Partisan divide on the tax bill

Partisan divide on the tax bill

Washington's "sausage factory" grinds away on lower tax rates.

With the Republican tax bill approaching the home stretch of the legislative process, much remains unclear about what it will do, and who will and will not benefit.

That's because the discussion is not reflected by rational discourse, but instead by partisan noise in which Republicans exaggerate its benefits while Democrats are apoplectic about its impact.

House Democratic Minority Leader Nancy Pelosi said the legislation represents "the end of the world."

At the same time, a spokesman for Republican House Speaker Paul Ryan insists the legislation will "create more jobs, fairer taxes and bigger paychecks for the American people."

The fate of the legislation is still in doubt because Republicans hold a narrow 52-48 margin in the U.S. Senate. With Democrats so far unanimously opposed, the GOP needs every vote it can get, and wavering Republican senators, like Susan Collins of Maine and Marco Rubio of Florida, could derail the legislation.

Their reservations, reflected by demands for changes, also create a moving target that leads to further confusion.

The bill's contents on Friday might not be the same on Tuesday because of the continuing changes to appease one senator or another. Those kind of shifts reaffirm the old saying that people are well advised not to watch either sausage or legislation being made.

Much of the criticism, however, has focused on a proposed reduction in the corporate income tax from 35 percent to 20 percent, a rate designed to make this country more competitive with foreign countries whose rates are significantly less than the current 35 percent U.S. rate.

Frankly, a reduction from 35 percent — one can quibble with the size of the reduction — is just common sense if the United States wants to eliminate the current financial incentive in place that encourages U.S. corporations to reincorporate outside this country.

One can't credibly criticize companies that move for tax reasons while insisting that the financial incentive that encourages them to move remain in place. Further, critics who defend the reduction of high corporate tax rates as a sop to the rich and somehow unfair to those who are not rich might consider that corporations, like all businesses, simply pass along their costs to consumers in the form of higher prices.

That's Economics 101 — corporations may pay the taxes out of their revenues, but they get those revenues from the individuals and businesses with whom they interact. The difference between what corporations pay now and what they will pay in the future may boost their bottom line. But it could well be that companies will devote those additional resources to expanded research, additional hiring and business growth that boosts the economy.

Whatever corporations do with the extra revenue, it ultimately will be injected into the overall economy. That's a good thing.

As for individual rates, they will be coming down. At the same time, the standard deduction is being doubled, and there are increases in the child tax credit.

To make up for the revenue lost through lower rates and an increased child tax credit, the legislation eliminates most deductions for those who itemize.

While home mortgage and charitable contribution will remain deductible, other deductions will be eliminated, including those for state and local taxes.

Upper-income residents of high-tax states, including Illinois, will be affected most dramatically.

That, of course, raises a question. Are lower-income earners taking the biggest hit here, as Democrats suggest? That's hard to credit when it's upper-income earners who itemize their deductions that will be losing many of those deductions.

But here's the reality. It's virtually impossible to generalize with accuracy about the impact of the bill when people's tax situations are so different.

People will know more if this bill passes, and taxpayers file their returns under it.

Although touted as a tax cut bill, it's not going to be a tax cut for everyone under all circumstances. The legislation is aimed as much at making the tax code less complicated and encouraging savings and investment as it is about reductions in taxes.

Nothing, however, is more hideously complicated that this nation's tax laws. It's horrendously complex now, and it will still be horrendous if this bill is passes. That's one reality that defies both parties' ability to address.

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David Prochaska wrote on December 12, 2017 at 2:12 pm

“Much of the criticism, however, has focused on a proposed reduction in the corporate income tax from 35 percent to 20 percent, a rate designed to make this country more competitive with foreign countries whose rates are significantly less than the current 35 percent U.S. rate.”

This is a lie. The net, or effective, tax rate puts the US in the middle of that paid in other developed countries.

“it could well be that companies will devote those additional resources to expanded research, additional hiring and business growth that boosts the economy.”

It’s more likely that they won’t, or certainly not enough to boost the economy significantly. At a meeting for the Wall Street Journal's CEO Council meeting with Gary Cohn, Trump’s economic advisor, a Journal editor asked the crowd to raise their hands if their company plans to invest more if the tax reform bill passes. Very few hands went up. Surprised, Cohn asked “Why aren't the other hands up?”

“Whatever corporations do with the extra revenue, it ultimately will be injected into the overall economy.”

The Panama Papers and the Paradise Papers document what in fact corporations tend to do with such surplus revenue.

“As for individual rates, they will be coming down.”

Not much at all for the middle class and poor compared to the rich, and only temporarily, but deeper corporate tax cuts would be permanent.

“other deductions will be eliminated, including those for state and local taxes. Upper-income residents of high-tax states, including Illinois, will be affected most dramatically.”

True, unless their tax bill will be otherwise offset by other forms of wealth and revenue

“Are lower-income earners taking the biggest hit here, as Democrats suggest? That's hard to credit when it's upper-income earners who itemize their deductions that will be losing many of those deductions.”

Conservatives and liberals both agree that the tax cuts – even factoring in elimination of SALT deduction – benefit overwhelmingly the top 1%.

This is a stupid, nonsensical statement by Dey. It recalls that after months and months and months of hard work and analysis, Treasury yesterday released a 1-page (!) analysis/argument/statement contending that the tax cuts would pay for themselves, only if you accept the administration’s over-the-top optimistic economic forecasts – forecasts rejected by both conservative and liberal economists.

Economics 101? Jim Dey flunks.