Today House Republicans approved a massive overhaul of America’s tax code and all that’s needed to make it the law of the land is a signature from President Trump. The bill, which lowers tax rates for corporations from 35% to 21% and lowers income tax rates across the board for American citizens, is the most thorough overhaul of the tax code since the Reagan years. It’s also extraordinarily controversial and highly partisan, causing euphoria from many on the right and absolute dismay on the left.
Here are ten takeaways, in no particular order:
1. Both sides are lying about it. When President Trump and the Republicans say the tax overhaul is “focused” on the middle class, that’s laughable. How stupid do they think people are? When Trump says “believe me,” that it will cost him lots of money, don’t believe him. “Believe me” is his signal that he’s about to tell a whopper of a lie. Trump and his family will do very well with this bill. Believe me. Of course, Trump could prove me wrong by releasing his tax returns.
On the same side, when the Dems say it’s a tax cut for the wealthy and corporations “on the backs of the middle class” that’s BS also. I looked at the numbers. The vast majority of all Americans will get a tax cut although it’s true that there are a small number who will not.
No matter how you feel about the bill, politically this is a big win for the Republicans and Trump. In fact, it’s huuuuge. The unpopularity of the bill is in the belief among more than half of all Americans that the bill will “hurt” them (this is verified by lots of polling). In the short term, a significant majority of Americans will see more income in their pockets. From my look at the numbers, almost every family with children will benefit.
2. One of the key middle class benefits being touted is that the “standard deduction” will be doubled (from $6,100 to $12,200 for single filers and to $24,400 for joint filers) is technically true but misleading. At the same time, the “personal exemption” (worth $4,050) is being eliminated. So there’s $6,100 more “standard” but $4,050 less “personal” so the net impact is a $2,050 increase in the level of income exempt from tax.
The people who are going to get screwed with this system are single people or married without children (especially those living in blue states) that have mortgages on their homes. People who had itemized deductions in the “sweet spot” between the old standard deduction and the new one are quite possibly going to see an increase in their taxes or, at best, no net benefit. In addition, individuals with high incomes in blue states who write off tens of thousands of dollars in state income and property taxes will be hurt by the cap on state and local taxes at $10,000. Still, the vast majority of the population (and the vast majority of people with dependent children) will have more money in their pockets.
3. Tax rates themselves are coming down for almost everyone. Personally, I don’t have a problem with lowering the tax rate for high-income earners. They have been soaked by Obama and (here in California) by Jerry Brown for eight years. It’s their money, they earned it. If rates are coming down everywhere, it’s fair for the high-earners to have their rates come down as well. What I object to are the carve-outs that allow the super-wealthy (such as the President) to pay an effectively lower rate than ordinary wage earners. On the campaign trail, Trump talked about how his hedge fund buddies were getting away with murder with the carried interest tax loophole. Somehow, that loophole stayed in.
4. There will be many unintended consequences. First, will the doubling of the standard deduction, elimination of the personal exemption and the limitation of property tax deductions hurt the real estate market? That’s something a lot of people, especially in the high tax, high real estate value blue states, are worried about.
Another example: the elimination of the individual mandate for ObamaCare will likely drive up premiums for everyone else. Millions of younger, healthier Americans, without the mandate, will choose not to buy health insurance. And why should they? The “pre-existing conditions” part of ObamaCare remains. Prohibiting health insurance companies from denying coverage to people with pre-existing conditions doesn’t work financially without the mandate.
My guess is that, for me personally, as a self-employed person, much of what I’ll gain in the form of a tax cut I’ll likely lose in increased premiums for my health insurance.
5. To fit the tax bill through reconciliation, they had to make the individual tax cuts for all expire in 2025 while making the corporate tax cuts permanent. Logically, it makes sense to do it this way. A future Congress will have far more political pressure to extend individual rates than they would for corporate rates. The expiration of the tax cuts is what allows the Dems to claim that it’s a giveaway to corporations and the top 1% paid for by raising taxes on the middle class. That’s true only if the future Congress doesn’t extend them, as they likely will (this is what happened with the Bush tax cuts).
It’s also true, however, that by insisting that a future Congress will extend the tax cuts, the GOP is being deceptive about the total long-term cost of the bill.
6. Permanent is not really permanent. If the Democrats re-take the White House and the Congress in 2020, certainly a possibility, they could reverse this bill through the same 50-vote Senate reconciliation process that the GOP used to pass it this week. This possibility alone may hamper the economic benefit on the economy that the Republicans just promised when they lowered the corporate tax rate from 35% to 21%. The Republicans have insisted that they made the corporate tax cuts “permanent” because companies need to be able to forecast into the future. However, if that forecast includes a possible reversal of those cuts by a new administration, those corporations may sit on the extra cash while they wait to see what happens and thus there will be little benefit to the economy while everyone waits to see what happens in 2020.
