.com. Cutting the corporate tax rate from 35 percent to 20 percent and phasing out the estate tax on inheritances creates such a massive shortfall in revenues—$5.5 trillion over 10 years— that Republicans have proposed clawing back $3.8 trillion, mostly by eliminating deductions for millions of individual taxpayers. In fact, nearly one-third of middle-class families earning between $50,000 and $160,000 would face a higher tax bill as soon as 2018, according to a New York Times analysis. In general, the Republican bill “reads as if it was reverse-engineered from 30-second political attack ads,” said Jonathan Chait in NYMag.com. To pay for their corporate tax cut, Republicans plan to eliminate several “worthy and popular” tax breaks for large and sympathetic groups—including deductions for state and local taxes and the mortgage-interest deduction benefiting millions of American homeowners, many of them in blue states. The GOP also eliminates tax credits for hiring veterans and to defray the costs of adoption, as well as deductions for student-loan interest and extraordinary medical costs. That’s “political poison.”
Not surprisingly, Republicans are trying to rush this bill through in a matter of weeks—before public opinion derails it, said Paul Krugman in The New York Times. This “reform” is a naked giveaway to corporations and the 1 percent. The rich will benefit from the elimination of the alternative minimum tax—the only reason President Trump paid any substantial federal taxes in 2005—and from the gradual elimination of the estate tax, currently paid by only 0.2 percent of households, on estates worth more than $5.49 million. There are also “vast new opportunities for tax avoidance” for wealthy Americans, who will pass themselves off as dummy corporations to qualify for the new 25 percent pass-through rate. Democrats “are freaking out” for good reason, said the Washington Examiner in an editorial. They know corporate tax reform “will juice the economy,” ensuring continued Republican control of Congress and Trump’s re-election. In 2012, President Obama proposed lowering the corporate tax rate to 28 percent—“not as a thank-you to corporate America,” but to get businesses expanding and hiring. That’s what this tax cut will do. Politically, Democrats simply “cannot afford that sort of prosperity.”
Republicans, on the other hand, cannot afford seeing their tax bill crash and burn—which is a real possibility, said A.B. Stoddard in RealClearPolitics.com. Warring House and Senate factions, including blue-state Republicans, social conservatives, and fiscal conservatives, are already demanding changes to the bill. Republican leaders will have to reconcile a host of different demands while walking a shaky tightrope, with just a two-seat Senate majority and rules that allow them to add only $1.5 trillion to the deficit. But after efforts to repeal Obamacare collapsed in chaos, the GOP knows another major failure would enrage its voters and pose “an existential threat” to the party’s control of Congress. It’s not sunny optimism that has Republicans insisting they will pass tax reform by Christmas. “It’s fear of the apocalypse.”