The tax bill will pass the Senate today. During the week of Matt Lauer, Michael Flynn, the Kate Steinle verdict, anti-Muslim POTUS tweets, and North Korea launching a very legit missile. There is another round of debate and deal making that will happen next week. At a frantic pace. To reconcile the House and Senate versions of the bill. But it will become law in some form before the end of the year. This is a very big deal. Here are the long-term ramifications. Positive and negative. For the people, the parties, and how legislation is crafted.
(+): 20% Corporate Rate Increases Competition
Corporations are stashing money abroad as tax havens. Lowering the rate to 20% may help bring some of that money back. Although most large corporations already pay effective tax rates lower than 20% it should help investment and smaller corporations that don’t have fat cat help. However, in this current financial system and market climate, holding onto money is very attractive and creates a fatter bottom line. Corporations are not begging for capital and are not hindered by the current tax code. There is nothing in this legislation to force companies stashing money in overseas countries to bring the money back. There could have been, in the form of even bigger tax benefits or other rewards, but no attempt was made. The GOP has a list of mega donors that own Senator Mitch McConnell and House Speaker Paul Ryan. This is their gift to them. I think it will ruin their career’s, but they have made their choice. It is true that 20% is more in-line with other developed countries.
(-): Middle & Lower Class Tax Increases or Minimal Savings
Sold as a gift to the middle class even Donald Trump at his rally in St. Charles, Missouri this week said the average family will save $1,600 a year. Which is only $4.38 a day. Not exactly a boom. Maybe a family of four can have a 99-cent bottled water night each month. The doubling of the standard deductions and the increased child tax credit may make taxes simpler. But at best it is going to be a wash against itemized deductions in terms of total federal tax paid. Tax cuts expire for millions making under $70K in future years. Those making under $30K a year will see a tax increase in 2021.
(-): Trickle Down Round 3
The other talking point is jobs. Jobs! Jobs! Jobs! The terribly complicated tax system with choking regulations and the highest rates in the developed world are killing jobs! Reducing the rate will result in factories pouring back into America. The “good” jobs will come back. Two million jobs they estimate along with higher wages. This is the case for huge tax cuts and it has been debunked twice already. Tried under Ronald Reagan and George W. Bush. Both stimulated the economy short-term but the jobs benefit was disproved. The George W. Bush experiment resulted in the housing and banking crisis because regulation and risk management were non-existent. George H.W. Bush had to raise taxes, as a result of Reagan trickle down, after he told you to read his lips. Costing him a second term. Conservatives want the same environment. America does not have 9 financial bubble lives.
(-): Estate Tax
This is for the very wealthy. Period. I don’t necessarily think money should be taxed twice but this is going to create a big hole in tax revenues. Especially with the baby boomer generation retiring. This was a gift to that generation. Make no mistake. If you notice a lot of the tax cuts end around 2027. Giving the baby boomers 10 years to get more scratch and retire. This tax has been around for a long time and has paid for a lot of good things and rich people remained rich. Now that will go poof. It will be difficult if not impossible to reinstate if revenues are needed later.
(-): SALT and Other Deductions Eliminated
Eliminating the state and local tax deductions, as well as many other popular deductions, are a direct attack on the middle class and their cost of living. Large metropolitan areas and the surrounding states often have high income and property taxes. People pay them to be close to high paying jobs. These deductions help those high costs. The fact these deductions are scheduled for elimination means two things. Those planning for tax revenue shortfalls ARE CONCERNED about where else money will come from. These apply to a huge volume of tax payers. Which is why they were chosen as a hedge against cutting the corporate rate. This was packaged as simplification for the middle class. If you pay more you aren’t going to be rejoicing that it was simpler. This is also an attack on metropolitan blue states.
(-): Deficits and Coming War on Entitlements
Remember the Tea Party? Those who wanted the Federal Reserve abolished and claimed Obama and the deficit were ruining the country? They are silent now. This current plan will raise deficits by $1 Trillion. That is from the Dynamic Score which is the score conservatives like. What will happen is the following. After the tax cut goes into law the tea party and fiscal conservatives will rise again with a public relations campaign to fix deficits. They will do this by trying to reform Social Security, Medicare, and Medicaid. Cuts to balance the budget. This is the Koch’s dream. Low taxes, no entitlements, and no government help. You are on your own and if you can’t make America work for you that is too bad. There is already chatter among lobbyists and lawmakers and both sides that this is the GOP plan.
(+): Individual Healthcare Mandate Repeal
This tax applies to people who don’t have healthcare at year end or had a gap in their health care long enough they qualified for the penalty. If this provision gets in it would do away with this tax. Most individuals who pay this tax do so because they cannot afford healthcare insurance plans in the first place. The tax is less. I am OK with this tax going away. The argument against is that healthy people will stop paying in. Which will in turn raise costs for the sick. Which is probably true. But our current healthcare system will need to be overhauled shortly. The rackets rule and it is about profit and not people. This will collide soon. I paid this tax in 2015 because I switched jobs a couple times and had a gap in coverage. I didn’t want to pay Cobra and took a risk on being healthy. The tax was less, and I would do it again. I don’t believe this tax makes people buy a $5,000 a year health plan because they might pay a $695 tax. This I label positive because those paying it need more money to live.
(-): Shadow Government Even for Legislation
I saved my main gripe for last. This bill in both the House and Senate were rushed through. Nobody knew what they were voting on. No time for the public to intake, understand, and react. This was intentional. Senator Angus King from Maine last night at 8:55 PM said “nobody has seen this bill.” This is a thing now. Distract, disguise, rush, confuse, mislabel, and pass laws that impact all Americans but don’t let them know what is in it. Till it is too late. While lying the whole time. Bypass constituents completely. Trump distracts while the GOP establishment conducts black ops. This is the scariest fact about this bill. The selling of this bill as middle-class relief was very unethical in my mind. MOST OFFENSIVE in fact. Lie to the middle and lower classes that support the GOP all the while knowing they don’t understand the lies. Nor will they be able to in time.