The Final Version of the G.O.P. Tax Bill Is a Corrupt, Cruel, Budget-Busting Hairball
The New Yorker
https://www.newyorker.com/news/our-columnists/the-final-version-of-the-gop-tax-bill-is-a-corrupt-cruel-budget-busting-hairball
"The Final Version of the G.O.P. Tax Bill Is a Corrupt, Cruel, Budget-Busting Hairball"
Grant the Republican Party leaders one thing: their tactics in passing their hugely unpopular tax bill have been consistent—consistently evasive. A few weeks ago, the Senate version of the bill was passed in the middle of the night. This weekend, the final iteration of the legislation was made public on Friday evening—a traditional dumping ground for bad news. The Republicans intend to hold votes on the bill early next week in both houses of Congress, and it seems certain to pass.
It is hardly surprising that Republicans don’t want to give anyone too much time to look closely at their latest handiwork. The final tax bill is the product of a conference committee that was tasked with reconciling the different bills passed in the House and the Senate. Almost eleven hundred pages long, the final bill is just as regressive and fiscally irresponsible as either of the two earlier bills, and it is arguably more so. At its center is a huge tax cut for corporations and unincorporated business partnerships—such as the ones that Donald Trump owns—while arrayed around the edges are all sorts of carve-outs and giveaways to favored industries and interest groups.
For individual households, the bill contains some tax cuts and expanded family credits. But these provisions are temporary, and they are also partially offset by changes to the rules about deductions. Because the deduction for state and local taxes will be limited to ten thousand dollars a year, for instance, some upper-middle-class households in states like California and New York could end up paying more to the federal government.
Nowhere to be found in the bill are three elements that House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, and their colleagues originally promised to deliver when they urged the American public to embrace tax reform: revenue neutrality, simplicity, and fairness. The final bill is a corrupt, budget-busting hairball.
According to its authors, the bill will increase the budget deficit by about $1.5 trillion over ten years. That’s a lot of money, obviously, but it’s an underestimate. If you adjust the numbers for a series of accounting gimmicks, such as expiration provisions that are unlikely to go into effect, the real cost seems likely to come out at more than two trillion dollars.
To insure that the final bill would have enough votes in both chambers, the conference committee larded the bill with various additional handouts. They reduced the top rate of income tax to thirty-seven per cent, compared to 38.5 per cent in the Senate bill.
(Currently, the effective top rate is close to forty-one per cent.) And they did a big favor to large businesses by getting rid of the corporate Alternative Minimum Tax, which many of them could have ended up paying because their tax rates under the new system will be so low.
The principle of simplifying the tax code met the same fate as the principle of fiscal responsibility: it was jettisoned. Originally, the White House proposed reducing the number of tax brackets from seven to three. The final bill contains seven brackets: ten per cent, twelve per cent, twenty-two per cent, twenty-four per cent, thirty-two per cent, thirty-five per cent, and thirty-seven per cent. On the business side, the revised treatment of pass-through income is so complicated that most tax experts don’t yet fully understand it. One thing we doknow is that it will create big incentives for highly paid employees to turn themselves into independent contractors or L.L.C.s, which qualify for the new low business tax rates.
As for fairness, that principle was junked a long time ago. The final bill reflects the same principle as the previous two G.O.P. bills: Dom Perignon for the plutocrats, cheap swill for the masses. The bill is also cruel. In abolishing the Affordable Care Act’s mandate to purchase health insurance, it will make individual plans even more costly and more difficult to obtain, especially for sick people. This isn’t just a tax bill. It is a backdoor effort to overturn the principle of universal access to health care.
As reporters went through the bill on Friday evening, they discovered various quirks, giveaways, and clawbacks, which appeared to reflect last-minute lobbying and rushed rewriting. Businesses owned by trusts were given a break, and so were architectural and engineering firms. On the personal side, the bill was found to contain a substantial marriage penalty: the maximum deduction of ten thousand dollars for state and local taxes is the same for individual filers and couples. That’s bad news for people who are wed—though the blow will be cushioned for those married couples who own sports franchises.
The Wall Street Journal reported on Friday night that the bill “preserves the ability to use tax-exempt bonds for professional sports stadium bonds—a priority for Mr. Trump, a GOP aide said.”
Another provision, which wasn’t in the House or Senate bills, allows real-estate developers who own buildings through L.L.C.s, as Trump does, to deduct twenty per cent of the income that these properties generate. To qualify for the break, the properties have to be newish ones that haven’t been fully depreciated. “This helps people who have held property for a while, like Donald Trump,” David Kamin, a law professor at New York University, told David Sirota and Josh Keefe, of the International Business Times.
Another beneficiary of this provision may well be Senator Bob Corker, of Tennessee, who is also a real-estate investor. Corker had been the only Republican to vote against the Senate version of the tax bill, but on Friday he announced that he’d changed his mind, and that “after great thought and consideration, I believe this once-in-a-generation opportunity to make U.S. businesses domestically more productive and internationally more competitive is one we should not miss.” Corker didn’t mention his personal interests, but Sirota and Keefe did. “Federal records reviewed by IBT show that Corker has millions of dollars of ownership stakes in real-estate-related LLCs that could also benefit” from the final bill, they reported.
