Monday, December 4, 2017
Tax Reform Lays an Egg
Tax Reform Lays an Egg
Commentary by Sanford D. Horn
December 4, 2017
In an episode of Friends, which if you didn’t see first run decades ago, you can still see in its myriad reruns, the character of Joey, an actor, describes to his friends something called “smell the fart acting.” This is where the actor has a challenging line to recite and he gives a look of, well, smelling a fart, in order to buy the time necessary to recall the complicated line.
This, sadly, is how I have come to view the current tax reform debate, which, having passed the House and the Senate, two versions of the legislation have been sent to the Conference Committee to iron out the differences. Not only are the individual house’s bills complicated, and each longer than 400 pages (short in Congressional parlance), but both baffling and, I think, not serving the average American citizen as much as they could. Numerous business reporters admitted their own confusion with the bills. Were I in either house, I would be casting a nay vote for various reasons.
While I support strongly the call to reduce corporate taxes form the current 35 percent to the 20 percent agreed upon by both houses, and clearly it would encourage many companies to repatriate back to the United States - to the tune of $4 trillion according to President Donald Trump, thus giving rise to revenue, the cuts for the non-corporate entities, you know - people - do not go deep enough. In fact, there is discussion that President Trump, who has been the biggest cheerleader for the 20 percent corporate tax rate, might be willing to compromise to 22 percent if more permanent cuts were made for the people. I would also like to know, how, according to House Majority Leader Kevin McCarthy (R-CA), maintaining a corporate rate of 20 percent will bring $4,000 into each household. And even on the 20 percent there is a disagreement as to when to implement it. The House version says 2018, which I support, while the Senate version says 2019, which makes no sense to delay the cuts.
The key word there is “permanent.” The House bill calls for permanent cuts to both corporate and individual tax rates, which I support. The Senate bill has those individual cuts expire in 2025, which I do not support. Pay attention, folks, this is not a good thing. Ultimately, with an elimination of certain key deductions, and then the expiration of the individual tax cuts, citizens’ taxes would rise exponentially with little protection currently enjoyed with the deductibility of mortgage interest, school loan interest, medical expenses, charitable contributions, as well as the state and local taxes (SALT) that have pitted the two coasts against the middle of the country.
Keep in mind, the loss of the aforementioned deductions is supposed to be offset by the nearly doubling of the personal exemptions and thus eliminating the need to itemize when filing taxes. Naturally, I applaud the doubling of the personal exemptions, but decry the loss of those deductions that drive people to contribute to some charitable organizations over others, not to mention the loss of SALT that smacks of double taxation. If practically doubling the standard deduction to $12,000 for single people and $24,000 for married couples is designed to offset the loss of certain deductions, say so, so people understand that. Supposedly the average family of four with an income of just under $60,000 annually, will “enjoy” a tax windfall of $1,182 or $22.73 per week.
It is shocking to me, as a conservative, and certainly a fiscal conservative, that the Republican Party, the party that espouses fiscal conservatism from high atop the mountain, is glad handing, back slapping and congratulating each other for bills that will raise the deficit an additional $1.4 trillion while cutting the legs out from under middle-class taxpayers. Make no mistake, the Obama administration was far more egregious in raising deficits more than $10 trillion in eight years, but two trillion wrongs do not a right make.
This is a bad tax reform bill by both houses. For while I support the House version pertaining to corporate rates and start time as well as permanent cuts for individuals, I do not support the House bill keeping the Affordable Care Act (Obamacare) mandate alive. It is the Senate bill repealing that mandate, which I fully support. No longer should people be taxed for not purchasing a product they did not want to begin with. By removing the mandate, the people can make that decision for themselves - whether or not to procure health insurance.
I support the Senate bill again in raising the Child Tax Credit up to $2,000 per child, while the House only calls for raising it to $1,600. I also support the Senate version on the highest tax bracket being 38.5 percent versus the House version at 39.6 percent. This is negligible - split the difference, make it 39 percent and call it a day. Although, quite frankly, why it should be any higher than 25 percent for individuals in the first place is beyond me. Oh, right, the pork barrel spending and riders glomming onto what should be straightforward bills in the first place.
