Who understands the House and Senate tax bills?

My grand theory that “any law that can be passed already has been passed” seems to have been proven wrong. Both the House and the Senate have passed significant changes to U.S. tax rates, at least on business, but the changes are at least slightly different? When does the final bill reach the Trumpenfuhrer in the Reich Chancellery?

My Facebook friends are preparing for Armageddon. Here is a sampling:

[from a university professor who is guaranteed to get a paycheck until she is too senile to navigate into the office (i.e., she has tenure)] I just got out of a meeting of shell-shocked professors and deans, staring wide-eyed at the disaster that is about to befall higher education in America.

My physician friend explains how the GOP tax bill has the potential for catastrophic effects on her patients’ health, and describes her experience when calling various senators about the bill’s implications.

If you have Republicans representing your interests in government, please read about how they are stampeding to screw 99% of their constituents over with a tax bill they dare not debate in public, and which the father of Reagan’s tax bill regards as insane in its particulars.

To my friends in states with GOP senators who are wavering on this catastrophic tax bill, thank you for calling them!

The tax “reform” plan is as dumb and evil as the health care “repeal and replace” plan. Getting rid of the estate tax, which only affects the very wealthy, will be expensive.

… as a Middle Class New Yorker I am angry that I will face a tax increase under the Republican Party’s “soak the middle class” tax plan.

[from a former university professor] Speaking of taxes, this might be a moment to remember that the lying, treasonous, self-dealing, justice-obstructing, nepotistic, emolumental, sexually abusive moron has never published his.

From what I have heard, it is unclear why this is a disaster. Tax rates for both corporations and individuals will end up pretty close to what the UK runs (some of their personal income tax rates seem higher than U.S. federal rates, but when you add in what U.S. states and cities charge, the overall government rake should be the same). Why shouldn’t our government be able to live on what is sufficient to feed the UK government? Especially given the fact that the UK government rolls health care into their direct government spending. (I guess one could argue that the U.S. government is spectacularly inefficient compared to European counterparts and therefore needs a larger percentage of GDP.)

One question is what the real tax rates will be. Alternative minimum tax has been retained for both individuals and corporations? If so, how can anyone who is not a CPA even estimate his or her tax liability?

Estate tax is gone or not? (If so, there will be a lot accountants and lawyers needing to find new work! Most of the estate tax workarounds rely on professional advice.)

How about the hedge fund managers’ favorite tactic of stuffing all earnings into a Bermuda insurance company and thus deferring income tax liability for 50 years? Is there anything in the bill to make that tougher? (see also New York Post)

What about taxing the bogus “free tuition” that universities pretend to give graduate students? NSF and DARPA fund a lot of graduate students. Presumably they aren’t going to want to see their budgeted funds drained away by the IRS and put back into the Treasury for other agencies to spend. (See Ugliest part of the Republican tax plan: What if universities were forced to calculate the value of a graduate education?)

Readers: Does the stock market go crazy after this? Or are most publicly-traded companies already so good at tax-avoidance that the cash differences will be minimal?

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24 Comments »

  1. Dave

    December 2, 2017 @ 2:15 pm

    1

    Summary from:
    https://www.congress.gov/bill/115th-congress/house-bill/1

    With respect to individuals, the bill:
    • replaces the seven existing tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with four brackets (12%, 25%, 35%, and 39.6%),
    • increases the standard deduction,
    • repeals the deduction for personal exemptions,
    • establishes a 25% maximum rate on the business income of individuals,
    • increases the child tax credit and establishes a new family tax credit,
    • repeals the overall limitation on certain itemized deductions,
    • limits the mortgage interest deduction for debt incurred after November 2, 2017, to mortgages of up to $500,000 (currently $1 million),
    • repeals the deduction for state and local income or sales taxes not paid or accrued in a trade or business,
    • repeals the deduction for medical expenses,
    • consolidates and repeals several education-related deductions and credits,
    • repeals the alternative minimum tax, and
    • repeals the estate and generation-skipping transfer taxes in six years.
    For businesses, the bill:
    • reduces the corporate tax rate from a maximum of 35% to a flat 20% rate (25% for personal services corporations),
    • allows increased expensing of the costs of certain property,
    • limits the deductibility of net interest expenses to 30% of the business’s adjusted taxable income,
    • repeals the work opportunity tax credit,
    • terminates the exclusion for interest on private activity bonds,
    • modifies or repeals various energy-related deductions and credits,
    • modifies the taxation of foreign income, and
    • imposes an excise tax on certain payments from domestic corporations to related foreign corporations.
    The bill also repeals or modifies several additional credits and deductions for individuals and businesses.

