The following article by James Hohmann with Breanne Deppisch and Joanie Greve was posted on the Washington Post website December 18, 2017:
Politicians continued to debate the merits of the Republican tax overhaul on Dec. 17. The House could vote on the bill as soon as Dec. 20. (Patrick Martin/The Washington Post)
THE BIG IDEA: The narrative of President Trump’s first year will shift this week when he signs into law the biggest overhaul of the tax code in three decades. The donor class is enthusiastic, and final passage should help reverse months of anemic fundraising at entities like the National Republican Senatorial Committee.
It is a much-needed win for Trump and the GOP, who would have looked ineffective if he couldn’t get this done, but it may still turn out to be a Pyrrhic victory. Here are several ways that this bill could backfire:
It does not truly simplify the code. People aren’t going to be able to submit their taxes on a postcard, as promised. At least initially, it will be more confusingfor a lot of people to file their taxes than before. Many families remain deeply uncertain about how exactly the legislation will impact them. With certain cuts permanent and others temporary, the changes bring a frustrating layer of uncertainty. Some homeowners are in for a rude awakening.
The health insurance market is almost certain to implode next year, and rates are likely to skyrocket for many, because of the repeal of the individual mandate. By getting rid of the linchpin of the Affordable Care Act in this bill, Republicans are giving up any standing they had to blame Barack Obama for the health-care mess. The Congressional Budget Office estimates that this change alone will lead to 13 million more uninsured Americans a decade from now.
The national debt is poised to explode by more than $1 trillion, and there is no realistic scenario in which these tax cuts generate enough economic growth to pay for themselves. Some Republicans will cite this hole that they’re creating to call for cuts to popular entitlement programs next year. This could aggravate many of Trump’s core supporters, which is why they are unlikely to happen.
But what hurts the most — what makes this legislation dramatically more unpopular than even Obamacare when it passed in 2010 — is the pervasive feeling that this is a giveaway to big business and a Christmas gift for the richest 1 percent. A CBS poll last week found that 3 in 4 Americans think the bill’s biggest benefits will go to the largest corporations, and only 1 in 5 Americans think their own taxes will go down.
— Voters keep seeing more data points to validate their fears that this is not for them.
Bloomberg News reports this morning that the conference committee added a complicated provision late in the process that will provide a multimillion-dollar windfall to real estate investors such as Trump and his son-in-law Jared Kushner: “The change, which would allow real estate businesses to take advantage of a new tax break that’s planned for partnerships, limited liability companies and other so-called ‘pass-through’ businesses, combined elements of House and Senate legislation in a new way. … James Repetti, a tax law professor at Boston College Law School, said: ‘This is a windfall for real estate developers like Trump.’
“The revision might also bring tax benefits to several members of Congress, according to financial disclosures they’ve filed that reflect ownership of pass-through firms with real estate holdings,” per Lynnley Browning and Benjamin Bain. “One such lawmaker, Republican Senator Bob Corker of Tennessee, who’d voted against an earlier version of the legislation, said on Friday that he would support the revised legislation. Corker said in an interview on Saturday that his change of heart had nothing to do with the added benefit for real estate investors. On Sunday he wrote to Senate Finance Committee Chairman Orrin Hatch seeking an explanation for how the provision came to be included in the final bill after being asked about it by a reporter.”
— Asked about a report from the International Business Times that some Republican lawmakers inserted last-minute changes that would personally enrich them, Senate Majority Whip John Cornyn (R-Tex.) blamed Democrats. “Our Democratic colleagues simply refused to participate in the process,” he said on ABC. “We probably could have made it better if they had.”
— Our Heather Long notes how the final version of the bill is even more generous to the rich in certain key ways than earlier drafts:
“Under current law, the highest rate is 39.6 percent for married couples earning over $470,700. The GOP bill would drop that to 37 percent and raise the threshold at which that top rate kicks in, to $500,000 for individuals and $600,000 for married couples. This amounts to a significant tax break for the very wealthy … The new tax break for millionaires goes beyond what was in the original House and Senate bills …
“In the end, the estate tax … would remain part of the U.S. tax code, but far fewer families will pay it. Under current law, Americans can pass on up to $5.5 million tax-free (that threshold is $11 million for married couples). The House wanted to do away with the estate tax entirely, but some senators felt that was too much of a giveaway to the mega-rich. The final compromise was to double the threshold, so now the first $11 million that people pass on to their heirs in property, stocks and other assets won’t be taxed (and yes, that means $22 million for married couples) …
“The final GOP bill gets rid of the corporate alternative minimum tax, a big relief to the business community. The Senate included the corporate AMT in its version of the bill, but the House did not. The corporate AMT makes it difficult for businesses to reduce their tax bill much lower than 21 percent.” (The final draft of the bill cuts the corporate tax rate from 35 percent to 21 percent.)
— The bill is also notable for what it does not do. For example, Trump promised to get rid of the carried interest loophole throughout the campaign and into this year. “But that odious tax break isn’t gone. It’s just been tweaked a little,” Doyle McManus notes in the Los Angeles Times. “Under current law, when managers of private equity funds, venture capital funds and hedge funds reap a share of their investors’ profits, they pay taxes at the low rate that applies to capital gains, not the higher rate that applies to ordinary income. Under the new law, the fund managers still get that break, as long as they hold the underlying investment for at least three years. Tax experts say most of the managers who claim the loophole won’t find that to be a problem.”
— Bottom line: This president campaigned like a populist and has governed like a plutocrat. The tax bill is now Exhibit A.
