President Trump and congressional Republicans unveiled their huge tax reform bill focused on the middle class yesterday, promising the proposed “Tax Cuts and Jobs Act” will stimulate strong economic growth as it makes the mammoth, out-of-control tax code simpler and fairer.
The proposal is "a great bill," and "another important step toward providing massive tax relief for the American people," the president said, adding he hoped the measure will become law before Christmas.
"Today is a great day for the American worker," Trump said. "Over the past 10 months, we've witnessed something remarkable happening to our country, a lot of change, a lot of difference. We've hit close to 60 records in the stock market since November 8, that very big day," Trump said, a reference to the day he was elected president.
“Ninety-five percent of people will be able to fill out a tax form the size of a postcard,” Speaker of the House Paul Ryan (R-Wisconsin) said.
“It's going to make life very simple,” Trump said. “The only people that aren't going to like this is H&R Block, they're not going to be very happy.”
The promise of tax reform has already gotten the Singapore-based high-tech business Broadcom Limited to commit to returning to the United States where it was founded, Trump said. “With this commitment, more than $20 billion in annual revenue will come back to our cities, towns, and the American workers.”
At the White House, the head of Broadcom, Hock Tan, explained that he is an American, “as are nearly all my direct managers, my board members, and over 90 percent of my shareholders. So today, we are announcing that we are making America home again.”
“Our commitment to re-domicile into the United States is a huge reaffirmation to our shareholders, to the 7,500 employees we have across 24 states in America today, that America is once again the best place to lead a business with a global footprint.”
House Ways and Means Committee Chairman Kevin Brady (R-Texas) yesterday unveiled the “chairman’s mark,” an early version of the legislation. Undoubtedly changes will be made when Brady’s committee takes up the measure, a process expected to begin next week. The Senate and its committees of jurisdiction will also weigh in. There is a chance the legislation will be substantially rewritten over the weekend before the markup in the Ways and Means Committee.
The reform plan would collapse the current seven individual income tax brackets – 10, 15, 25, 28, 33, 35, and 39.6 percent into just four – 12, 25, 35, and 39.6 percent – according to a summary of major details of the legislation provided by Jared Walczak and Amir El-Sibaie of the Tax Foundation.
The retention of the top marginal rate of 39.6 percent is an example of a pointless appeasement effort aimed at social justice warriors. The gambit has already failed. House Minority Leader Nancy Pelosi (D-California) is already portraying the tax plan as a giveaway to “the wealthiest one percent” of Americans “at the expense of the great middle class." Senate Minority Leader Chuck Schumer (D-New York) decried the plan as “everything America doesn't want," adding, "like a fish, if it stays out in the sunlight too long, it stinks."
The proposed tax cuts aren’t enough for Sen. Rand Paul (R-Kentucky). "If you don't cut the top 1 percent, you don't really have a significant tax cut," Paul said. "What they've done is, they've bought into the class warfare on the individual side." Those at “the top part of the spectrum” need tax relief “because the top part of the spectrum pays most of the taxes.”
"We have to understand that the owners of our businesses — the people we work for — are richer than us. They pay more taxes," he said. "But if you lower their taxes, they will either buy stuff or hire more people. If you raise their taxes, it goes into the nonproductive economy, which is Washington, D.C., and it will be squandered."
"So at the top, there's not going to be much of a tax cut. There will be some. And in the middle, there's going to be a little bit — there's mostly going to be eliminating deductions. And at the bottom, the bottom already don't pay much income tax and will continue not to pay much income tax," Paul said.
Lowering the corporate tax rate to 20 percent, as proposed, however, would "be huge" for the country, he said.
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The best news out of this is, lowering the corporate rate will help the country. And I think we will see growth. Already we're seeing about 3 percent growth in the country because of the enthusiasm for President Trump and his policies. I think we're going to get 4 or 5 percent growth if we get this thing through, within a year or two.
The standard deduction for single personal income tax filers will rise from the current $6,350 to $12,000, according to the Tax Foundation. For heads of household, it will jump from $9,350 to $18,000. For married couples, it will climb from $12,700 to $24,000. The additional standard deduction and the personal exemption will be eliminated. The alternative minimum tax (AMT) on both individuals and corporations will be abolished.