  2. Vince

    December 2, 2017 @ 2:57 pm

    2

    Tax rates for both corporations and individuals will end up pretty close to what the UK runs (some of their personal income tax rates seem higher than U.S. federal rates, but when you add in what U.S. states and cities charge, the overall government rake should be the same). Why shouldn’t our government be able to live on what is sufficient to feed the UK government?

    That’s a very odd question. It’s unclear what it about the UK government would inspire us to emulate their taxing and spending levels. Nevertheless, if the point of the bill is to make the federal government “live on” less revenue, the bill should have included spending cuts that would match the reduction in tax receipts.

  3. Jan

    December 2, 2017 @ 4:14 pm

    3

    The total share of GDP raised in taxes is much higher in the UK because they have a VAT which the US does not have. The US system of raising most of the federal revenue by taxing high income individuals is very different from the those in most European countries. Our system is much more progressive because we only tax income and not consumption.

  4. Stavros Macrakis

    December 2, 2017 @ 4:21 pm

    4

    Re “Tax rates for both corporations and individuals will end up pretty close to what the UK runs (some of their personal income tax rates seem higher than U.S. federal rates, but when you add in what U.S. states and cities charge, the overall government rake should be the same). Why shouldn’t our government be able to live on what is sufficient to feed the UK government?”

    Wikipedia claims that total taxes (fed, st, muni) came to 24.8% of GDP in the US and 37.7% in the UK in recent years.

    Perhaps you have omitted VAT in your calculation? Rather large “oops”.

  5. J. Peterson

    December 2, 2017 @ 4:52 pm

    5

    Party at your airport! Private jets are now tax free.

    Time to snap up that Cessna Longitude your daughter has her eye on. Just in time for Christmas.

  6. philg

    December 2, 2017 @ 5:33 pm

    6

    Jan, Stavros: Of course Congress will eventually add a VAT, consistent with the theory that the Europeans have already figured out the only stuff that works in a global economy (Singapore is an exception because they are rich, smart, and efficient). On November 29 I commented on a friend’s Facebook panic: The real surprise for Americans would be that, once these European-style rates are set, a few years go by and the Federales say “this is not bringing in enough cash so now we need a European-style VAT”.

    Someone else commented: We already have sales tax which is similar to VAT.

    My response: Agreed, but not at European levels. So unless we are smarter and more efficient than the Europeans it seems plausible that we will need to bring up our sales tax rates to match theirs (if we cut our income tax rates to match theirs).

    J: Private jets are definitely NOT tax-free! People who live in states that try to collect sales tax will continue to hire lawyers such as https://www.advocatetax.com/ to get out of paying (see http://blogs.harvard.edu/philg/2017/10/05/facebook-uses-a-malibu-flying-engineering-manager-to-promote-careers-in-engineering/ for the California Malibu owner with the Oregon LLC, for example). What you cited clarifies that people who actually own an aircraft don’t have to pay the charter excise tax when flying on their own airplane. It doesn’t address the question of whether Hillary would have to pay sales tax on a $50 million Gulfstream G450 if she decides to stop chartering and buy her own. (Fortunately for Hillary and Gulfstream, New York eliminated its sales tax on planes in 2015: https://www.aopa.org/news-and-media/all-news/2015/april/15/ny-tax-exemption-saves-aircraft-owners-thousands ).

