GOP TAXES | Three House Bills

The following update on new tax bills before the Congress is by Dana Chasin, posted here by permission.

House Ways and Means Committee Chair Brady is on a mission to make tax cuts a winning issue for Republicans in the fall.  His legislative vehicle is “Tax Reform 2.0.”

The problem is that the Tax Cuts and Jobs Act (TCJA) bill [signed last December as the Tax Act of 2017 (after conferencing the original title was made generic)–JTM] has been less popular than expected.

Most Republicans up for re-election have given up even mentioning it on the campaign trail.  The original tax cuts contained embarrassing mistakes and the many and sizable kinks still need to be ironed out with a technical corrections act in the works.

Republicans in the House are now marching on with a new trilogy of tax bills that they hope will resonate with their voters in November, while the Senate leadership sees no urgency.  What comprises this trilogy and what are its prospects?

Recent Legislative Developments

Chair Brady indicates that House Republicans are planning to divide the package into three separate bills: permanency, savings, and innovation.  Dividing the bills increases the chances that they are passed, if not all together, then separately, but creates a false illusion that they won’t aggressively try to pass all three. Ways and Means is set to mark up the bills in mid-September with the intention of passing them by the end of that month. In the Senate, the package is unlikely to be taken up before the lame duck session.

President Trump’s tax cuts, which permanently reduced the standard corporate rate from 35 to 21 percent, have already had a considerable negative revenue effect, with the New York Times reporting this week that “the amount of corporate taxes collected by the federal government has plunged to historically low levels in the first six months of the year, pushing up the federal budget deficit much faster than economists had predicted.”

While corporate tax payments between January and June fell by 33 percent compared with the same period last year, corporate tax receipts as a share of the economy have fallen to 1.3 percent, nearing a 75-year low.

The Road to Hell is Paved with Permanence

Tax Reform 2.0 is a decisively political move by Republicans to make permanent the changes they enacted in 2017 that are set to expire at the end of 2025 and to introduce other tax changes.  Although there is still no bill language, the rhetoric around the release implies that Republican leadership wants to perpetuate all of the individual income tax changes in the TCJA. These changes include:

• tax cuts for individuals and pass-through businesses
• SALT deduction cap [$10,000 for married couples filing jointly]
• Alternative Minimum Tax (AMT) cut
• standard deduction and child tax credits

Republicans are working on the idea that it will be hard for Democrats to vote against making the individual tax cuts permanent. They believe it is harder for Democrats to vote against individual tax cuts than the corporate ones that were included in TCJA. They also include a variety of new proposals designed to appeal to Democrats.  

A Wolf in Sheep’s Clothing

The new proposals in Tax Reform 2.0 are meant to provide benefits to the middle class at a comparable significance to those in TCJA that clearly favored the wealthiest Americans. These proposals aimed at the middle class are divided into two categories – savings and innovation.

     Savings. Tax savings are generated by three expansions of tax-favored savings accounts:

• Creating a Universal Savings Account (USA), which is basically a significantly improved Roth Individual Retirement Account (Roth-IRA), that individuals could contribute some of their after-tax income to annually – there is speculation on income contribution limits but nothing has been confirmed yet.  Withdrawals from the USA could be made at any time or for any reason without tax or penalty. Like a Roth-IRA, the USA’s earnings would not be subject to tax. The goal is to incentivize Americans to save more.
• Expanding the popular, tax-free 529 college savings accounts so it could also be used to pay for apprenticeship fees and home schooling expenses, as well as student debt.
• Allowing workers to tap into their retirement savings accounts without penalty to cover expenses from the birth of a child or an adoption.

    Innovation. So far there is only one clearly identified idea under this category–permitting start-up businesses to write off more of their initial costs to remove barriers to growth.

Although these measures seem to help the middle class, they are unlikely to be sufficient to offset higher interest rates on mortgages and student and car loans as the result of the ballooning deficit resulting from TCJA’s tax cuts for corporations and the wealthy.

A Tax Cut Catastrophe

Some of the provisions in the Tax Reform 2.0 package would put a further strain on tax revenues at a time when social benefit systems are in dire need of assistance. The Congressional Budget Office (CBO) estimates that extending the individual tax cuts would increase deficits by an additional $650 billion—this at a time when social security had to dip into its trust fund for the first time in 36 years and the federal budget deficit is set to surpass $1 trillion two years earlier than estimated, by 2020.

