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Making The GOP Tax Bill Slightly Less Awful

Making The GOP Tax Bill Slightly Less Awful
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Republicans like to boast about how their current plan to reform the tax code is the biggest such effort since the 1980s. They especially like this line because it references Saint Ronald of Reagan [pause for GOP genuflections], whose irreproachable sanctity is about all the Republican Party can even agree upon, these days. But back in Reagan's day, Congress spent something like two years developing their tax code overhaul, with at least six months of that spent in committee hearings and bipartisan work toward a common goal. That common goal was to reduce taxes on individuals and increase them on corporations. None of that is true this time around, of course, as Republicans only even have a prayer of passing anything these days (despite controlling both houses of Congress) by rushing things so hastily that nobody has a chance to talk about what is in the massive bill. That two-year process will be smushed into a few paltry weeks, with a self-imposed Christmas deadline. Also, the end goal this time is exactly the opposite -- massively reduce the taxes corporations pay by increasing the share individuals pay.

All of this means that the American public has much less time to process what is happening, which is by design (of course). Republicans know that the longer people have to examine their tax plan, the more the public will learn about what it actually does. And, so far, the more the public learns about it the more they hate it. Overwhelming majorities see the GOP tax "reform" as nothing short of redistribution upwards -- which screws over the middle class (once again) in order to provide lavish goodies for those at the top of the income scale, and Wall Street. Since this is the actual bedrock upon which the GOP tax bill was constructed, it is impossible to hide its inherent nature for very long.

What I've found notable is how quickly people have realized the truth of the matter. The spin job from the Republicans seems to have utterly failed this time around. This is rather astonishing, because usually Republicans are a lot better about creating tax-cutting talking points and sticking to them -- thus introducing their own version of reality into the press and, eventually, within large segments of the public. It usually works, at least for a while. "Tax cuts for everyone!" has sold many GOP tax plans over the years, indeed ever since Reagan trod the Oval Office's carpets. But this time it just doesn't seem to be working.

The massive public pushback is a huge political problem for Republicans. Normally, passing a tax cut boosts their chances in the next election cycle. But when the plan actually raises taxes on a bunch of middle-class people while corporate America makes out like bandits, it's a much harder sell. "Tax hikes for you, tax cuts for your employer!" just doesn't cut it as a campaign slogan, in other words. And even with the lightning speed with which the bill is moving through Congress, this has already started to resonate with certain segments of the GOP (most notably, those who are from wealthy suburban districts). So while the broad outlines of the tax plan have been known since the House voted on their version, efforts have been underway to make the whole plan at least slightly more palatable to the public.

In a frenzy late last Friday, the Senate voted on a bill whose ink hadn't even dried yet. All sorts of last-minute deals were included (such as kickbacks to Alaska's senator) which had nothing whatsoever to do with taxes. But a few of these, at least, did make the GOP bill marginally better in nature.

Currently, a joint committee has been formed between the House and Senate to iron out the differences between the two bills. This is expected to also happen (if it's successful) in whirlwind fashion. Just today, though, some of what they are contemplating leaked out. Partly because they are constrained by a total bill of $1.5 trillion in deficit spending, and partly because they have been getting angry calls from some constituents who will be on the losing end of the stick, some of all these changes seem to be moving towards making the plan slightly less awful.

The biggest hole to be blown in the budget comes from slashing the tax rate for corporations from 35 percent to 20 percent. Now, each percentage point costs roughly $100 billion (which means the whole $1.5 trillion added to the deficit goes directly to lowering corporate taxes, not the middle class, of course), and as Republicans begrudgingly decide to make the rest of the bill less awful for average taxpayers, they've got to offset the costs. So they are -- very quietly -- considering only lowering the corporate tax to 22 percent, which would free up $200 billion for other tweaks. But a 13-percent drop in taxes on big businesses is ever-so-slightly less massive than a 15-point drop.

One of the changes reportedly demanded by Maine's Susan Collins in the Senate bill is perhaps the best one of all (at least in my opinion) -- merely readjusting who has to pay the Alternative Minimum Tax rather than abolishing it completely. I have written previously on how bad an idea getting rid of the A.M.T. would be -- especially since it would mean Donald Trump getting an 81 percent cut on his own taxes -- but critics of the A.M.T. do have a point. When it was originally created, it targeted very high earners who wrote off significant portions of their income. The A.M.T. limited these deductions so that very wealthy people couldn't get away (by using tax shelters and other accounting tricks) with paying little or no federal income taxes. That is a worthy goal, but over time what happened is that more and more people were affected by the A.M.T. than originally intended. So moving the bar upwards of who the A.M.T. affects (currently no one making under something like $130,000 a year has to pay it) could make some degree of sense. Let's hope the Collins idea makes it out of conference committee, since the A.M.T. has a very valuable place in the American tax system. Limit who is affected by it if you must, but don't get rid of it entirely.

Businesses also have to pay their own version of the A.M.T., which is under discussion by the committee. Some Republicans want to abolish it for businesses, some want to keep it. We'll see what happens in the end, but it seems reasonable that it could be adjusted in the same way the individual A.M.T. would be under the Collins plan -- maybe up the bar for who is affected, but don't scrap it entirely.