    The private jet owner will also pay the federal excise tax on aviation fuel (airlines are exempt from this because there are separate taxes on tickets), possibly state excise taxes on fuel, state sales taxes on fuel, property tax on the aircraft itself (depends on location), property tax on the hangar (indirectly if rented), payroll taxes on the pilots and mechanics, etc.

  7. Russil Wvong

    December 2, 2017 @ 7:09 pm

    7

    Vox provides a good overview, including the political implications. Full text of the bill.

    To me this seems like an excellent example of what Barbara Tuchman calls the “march of folly.” It’s a hugely unpopular bill, passed after nobody had a chance to read it, which provides a giant tax cut for corporations and the wealthy, paid for by adding a trillion dollars to the debt. This is banana-republic governance: people are pretending to go through the motions, but nobody (including Republican Senators) believes that this will benefit the United States as a whole.

    It seems to me that Republican donors are taking the basic political and economic stability of the United States for granted. Moreover, they’ve forgotten that the value of money depends on political stability. Money is basically just a counter: it records how much you’ve added to the giant pool of goods and services that the entire US economy produces each year, and how much you’re entitled to take out. If the US economy collapses, your money is worthless.

    It’s a sad spectacle for supporters of democracy. Welcome to Kansas!

  8. Stavros Macrakis

    December 2, 2017 @ 9:26 pm

    8

    Re “Of course Congress will eventually add a VAT”

    Your original statement was that the overall tax rates US/UK will become pretty much the same with the current tax bill, which is just completely wrong.

    “Congress will eventually add a VAT” is pure speculation. It may well happen — the Republicans love regressive taxation — but that’s neither here nor there.

  9. ZZAZZ

    December 2, 2017 @ 9:50 pm

    9

    Let’s see:
    Bush 1–> loots out the savings and loans –> economic catastrophe
    Clinton –> manages to rebuild the economy
    Bush 2–> Loots out the housing market –> Economic Catastrophe
    Obama –> manages to rebuild the economy
    Trump –> Loots out Medicare, Medicaid, and 100 government agencies, but will it be enough to destroy the Obama prosperity? Remains to be see., but the signs are ominous, especially because there is every indication the Social Security is lined up to be looted next.

  10. ZZAZZ

    December 2, 2017 @ 9:56 pm

    10

    Silver lining.

    With all these windfall trillions being gifted to the business community, there should be no doubt left in anyone’s mind that every business in America can afford to pay a living wage to every employee. So let’s get behind a minimum wage and benefit law that covers every American, including part time workers, and provides a livable wage.

  11. The Practical Conservative

    December 2, 2017 @ 10:10 pm

    11

    I did a lengthy post about the individual part of the House bill.

    https://thepracticalconservative.wordpress.com/2017/11/22/blogging-the-tax-cuts-and-jobs-act-tax-reform-for-individuals/

    It’s good for married people with children and people with 401ks. If helping nearly all of those people out in tax policy is bad, I don’t want tax policy to be right.

    It’s also got pretty good incentives to heads of household (single parents) to make more rather than less money. It’s not a great bill, but it’s all right, the House version anyway. The Senate version is less good, but keeps a few of the good things. If they can use reconciliation to combine bills to get something like the House bill, then it will be a pretty good bill. Here’s hoping.

  12. G C

    December 2, 2017 @ 10:59 pm

  13. philg

    December 2, 2017 @ 11:43 pm

    13

    Practical Conservative: Okay, I think that you’ve answered the question in the title of the original post. Who understands this stuff? You do!

    Based on the length of your analysis, it seems as though the U.S. tax code remains too complex for non-professionals to understand (and maybe even a lot of accounting and tax professionals too!).

    GC: Thanks for the Wikipedia link, but I think The Practical Conservative’s analysis is better.

    ZZAZZ: Obama does sound great in your comparison! It is too bad that Americans didn’t get together to amend the Constitution so that he could have served a 3rd and 4th term.

