The House leadership released its tax reform package last week. The odd thing, though these days maybe it’s to be expected, is that the immediate criticisms of the plan were the same old arguments and, in this case, didn’t really apply in most cases.
The tax plan had two major goals: simplifying the tax code and trying to get US corporations to keep and move assets back to the US. Along the way, it doubles the tax income threshold for low income individuals and increases the child tax credit.
Immediate attacks on the plan said it was a tax cut for the rich. However, the only tax bracket unchanged in the plan was the highest bracket for those with the highest incomes. And it also takes away deductions for people who own more than one home and whose home is worth more than half a million dollars. So you have to immediately also question the credibility of criticisms from those people and groups. They are against something, but not sure why they are against it so they just say anything they have used before that comes to mind.
As with any tax bill, there are a lot of things that go into it. But the most significant things are:
- The plan would increase the income level where no taxes are paid—up to $24,000, and also increases the child tax credit
- The number of tax brackets cut in half, with everyone being reduced except the highest one
- Corporate tax rate reduced from 35% to 20%, with an global tax proposal that would tax the off shore profits of US corporations at 10% (they are not taxed currently)
- Eliminates or reduces many deductions
The plan reduces the tax burden for almost every individual taxpayer except those that may have some special circumstances. And it reduces the tax burden on corporations, who have been increasingly drawn to move operations overseas where an increasingly large number of countries tax companies at much lower rates.
The clear goal is to simplify the tax code and reducing taxes across the board in the hope that it will spur economic growth and create jobs.
The plan is a real help for very low income working people with the big increase in income where you pay no tax and the increase in the child tax credit. The jury is out on how much corporate money and assets will come back to the US based on the significant cuts, but one can hope that it will significantly increase the competitiveness of the US economy in retaining and attracting investment.
Other than the somewhat stale and knee-jerk argument that it is a tax cut for the rich, the biggest opposition is likely to come in two areas.
First, it eliminates the deduction for state income taxes and caps the deduction for property taxes at $10,000. States with large tax rates such as CA, IL, NY and others will oppose it because they say that it hurts them. Yet, frankly, this is exactly the kind of thing that should be done. States ought not to have an incentive to tax more by having the large taxes be deductible but ought to be taxed at the same rate as everyone else. As it stands now, states with high taxes have an advantage over states with more responsible spending and taxation.
Secondly, the National Association of Realtors has already begun to rally opposition because the tax bill also takes away the deduction for mortgage interest for any home over half a million dollars and takes away the mortgage interest deduction for second or vacation homes. Obviously this simplification of the tax code would only affect very high income taxpayers.
As with any large and wide-ranging bill, especially one where the goal is to simplify and do away with special breaks, there will be a lot of special interests who will fight to restore their special treatment. And some of them are powerful and we will likely see changes to the bill.
The bill takes big steps in a lot of good directions: cutting taxes across the board but especially on low income families, simplifying the tax codes, and creating an incentive for companies to keep business in the US. The biggest drawback is that it will, at least in the short term, significantly increase the already out of control national debt. We can only hope that, as it did when President Reagan cut taxes, the plan will spur economic growth to the point that jobs and tax receipts will eventually go up. Overall, we need to contact our Representatives and Senators and encourage them to support this one in a generation tax reform package.