Another last-minute change in the Senate bill would also dial back the ambitions of the Republican Party to create a dynastic society in America. Originally, in the House bill, the estate tax would have been abolished. Now, this tax only affects a few thousand people each year, because the bar for who gets hit is already incredibly high (only estates worth over $5 million are affected). Removing it would allow the Paris Hiltons and Ivanka Trumps of the world to not have to pay taxes on multibillion-dollar estates. But at the last minute, the Senate changed their version to just doubling the limit for who is affected by the estate tax. Much like the A.M.T. action, this would be a lot more acceptable than just tossing the idea out altogether.

The three changes that have gotten the most attention so far are the GOP plans to remove the deductions for home mortgage interest, property taxes, and state and local taxes. These would hit precisely the class of people who have enough spare income to donate to political parties, it is worth pointing out, so the pushback against it has been pretty fierce. The original plan was to scrap these three deductions altogether. Then this was dialed back in the House to lowering the amount of the total mortgage you could claim from the current $1 million down to $500,000. The only problem with this is that in the most expensive real estate markets in the country, even a million dollars does not buy a palatial mansion, it only buys a very modest house -- the same 3-bedroom 1,500-square-foot suburban house that might cost only $150,000 if it were sitting in most other parts of America. Now, it's somewhat understandable that some limit be imposed on the deductibility of your house so that owners of real mansions are limited in what they can deduct. But the current amount seems fine, rather than going after the middle class in some parts of the country. Lowering this limit will hit many middle-class homeowners hard, in other words. The Senate bill kept the current limits, so we'll see which version wins out in the end.

The other big deduction homeowners use is being able to write off their property taxes. Originally, Republicans wanted to abolish this deduction entirely, but then received some immediate pushback from GOP politicians from areas that would be severely affected by this change (one can assume the phones were ringing off the hooks in their district offices). So instead of removing the deduction, Republicans decided to institute a $10,000 cap on property taxes. This, again, seems designed to not allow people with mansions to claim huge deductions, but it would actually affect plenty of middle class people in certain high-tax parts of the country. Still, $10,000 of deductible property tax is better than no deductible at all.

Other than property taxes, state and local taxes are also deductible for those who itemize. Republicans want to abolish this deduction for purely political-payback reasons. Most states with high taxes are Democratic states, therefore it would hit their political opponents hard, so Republicans couldn't resist trying. The problem for them, it turns out, is that there are plenty of Republican House districts which will also be hit hard by this change. Some are in blue states, but some of those districts are also in very red states. GOP representatives from those districts are already worried about their chances for re-election next year, so they are pushing back against their leadership to allow state and local taxes to still be deducted.

This battle is far from over. Very quietly, the subject is under discussion, but the only news report I've seen recently had an interesting conjunction in it:

Another major change that is getting growing attention would allow Americans to deduct up to $10,000 of state income tax or local property tax from their federal income. The House and Senate bills would only allow Americans to deduct the property tax component, but lawmakers are looking to give people more flexibility.

Note that "or" in the first sentence. What this means (rather than "and") is that you will be able to deduct either your property taxes or your state income taxes, but not both. Currently, you are allowed to deduct both, with no limit. Republicans tried to abolish the whole deduction, but have stepped back to the $10,000 limit on property taxes only. If the report is correct, what they're now talking about is allowing you to make a choice: deduct your property taxes or deduct your state income taxes (whichever is higher, but only up to $10,000). Taxpayers currently face such a choice between deducting their state's income tax or deducting all state sales tax paid during the year. But it'd be a lot better -- even within the Republican framework -- to just allow taxpayers to deduct both property taxes and state and local income taxes, while capping the total amount of the deduction at $10,000 (or, even better, also adjust this cap upwards to something more reasonable like $20,000).

One last item worth noting is that the child tax credit will be increased in both versions of the GOP tax bill. The House would raise it from the current $1,000 to $1,600, while the Senate would double it to $2,000. Obviously, if the Senate version prevails this would be a good thing for all taxpaying families.

All of these improvements taken together aren't all that impressive. Even if they were all resolved favorably for middle-class taxpayers, the Republican tax plan is still pretty horrendous. It will still be a massive transfer of wealth upwards, which will only exacerbate the problem of inequality in America. Most of the goodies go to Wall Street and corporate America, which is not something the voters are actually clamoring for (even Republican voters, notably). The only pressure to pass such a monstrous bill is coming from those who will gain millions from it, in other words.

But so far, Republicans have been noticeably losing the public battle over the optics of their plan. It looks pretty bad to most people right now. Certain details are pointed out over and over again, by journalists, late-night comedians, and angry constituents calling up their representatives to air their feelings. Republicans are aware that they need to do at least something to try to fix the perception of the bill in the public's eye. Hence all the minimal changes outlined above.

About the best you can say about this effort is that at least it is (mostly) moving in the right direction. Republicans are trying to make their bill a bit less awful, in other words. Their spin job that this was "a middle-class tax cut" has already been shredded by public outrage, so they're now looking to plug the worst holes in their bill. The baby steps they've taken towards achieving this have indeed made the bill marginally better. But that's a relative term, because even if all the changes are made it will still have only moved from being Draconian to being merely monstrously unfair. So in the end it's doubtful that Republicans will reap much benefit politically, even if they pass an ever-so-slightly-less-awful bill.

Chris Weigant blogs at: ChrisWeigant.com

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