    Once their headline tax is cut, will companies pay a “livable wage” as you suggest? I don’t think so. Apple pays hardly any tax at all (thanks to the miracle of offshore trusts) and they illegally colluded with other Silicon Valley employers to keep salaries low. See https://www.washingtonpost.com/news/the-switch/wp/2014/04/23/what-the-apple-wage-collusion-case-says-about-silicon-valleys-labor-economy/?utm_term=.0374b78f529c for example. Global wage rates should eventually align with PISA test results, no? In that case we should expect Americans to have mediocre pay to correspond with our mediocre PISA scores.

  14. ZZAZZ

    December 3, 2017 @ 8:44 am

    14

    Another way to look at it:

    Everything is already owned. There is nothing more to be owned, except fictitious things like Intellectual Property. So, one effect of transferring trillions of dollars into the pockets of the people who already own almost everything will be to drive up prices–i.e. to let inflation out of the bag.

  15. Russil Wvong

    December 3, 2017 @ 5:42 pm

    15

    ZZAZZ: The Federal Reserve (like central banks elsewhere) keeps the rate of inflation stable at about 2%. If the economy is overheating and inflation starts to rise, it raises interest rates; if the economy is in a slump and unemployment is rising, it lowers interest rates.

    So I don’t expect the tax shift will result in inflation. Instead I would expect it to result in even greater inequality, and an even angrier political climate.

  16. presidentpicker

    December 3, 2017 @ 10:14 pm

    16

    There was a couple of posts on this blog about roughly $150k income level requirement in order to “pull your own weight” in taxes. I.e. anyone making less than that amount gets more out of the system than they put in.

    This seems to explain why so many people think that tax reduction is bad. It all comes down to individual conveniences, whether they admit it or not.

  17. Neal

    December 4, 2017 @ 12:34 pm

    17

    “From what I have heard, it is unclear why this is a disaster.”

    It isn’t a disaster for me, and probably isn’t a disaster for you. OTOH, for parents of modest means with a sick child, the potential interruption or cessation of CHIP coverage (one thing which could happen while congress dickers with tax reform) might actually be a disaster.

    If the U.S. does have a government spending problem it is mainly due to our inefficient healthcare system and military spending. This bill does not address either of those problems at all. Admittedly, one side effect of the bill will be reduce government health care spending, but this is accomplished by reducing access to health care for people of modest means not increased efficiency. Depending on the particulars this could be termed a disaster for them.

    It is likely that some tax provisions in the bill are more efficient than current law and will benefit the economy. Unfortunately, these benefits are offset by the negative effects of the additional borrowing which will also occur under this bill.

  18. philg

    December 4, 2017 @ 12:45 pm

    18

    Russil: I think that ZZAZZ is right, at least in part. The official “rate of inflation” doesn’t include the actual cost of buying and maintaining a house (a ridiculous “owner equivalent rent” fiction is used). Certainly it doesn’t include any of the things that successful Americans actually want, e.g., a beach house (formerly available to upper-middle class people, now something that only the filthy rich can afford). CPI is great for everything that one can buy at Walmart.

    Neal: How is free health insurance for children related to the tax law changes, other than Congress is doing A so they can’t also do B? Eventually all health care in the U.S. is government-directed, right? So a central bureaucrat somewhere will eventually ladle out the appropriate benefits to children, no? In the meantime if there is an emergency need, hospitals are required to treat anyone who shows up and charge the care to the taxpayers and/or those with insurance?

  19. Neal

    December 4, 2017 @ 1:27 pm

    19

    “How is free health insurance for children related to the tax law changes, other than Congress is doing A so they can’t also do B?”

    First off, “Congress is doing A so they can’t also do B” is quite a big deal if you really need “B”. Additionally, one of the ways that Republican Senators brought their bill in under the magic 1.5 trillion deficit increase cutoff is by adding policies which will reduce future Medicaid spending by reducing the number of people who have benefits. I’m not sure, but I think that automatic stabilizers will also play a role in reducing government health care expenditures.

