Here And Sphere: Parsing Congress' Big Tax Reform
Nov 25, 2017 02:17PM
● By Mike Freedberg
^ Senate Leader Mitch McConnell (l) and Orrin Hatch (r) : the Senate’s tax reform misses the entire point and cannot be supported
So, can we support the bill, or not ? Do we endorse all of it or only some of it ? Or can we like any of it ? These questions I will try to answer in this, my first report on a proposal already generating a wave of criticism, as expected.
There are two separate tax reform bills on offer. First is the House’s version, which was adopted by a 227 to 205 vote (13 Republicans joined all 192 Democrats voting No). You can read the details of the House bill here : http://blog.acton.org/archives/98766-explainer-what-you-should-know-about-the-gop-tax-plan.html?gclid=EAIaIQobChMImcfAgMjX1wIVhrbACh26EgZ9EAAYASAAEgI9G_D_BwE
Please note that the final House bill reinstated the adoption tax credit not listed in the above, original version of the House proposal.
It’s hard to fault the bill that the House finally adopted. The mortgage interest deduction is retained, as are deductions for state and local taxes and adoption. The one missing item that matters a lot is the deduction for interest on student debt, and I agree that this deduction should be retained and even expanded. Unfortunately, the Senate’s version of tax reform does no such thing. On many counts, the Senate bill is unacceptable, especially as amended by committee Chairman Orrin Hatch :
- The amended bill would slightly cut individual tax rates for multiple brackets and set seven rates: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 38.5 percent. Those changes, as well as the near doubling of the standard deduction, would expire after 2025. The reduced corporate tax rate, down to 20 percent from 35 percent, would be permanent.
- The child tax credit would rise from $1,000 to $2,000. It would start to phase out at $500,000 in household income. The change would also sunset after 2025.
- As expected, the plan would effectively repeal the Obamacare individual mandate, which requires most Americans to have health insurance or pay a penalty. Senators say doing so will save more than $300 billion to give Republicans more budget flexibility. The Congressional Budget Office has estimated that it will lead to 13 million more people uninsured by 2027 and increase average Obamacare premiums.
- The Senate plan would expand proposed tax breaks for pass-through businesses. Those would also expire after 2025.
- It also gets rid of a provision that would have taxed company stock options when they vest. Silicon Valley had opposed that measure, saying it would suffocate entrepreneurial effort
The Senate’s plan is what it is because the House legislation increases the national debt, which means that the Senate would need 60 “yes” votes to approve it, and 60 voters it cannot get. Senator Hatch’s proposal is said to be “revenue neutral.”
I cannot endorse his proposal, however. Making corporate tax cuts permanent while phasing out individuals’ deductions is bad policy, unfair and exactly wrong. If any tax changes should phase out, it’s the corporate cuts. I also decry Hatch’s lack of a deduction for student debt interest. The entire student debt riddle needs major reform. Student debt hangs over every gradure’s head at dollar levels that only the job-fortunate graduates can ever dispose of. Student debt is also exempted from bankruptcy relief — an unfairness with zero justification that I can think of. A debtor in bankruptcy can discharge IRS bets, but not student debt ? Give me a break. What does student debt support ? Inflated salaries for university administrators, including those at for-profit colleges — there shouldn’t even BE for-profit education, much less undischargeable debt to support such profits.
Hatch’s proposal also eliminates the “individual mandate ” that is the cornerstone of Obamacare, thus seeking the very undermine that Congress correctly refused ti app0rove in at least two separate votes earlier this year. Given the elimination of the ACA’s basis as well as the refusal to adjust student debt, hatch’s proposal can NOT be supported. It must fail.
Which brings tax reform back to the House version. It needs some Democratic support if it is to get by the Senate’s 60 vote rule. I think that if a deduction for student debt interest is added to the House version, and assuming that its individual deduction reforms are not phased out, it might gain some Democratic support. That it increases the national debt, at a time when interest rates remain historically very low — barely above one percent — seems to me a nonce. Why not borrow money if the cost of it is practically nothing ?
Let’s see if our Congress can get past its donors’ self seeking demands and onto a policy that benefits almost everybody.