Besides “build the wall,” perhaps the biggest applause line in Trump’s stump speech during 2015 and 2016 was that he was so rich that he couldn’t be bought off. He said that he didn’t need to use government to enrich himself like other politicians. He said he had taken advantage of all the loopholes in the code so he knew how to close them.
One of the most potent lines of attack against Trump in 2020 will be that he is “not on your side.” In dozens of casual conversations I’ve had this year with white working-class voters around the industrial Midwest who voted for the president in 2016, it’s become clear that their deepest fear seems to be that Trump is taking them for a ride – like he did with the contractors he stiffed in Atlantic City or the students at Trump University who sued him for deceptive marketing tactics.
This bill could undercut the last remnant of credibility related to Trump’s populist posturing. That might be why he has repeatedly made the false claim that his taxes are going to go up under the bill. “This is going to cost me a fortune, this thing,” he said last month. “Believe me.” We can’t know for sure just how much he will personally profit from the legislation, though, because he’s the first president since Richard Nixon who refuses to release his tax returns. But does anyone really believe that he would sign legislation that would adversely affect his bottom line? (Based on what we know about Trump’s assets and taxes, Fact Checker Glenn Kessler gave Trump “Four Pinocchios.”)
Trump surrogates bent over backwards on the Sunday shows to argue that the middle class will benefit because of trickle-down economic theory. “We think, as a result of lowering business taxes, wages will go up,” Treasury Secretary Steven Mnuchin said on CNN.
It was not just Democrats pushing back. “Do I think they could have done better for the middle class? I do,” Gov. John Kasich (R-Ohio) said Sunday on NBC’s “Meet the Press.” “They could have increased the rates a little bit for big business. It wouldn’t have mattered.”
— “This legislation proves that Washington is, indeed, the ‘swamp’ that President Trump described during the campaign,” E.J. Dionne writes in his column for today’s newspaper. “But instead of draining it, he and his partisan allies have jumped right in. Actually, they have polluted it further …
“The bill’s champions claim that the big corporate tax cut will lead to massive new investment. But, as former New York City mayor Michael Bloomberg (no enemy of business) pointed out [in a Friday op-ed], corporations are already ‘sitting on a record amount of cash reserves: nearly $2.3 trillion.’ Bloomberg added: ‘It’s pure fantasy to think that the tax bill will lead to significantly higher wages and growth.’
“And imagine: The ‘Make America Great Again’ crowd appears to have designed a corporate tax system that creates new incentives to ‘shift profits and operations overseas,’ as former Obama administration economic adviser Gene B. Sperling argued in a careful analysis.”
— Don’t count on repatriation: “Irish government officials, accountants and highly skilled workers say the U.S. tax overhaul poses little threat to Ireland, a preferred European home for the United States’ top tech and pharmaceutical companies for a generation. They expect American companies to keep investing unabated in Ireland, with little incentive to move back to the United States,” Shawn Pogatchnik and Heather Long reported last week from Dublin.
— Finally, income inequality is one of the most pressing challenges of our time, yet lawmakers continue to enact policies that redistribute income from the poor to the rich. “Back in 1980, the bottom 50 percent of wage-earners in the United States earned about 21 percent of all income in the country — nearly twice as much as the share of income (11 percent) earned by the top 1 percent of Americans,” Chris Ingraham notes on Wonkblog. “But today, according to a massive new study on global inequality, those numbers have nearly reversed: The bottom 50 percent take in only 13 percent of the income pie, while the top 1 percent grab over 20 percent of the country’s income. Since 1980, in other words, the U.S. economy has transferred eight points of national income from the bottom 50 percent to the top 1 percent.”
The tax bill will probably supercharge some of these trends:
— Shutdown watch: “For Republicans, the bigger drama may come later in the week, after the planned tax votes in the House and Senate, when leaders from both parties weigh a spending deal to avoid a partial government shutdown before funding runs out at the end of the day Friday,” per Jeff Stein and Mike DeBonis.
“As the tax debate has consumed Congress, there has been scant progress toward a spending deal. House Republican leaders filed a spending bill last week that would temporarily extend funding for most government agencies at current levels until Jan. 19, while providing longer-term military funding at higher levels — $650 billion through Sept. 30. That bill is considered dead on arrival in the Senate, where Democrats can block it because of the chamber’s 60-vote filibuster threshold. … To cut a long-term spending deal, Democrats are pushing for an equivalent increase in defense and nondefense funding above the spending caps set under a 2011 agreement — one similar to deals reached in 2013 and 2015 to raise the caps for the following two years …
“The spending talks are suffused with other issues. … Sen. Susan Collins (R-Maine) struck a deal with Trump and Senate Majority Leader Mitch McConnell (R-Ky.) to provide subsidies for the Affordable Care Act health insurance marketplaces in return for her vote on the tax bill, but it remains to be seen whether those provisions will be included in any final accord. The Children’s Health Insurance Program expired Sept. 30, and states have been warning for weeks that coverage could be threatened if Congress does not reauthorize it soon. And a key surveillance authority used by U.S. intelligence agencies to monitor noncitizens abroad expires Dec. 31, prompting fears of a lapse in national security …
“Even if a bipartisan agreement is reached on some or all of these issues, the timeline is tight: The House is not expected to vote on its spending bill until Wednesday at the earliest. That would leave little time for the Senate to take that bill, amend it, and send it back to the House, and any hiccup could mean a breach of the Friday shutdown deadline.”
View the post here.