    “So a central bureaucrat somewhere will eventually ladle out the appropriate benefits to children, no?”

    No. Bureaucrats can only ladle out funds which have been appropriated by Congress. If congress cuts those funds then most likely all of the following will occur to one extent or another:

    – Children will do without beneficial care.
    – Families will incur substantial financial burdens to obtain the care their children need, and
    – Care providers will shift the cost of uncompensated care onto others increasing administrative complexity and further reducing the overall efficiency of the system.

    I will leave it to you to decide which of these, if any, constitute a “disaster”.

    “CPI is great for everything that one can buy at Walmart.”

    Ah yes, the old “how can inflation be low, have you seen the price of a house in the Hamptons?” argument.

  20. philg

    December 4, 2017 @ 1:29 pm

    20

    Neal: https://www.census.gov/library/publications/2017/demo/p60-260.html says there were millions of children without health insurance in the U.S. in 2016. Why is it suddenly a disaster in 2017 if nobody cared about this in 2016?

  21. Neal

    December 4, 2017 @ 2:20 pm

    21

    “Why is it suddenly a disaster in 2017”

    I’m not sure if this is a loaded question (thanks davep), a straw man, begging the question, or some combination of all three. Whether or not one considers the status quo to be a disaster is not relevant to the question under discussion: Would policy changes under the proposed tax law changes generate a “disaster”. Also, there is zero evidence that “nobody cared about this in 2016”. More people voted for Hillary Clinton than Donald Trump in 2016 in part because they thought she would be less likely than the Trumpenfuhrer to sign legislation which would lead to more Americans losing health insurance. That is evidence that people DID care “about this in 2016”.

  22. Jim

    December 4, 2017 @ 7:58 pm

    22

    The good news…this is also a “Jobs Creation” bill. All you college grads will now be able to secure high paying jobs because corporations will have so much money to hire you…..right? Much to the displeasure of their stock holders…right?

  23. Russil Wvong

    December 5, 2017 @ 12:45 am

    23

    Jim: I’d expect to see the cash primarily flowing to shareholders, either as dividends or through share buy-backs (raising share prices). Expect the stock market to continue rising. Note that financial assets are almost exclusively owned by the top 20% of households.

    The Toronto Globe and Mail (which has a business audience) has a surprisingly negative take on the tax bill. John Ibbitson, U.S. tax reforms expose a Republican party held hostage by a few oligarchs.

    In the dead of night, with no real debate, with most senators not knowing what, exactly, they were voting on, with amendments so rushed that they existed only as illegible handwritten scrawls on the margins of the text, the Republican caucus pushed through massive tax reforms that slash taxes on the wealthiest Americans. This at the cost of more than a trillion dollars added to the national debt, along with cuts to funding for health care and education.

    Why did the senators do this thing? Because they were being blackmailed by a few powerful oligarchs, the very people who will benefit most from the tax cuts. Between kowtowing to those oligarchs and the President’s brow-beating of the press, it’s getting harder and harder to tell the difference between the United States and Russia.

  24. Russil Wvong

    December 6, 2017 @ 7:13 pm

    24

    That was quick: Ryan says Republicans to target welfare, Medicare, Medicaid spending in 2018.

    House Speaker Paul D. Ryan (R-Wis.) said Wednesday that congressional Republicans will aim next year to reduce spending on both federal health care and anti-poverty programs, citing the need to reduce America’s deficit.

    “We’re going to have to get back next year at entitlement reform, which is how you tackle the debt and the deficit,” Ryan said during an appearance on Ross Kaminsky’s talk radio show. “… Frankly, it’s the health care entitlements that are the big drivers of our debt, so we spend more time on the health care entitlements — because that’s really where the problem lies, fiscally speaking.”

    … Ryan’s remarks add to the growing signs that top Republicans aim to cut government spending next year. Republicans are close to passing a tax bill nonpartisan analysts say would increase the deficit by at least $1 trillion over a decade.

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