Senate Republican Leader Mitch McConnell (R-Kentucky) celebrates passage (swiped from nytimes.com) |
First, the good news. The bill includes a long-overdue overhaul of corporate taxation. The U.S. relies to an unusual degree on business taxes, and the complex provisions of the tax code had pushed the top rate (which nobody really pays) far above that of other advanced democracies. The current bill closes some loopholes and reduces the top tax rate from 36 to 21 percent, making American business taxation more transparent and possibly more internationally competitive. Some advocates expect this to result in more hiring with higher wages. (I'm dubious, given that corporate profits have already been doing well for most of this decade, far outpacing wages.) The provision is not revenue-neutral, but could have been offset with higher individual rates. (It wasn't.)
I'm also fine with what's happened to the home mortgage interest deduction: the amount of debt on which interest is deductible was reduced from $1,000,000 to $750,000 for homes purchased after 2017, and nearly doubling the standard deduction drastically reduces the amount of people who will take it. This provision of the code has inflated prices, encouraged communities to sprawl and individuals to over-build (see Zuegel 2017 and Williamson 2017); the presumption that homeowners make better citizens was dubious from the start.
Other positives: Using chained CPI to make year-to-year adjustments should more accurately reflect the impact of inflation on taxpayers, even though it will mean lower benefits from, say, the Earned Income Tax Credit.... The child allowance has been increased for the first time in awhile, to $2000, albeit offset by eliminating personal exemptions. For low income filers, $1400 of that credit can be refunded in a sort of "negative income tax"... And some ideas got removed from earlier versions: reducing or ending tax credits for historic preservation, as well as provisions affecting higher education like taxing tuition benefits for employees of colleges and graduate student fellowships. (Maybe those last are neutrals rather than positives, since nothing was changed.)
If the bill had gone only that far, it might have been more widely supported, in and out of Congress, although that's hard to say given Washington's toxically partisan divide. But the sponsors had to go and:
- skew the individual cuts to the wealthy. In part that's because the wealthy pay most of the income taxes in America, but that's not true of all taxes. (ITEP 2017 shows the distribution of tax payments by income level, and how that would have been affected by an early version of the 2017 tax bill.) This exacerbates an already-widening income and wealth gap in America. The skew does appear worse if you include the expiration of individual cuts after ten years, which was included to make the bill fit under budget caps, so a lot of opposition analysis focuses on 2027 numbers. In fact those cuts may or may not expire, but if they don't, they will clearly worsen the bill's impact on the deficit (discussed below.)
- double the estate tax exemption, which was absurdly high even before Republicans tried to end it in their 2001 tax cut. The ability of the very rich, some but not all of whom got that way by doing socially-productive things, to pass on huge fortunes to their heirs, all of whom got that way simply by coming out of the right vagina, is absolutely contrary to an opportunity society. We're making the world safe for aristocracy, pure and simple. And since whites got several centuries' head start on making money, this approach does racial harm as well.
- expand pass-through provisions, by which individual income can be taxed at the lower business rate. This option is not available to typical working people, of course, only to those in a position to declare themselves independent contractors. A special provision related to real estate partnerships will provide substantial benefits to the Trump family as well as Senator Bob Corker (R-Tennessee), a late convert to the yes column, all of which is giving cynics a field day.
- retain the obscene carried interest loophole, whereby the income of financial wizards is taxed as capital gains rather than income, and therefore at a much lower rate. This has cost the government $18 billion over the last ten years, besides which it irrationally favors financial wizardry over any other work. Hello-o-o, 1 percenters!
- run as much of a deficit as they legally could claim. The official estimate of revenue loss, $1.4+ trillion over 10 years, assumes a substantial economic stimulus effect, which as I said may or may not result, and steady and considerable economic expansion throughout the period. Otherwise the impact on the deficit is substantially worse. Fiscally stimulating the economy at all in the eighth year of a bull market with the country at or near full employment is hard to justify. The capacity of the federal government to deal with future events (natural disasters, security threats, economic downturns, funding for retirement and health care programs, maintaining infrastructure), not to mention regular disruption in our high-tech economy, has been damaged, which is inexplicable. In the near term, higher deficits would trigger funding cuts for Medicare and Medicaid.
- add legislative matters to the bill. Republicans have repeatedly attempted over the years to repeal the individual mandate provision of the Affordable Care Act and open the Alaska National Wildlife Refuge to oil drilling, without success. Both are included in this bill. The ACA change cuts health care policy off at the knees--"We have essentially repealed Obamacare," President Trump proclaimed Wednesday--roiling individual insurance markets, without any recourse for the most vulnerable.
- do all this in an all-fired hurry, without so much as a committee hearing. Senator John S. McCain (R-Arizona) complained last summer about his leadership's abandonment of "regular order" in considering legislation. This bill was a most egregious example, but he supported it anyway.
DATA STUDIES
Tax Policy Center: http://www.taxpolicycenter.org/publications/distributional-analysis-conference-agreement-tax-cuts-and-jobs-act/full
Institute on Taxation and Economic Policy: https://itep.org/finalgop-trumpbill/
Reuven S. Avi-Yonah et al.: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3089423
American Planning Association: https://www.planning.org/blog/blogpost/9140260/US Treasury Dept: https://www.treasury.gov/press-center/press-releases/Documents/TreasuryGrowthMemo12-11-17.pdf
SEE ALSO:
William G. Gale and Leonard Burman, "Congress Missed an Opportunity to Reform the Corporate Tax," Up Front, 26 December 2017
Alejandro Ortiz and Kathleen Powers, "So, What's in the Tax Bill?" Vote Smart, 13 December 2017