Opinion | Editorial
A Boondoggle Masquerading as Tax Reform
By THE EDITORIAL BOARD SEPT. 27, 2017
After months of secret negotiations, the Trump administration and congressional leaders have come up with a tax plan — sort of. What they have really come up with is a wish list of tax cuts for the wealthy, with lots of “we’ll get back to you on that” promises where the details are supposed to be.
This much is clear: The tax “framework” published by Republican leaders on Wednesday would greatly increase the federal deficit, would not turbocharge economic growth and could leave many middle-class families worse off by ending deductions they rely on. It would do little or nothing to improve the lot of the working class, a group President Trump says he is fighting for. It would instead provide a windfall to hedge fund managers, corporate executives, real estate developers and other members of the 1 percent. And can it be just a happy coincidence that Mr. Trump and his family would benefit “bigly” from this plan?
On income taxes, the framework calls for reducing the top tax bracket to 35 percent, from 39.6 percent, which would benefit people earning $418,400 a year or more. It would also raise the rate for people in the lowest bracket to 12 percent, from 10 percent. Republicans say they will offset that particular burden by roughly doubling the standard deduction to $24,000 for a couple ($12,000 for a single person). In addition, the proposal would eliminate most itemized deductions except mortgage interest and charitable donations. This could greatly hurt middle-class families in New York, California and other states with high local and state taxes that the families will no longer be allowed to deduct from federal taxes.
Under the guise of helping small businesses thrive and thereby creating jobs, the Republicans propose to lower the tax rates paid by people who earn money through private equity firms, partnerships, limited liability companies and other businesses — the very entities that Mr. Trump earns much of his income from. The framework would tax such so-called pass-through income at 25 percent, rather than at ordinary income tax rates. But here’s a depressing truth: The administration’s claims to the contrary, the plan would not help most small businesses, since they already pay less than 25 percent because their incomes put them in lower tax brackets. It would help millionaires, with the 400 richest households saving an average of $5.5 million, according to the Center on Budget and Policy Priorities.
Republicans want to eliminate the alternative minimum tax, which is primarily paid by upper-income families with lots of deductions. This tax accounted for a vast majority of the income tax Mr. Trump paid in 2005, according to a leaked copy of his return. And the framework would do away with the estate tax, which applies to estates larger than $5.49 million for an individual. Just 0.2 percent of the people who die every year owe the tax, and eliminating it would cost the government $269 billion over a decade.
Republicans have proposed eliminating the Alternative Minimum Tax. The tax mostly impacts people with an income greater than $200,000 per year.
On corporate taxes, Republican leaders want to lower the rate to 20 percent, from 35 percent. Corporations already pay a much lower effective tax rate. The leaders say they will close unspecified tax breaks, leaving Congress to fill in the blanks in the coming months. The framework would impose a reduced rate on profits that American businesses earn overseas, but does not say what that rate would be. This could create a strong incentive for companies to move more income to foreign subsidiaries to game the tax system.
In addition, companies that have been keeping foreign profits overseas in anticipation of a tax cut would be allowed to bring that money home at a special discounted tax rate, which — surprise, surprise — the plan does not specify. Going by the precedent of a similar tax holiday in 2004, most of the profits that companies repatriate would benefit shareholders, not workers, according to analysis by the Urban-Brookings Tax Policy Center.
It’s hard to predict the economic impact of these skeletal proposals. But most experts agree that they could raise the federal budget deficit by trillions of dollars. As they have so many times in the past, Republicans will surely argue that the cuts would spur growth, and, in some measure, pay for themselves. This is the old supply-side hooey. In fact, over time the increased borrowing for unproductive tax cuts could depress growth by driving up interest rates.
There are important public purposes that could justify increasing the deficit — repairing the country’s dilapidated infrastructure, for instance, or paying for hurricane recovery efforts. Making the rich richer is not one of them.
https://www.nytimes.com/2017/09/27/opin ... egion&_r=0