To be cynical as possible, the Dems would probably be wise in 2020 to tout, as a key campaign platform, the elimination of the corporate tax cut (but not the individual tax cut). The very threat itself might slow the economy and soften the stock market, making it appear to the 2020 electorate that the Trump tax bill failed. Yes, I’m suggesting that the Democrats might deliberately hurt the economy for political purposes. And yes, the Republicans would do it too if it served their needs.
7. As it was with ObamaCare, the GOP tax bill gives both sides something to run on and run against. Republicans will tout it as a major campaign accomplishment, Democrats will deride it as another giveaway to the top 1%. The million dollar question is how the Trump base feels about it. Will they feel enough of an impact on their bottom lines that they’ll view this as a “promise kept” or will they feel like they got virtually nothing out of the deal.
With the election of Doug Jones in Alabama, the Dems feel like they might be at the beginning of a wave that will bring them back the House and the Senate. Not every Democrat, however, will be able to run against a candidate accused of molesting a 14-year old girl and being an overall creep. Throughout much of the USA, the House Congressional Districts have been gerrymandered brilliantly to make most GOP seats “safe” seats.
If the 2018 House and Senate elections were being held tomorrow, I think the Dems would definitely take the House and might squeak out the Senate. However, the elections are more than 10 months away and lots can happen between now and then. If the tax bill creates jobs and spurs economic growth as its proponents claim it will, the economy usually rules the day and the Republicans will keep both chambers of Congress even if President Trump himself remains unpopular.
The Democrats should be very careful about calling this bill a tax hike for the middle class because it’s not, at least not in the short term. Most people don’t care about the national debt and they’ll start to see benefits to their wallets within the next two months; that’s what the Republicans are banking on.
On this, the first day after both chambers of Congress passed the tax cut bill, both AT&T and Comcast announced that they would pay $1,000 bonuses to all of their employees because of the financial windfall they just received. Perhaps it is not a coincidence that Trump’s FCC just eliminated “Net Neutrality,” something all internet providers badly wanted. Is is possible there is a quid pro quo in play here? Oh, what a cynic I am!
Wells Fargo and Fifth Third Bancorp also announced raises for their employees. Will these announcements be unique events or lead to a flood of pay raise announcements? If you’re a lobbyist representing a corporation and you want to get something out of the Trump Administration, methinks you might get some cooperation if you promise to make a public announcement regarding a pay raise and thank President Trump for it.
If there are hundreds of companies across dozens of industries announcing pay raises for their workers, then the bill will have successfully accomplished what its authors intended, which is to reward their donors and get re-elected in 2018. Stop Chris, so cynical; it will have accomplished the goal of giving a big fat Christmas present to the middle class, at least the ones who work for the right companies, have the right mortgage size, and live in the right (red) states.
8. The price tag of this bill is $1.5 trillion. It seems to me that, if Trump really wanted to please his base voters and keep two campaign promises (instead of one), he could have pushed the Republicans to work with moderate Democrats on a bill (or series of bills) that spent $750 million on infrastructure spending (one of Trump’s priorities) with a modest tax reform package that provided a smaller corporate tax cut (from 35% to 26 or 27% instead of 21%), steeper middle-class tax cuts and a 1% tax reduction “bone” to the highest wage-earners. The Trump Administration has already been a boon to business by drastically reducing regulations. The corporate tax rate didn’t need to go down as much as it just has.
Now that the Republicans have blown another $1.5 trillion hole in the national debt, how are they going to possibly deliver on infrastructure spending or build a wall on the Mexican border, especially since those projects can’t be passed with a 51-vote majority but need 60 votes in the Senate?
9. If I were a Congressional Republican representing the state of California, I would have voted against it primarily because of the limitation of the deduction of state taxes but just because I think was done sloppily. Personally, it will probably save me some money and might help my 401k but the $$$ are not nearly enough to justify everything that’s in the bill and everything that isn’t in the bill. Now, if I were a Republican Senator representing California…..
Wait a minute. Talking about being a Republican Senator from California is like talking about being 150-pound offensive lineman in the NFL. So never mind. I don’t like the bill. It was rushed, it was partisan, it was deliberately punitive to blue states and it reinforced every stereotype that critics have about the Republican party caring only about the rich. However, I don’t look upon it as the beginning of the apocalypse as so many people seem to.
10. What saddens me about this is the same thing that saddened me about the passage of ObamaCare. Both were done on straight party-line votes. Are we ever going to get back to a place where the power in party listens to the ideas of their opposition or the opposition party works productively with the party in power? When you pass major legislation along strict party lines, the other party feels legitimately entitled to dismantle that legislation. Trump is dismantling Barack Obama’s legacy piece by piece. What’s to stop a Democratic President in 2021 or 2025 from doing the same?
I don’t know if this tax bill will be the boon for the economy that its proponents are touting. Call me skeptical but not dismissive of the possibility of that boon. What I do know is that our country can’t keep ping-ponging back and forth on partisan politics without tearing our republic apart. I feel like we’re in the Second Civil War already. I’m just grateful that this one is being fought mostly in the halls of Congress with the infantry using Facebook and Twitter rather than using guns and bayonets.
Thanks for reading.