As an aside, these riders should all be eliminated. If a bill can’t pass muster on its own, then perhaps it is not very good legislation in the first place and should not become law. Bills with giant price tags and murky, bloviating language only confuse the citizenry, which many members of Congress actually prefer. Members like this because they can then explain the language to their constituents telling them why it is good for their district and secure their own reelection. I’m starting to think term limits are not a bad idea, but that’s a different column for another day.
And let’s not forget that the tax bracket figures are merely the federal rates. There’s still the issue of SALT. The Senate bill, which I have supported heretofore, loses me on SALT because it wants to eliminate the deductibility of state and local taxes as well as mortgage interest. This will definitely impact those people living in high tax states - the coasts, as well as Illinois - causing their taxes to rise unnecessarily. Of course those voters could take matters into their own hands and start voting for supposedly more fiscally conservative candidates. I know, never going to happen. The House version isn’t much better, preserving for property taxes up to $10,000.
Back to supporting the Senate bill for its preservation of the medical expense deduction and the student loan interest deduction, as the House bill eliminates both. The loss of these deductions will impact those on the lower end of the economic spectrum. Then it gets worse for graduate students who are slated to have their tuition waivers taxed, according to the House bill. This is money graduate students never see. For example it cuts the tuition bill in some cases for an out of state student to an in-state rate for work the student performs as a teaching assistant or a research assistant, it also lowers the tuition in-state students pay and private school students pay for those same jobs.
According to The Wall Street Journal, “Rep. Kevin Brady (R-TX), an architect of the House plan, said the provision would put graduate students on the same playing field as part-time college students.” (12/01/17)
That is an absurdly punitive “provision” in the House tax plan. The use of the word provision, initially employed by Brady, would intimate that taxpayers were going to be provided with something, when in fact this is a deleterious proviso that will hurt graduate students. When I was a graduate student, I remember what it was like living on less than $1,000 a month in the late 1980s.
And while graduate students may feel the heavy boot of the tax man, teachers are also facing their own pain. Another proposal would no longer allow teachers to write off the supplies they purchase out of pocket. This would be a terrible blow for teachers, most of whom are already underpaid. I know, as a teacher in both public and charter schools, I spent a small fortune on both classroom supplies as well as things students needed.
There are so many other aspects of both bills that the average American will never know about unless they dig into the weeds - even I have not read the nearly 1,000 pages of proposed legislation. Nine economists and/or economics professors who served one GOP administration or another had a letter sent to Treasury Secretary Steve Mnuchin printed in The Wall Street Journal. Their letter was riddled with ambiguities, guesswork, and assumptions from so-called experts.
And while members of both houses claim they want fairer and flatter tax structure there is still plenty of pork to go around and favors for special interests. There are special deductions for microbreweries, orange growers, even private jet companies, as well as $10 million for a South Korean tuna canning company located in American Samoa.
For those keeping score at home, that’s three points for the House bill, five points for the Senate bill, and zero points for the tax paying people of the United States. While no bill is perfect, these aren’t even close. With a self-imposed Christmas deadline looming, the conference committee must hammer out a compromise, which quite frankly should take all the points I support from both bills, keep the deductions, double the personal standard deduction, drop the corporate tax rate to 22 percent and every tax paying American wins.
Failing that, once the calendar reads 2018, all significant work ceases. Fear sets in. Next year, 2018, is an election year for the whole House and one-third of the Senate. How will voters perceive this vote or that vote by their representative or senator? Any member unwilling to do their job for fear of losing it, should not have it in the first place. Do your jobs. Serve the American people. Return to us our money with the deepest possible tax cuts. And when the Democrats ask, as is their mantra, how will these tax cuts be paid for? Simple - cut spending. Cut out the pork, eliminate bills with riders that couldn’t stand on their own, strip illegals of every penny they are stealing from the United States people via government largesse, and actually follow the Constitution.
By the way, what will you do with an extra $22.73 per week?
Sanford D. Horn is a writer and educator living in Westfield, IN.