The TJCA was clear in its “reverse Robin Hood” regressivity. Tax Reform 2.0 is not as blatant, but enacting more provisions that deprive the federal government of vital tax revenue that it needs to fund critical social services is socially irresponsible.

Tax Reform 2.0 also includes provisions that allow for more cuts to the deduction for owners of noncorporate businesses known as “pass-throughs” and larger exemptions to the estate tax and the alternative minimum tax for individuals. Given the predilection of the well-to-do for tax avoidance, this reform makes policies permanent that encourage such activities and suggest that gaming the system is not only good, but recommended. In fact, the lower the pass-through rate, the more attractive abusing the tax code becomes.

Political Lens

With the 2018 midterm election looming, House Republicans are eager to make their individual tax cuts permanent before the Democrats take back control (knock on wood) and they are no longer able to. Were that to happen, at the end of 2025, corporate tax breaks would remain in place and individual tax cuts would expire, making for very bad optics for the Republican party, if it exists then. So even though Chair Brady is planning to introduce the package as three separate bills, passing the permanency of individual tax cuts will be crucial for him and the future of his party.

Sen. McConnell seems to have hit upon a legislative strategy that serves both Senate and House Republicans regarding Tax Reform 2.0.  The House will pass the bills as a package and be able to pick up political capital; Republican senators (who are in un-gerrymandered and therefore more purple jurisdictions) won’t have to take a difficult vote on these bills before the midterms.  Sen. McConnell won’t take the GOP trilogy up until the lame duck session, enabling the House to have its cake (have its vote), while the Senate doesn’t have to eat it too (swallow a tough vote).

TAX BILL PUZZLE | Thatcher Policies in Reverse

Thatcher's policies added homeowners and reduced the number of renters
of public housing. (Chart by The Guardian.)

Of all the puzzles posed by the tax bill now before the Congress, the impact on homeownership is the hardest to fathom. 

The bill reverses one of the major thrusts of Margaret Thatcher's administration in Britain, to use greater homeownership through right-to-buy programs to expand the ranks of the Conservative Party. 

Thatcher became leader of the Conservative Party in Britain in 1975 and became Prime Minister in 1979. She therefore led a conservative-laissez faire revolution in the 1970s that in 1980 returned the White House to the GOP by electing Ronald Reagan President.

Thatcher presided over large-scale selling off of Council Housing to the people who lived in the the rented homes. Her goal was to make them into homeowners who would care about their property... and vote Conservative in future elections.

The tax bill before the Congress removes incentives for homeownership and tilts the playing field toward renters. An astonishing reversal of a Thatcher program that has been widely viewed as brilliant.

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NY ELECTIONS | Who Can Vote in the Sep. 10 Primary?

A newsletter of the East Hampton Democrats refers to NY State law in answering these questions:

1. Who can vote in a primary?

Democrats can vote in Democratic primary. Republicans can vote in a Republican primary. Independents who don't register in either party are not allowed to vote in either primary.

2. Can a voter be registered to vote in two locations?

No. A voter may vote in only one location in an election cycle, which means every two years for Federal elections and same number of years but off by a year, for state and local elections.

3. Does registering in East Hampton change someone's "primary residence" location for tax purposes?

No. New York Law allows second homeowners to choose where they want to vote – either their first or second home. It's the homeowners choice where to vote. This means that if, for example, someone has a home in New York City and a home in East Hampton, that person may register and vote in East Hampton even if New York City is the person's primary residence, as long as the connection with East Hampton is ongoing.

4. How does one register to vote in November?

To vote in East Hampton, one must be registered to vote in Suffolk County. Registration is simple. 

Pick up a voter registration form at the Post Office, fill it out and mail it in before the October 10, 2013 deadline. To change your registration address from another city to East Hampton, make sure that you put your current voting address in Box 10 of the registration form, so that registration from the old address is cancelled.

5. I won't be where I am supposed to vote in November. Can I cast an absentee ballot? 

Yes. Pick up a request application for an absentee ballot form at the Post Office and fill it out immediately; the deadline for submission of the application is October 29, 2013. If you are registering to vote and need an absentee ballot application, the voter registration form is one-stop shopping - as it gives you the opportunity to apply for the application in Box 14.