Charitable deductions will remain but the property tax deduction will be capped at $10,000. The remaining state and local tax deductions and other itemized deductions will be eliminated. The proposal on state and local taxes is already running into opposition from lawmakers representing high-tax states. Chairman Brady has acknowledged the concerns of blue-state Republicans and is trying to come up with a compromise.
The mortgage interest deduction will be retained but will be capped at $500,000 of principal for new home purchases. The construction industry seems certain to fight the change. There will also be changes to the exclusion of capital gains on home sales. The moving deduction, educator expense deduction, and exclusions for employer-dependent care programs, among others, will be eliminated.
The plan would not eliminate the tax penalty established under Obamacare for failure to have health insurance, as some had hoped.
On Wednesday President Trump had seemed to hint repeal of the provision was in the works. “Wouldn't it be great,” he tweeted, “to Repeal the very unfair and unpopular Individual Mandate in ObamaCare and use those savings for further Tax Cuts[.]”
The health care expense deduction, first instituted during World War II, would be scrapped, according to Julie Rovner of Kaiser Health News. Only taxpayers whose medical expenses exceed 10 percent of their adjusted gross income may take advantage of it.
Because of that threshold, and because it is available only to people who itemize their deductions, the medical expense deduction is not used by many people — an estimated 8.8 million claimed it on their 2015 taxes, according to the IRS.
But those 8.8 million tax filers claimed an estimated $87 billion in deductions; meaning that those who do qualify for the deduction have very high out-of-pocket health costs.
Sen. Ron Wyden of Oregon, ranking Democrat on the tax-writing Senate Finance Committee, said getting rid of the deduction was “anti-senior.”
The Ways and Means Committee denies that gutting the deduction would “be a financial burden.”
Our bill lowers the tax rates and increases the standard deduction so people can immediately keep more of their paychecks — instead of having to rely on a myriad of provisions that many will never use and others may use only once in their lifetime.
Changes will be made to the regime of family tax credits.
The personal exemption for dependents will be replaced with a child tax credit that will rise from the current $1,000 to $1,600. The phaseout threshold will go from $115,000 to $230,000 for those filing as married. “The first $1,000 would be refundable, increasing with inflation up to the $1,600 base amount,” according to the Tax Foundation. There will also be “a new $300 nonrefundable personal credit and a $300 nonchild dependent nonrefundable credit, subject to phaseout. The $300 credit expires after 5 years.”
Grave-robbing will be phased out. The widely hated tax on dying after a lifetime of paying taxes will be abolished after six years. In the meantime, the estate tax exemption will go up to $10 million, which will be indexed for inflation.
The corporate income tax rate would fall to 20 percent from the current 35 percent
The corporate income tax rate would fall to 20 percent from the current 35 percent. Trump had pushed a 15 percent rate during the election campaign. There would be a new 25 percent maximum tax rate on pass-through business income, which would be subject to anti-abuse rules.
Slashing the corporate income tax rate "is an extremely important move," according to Veronique de Rugy, a senior research fellow at the Mercatus Center. “We still need to see how they will treat revenue earned overseas to assess the corporate plan fully."
The reform proposal would do away with the Section 199 manufacturing deduction and the New Market Tax Credit along with “like-kind exchanges for personal property (retained for real property), and deductions for entertainment.” It also cancels “credits for orphan drugs, private activity bonds, energy, rehabilitation, and contributions for capital, among others,” according to the Tax Foundation.
The plan also appears to drive a stake through the heart of the extraterritorial enforcement of U.S. tax laws, moving to “a territorial tax system, in which foreign-source dividends and profits of U.S. companies are not subject to U.S. tax upon repatriation.” The move will lead to the repatriation of trillions of dollars from outside the country, the Trump administration says. Extraterritoriality in tax law is destructive, eliminating the possibility of countries competing to be tax havens, and used to be considered fundamentally unfair in this nation of ours that was founded on limited government principles.
As the Supreme Court articulated in 1991 in EEOC v. Aramco, it is widely accepted nowadays that "Congress has the authority to enforce its laws beyond the territorial boundaries of the United States," but it hasn’t always been that way. Taxing Americans overseas had long been considered an abuse of the government’s powers until the modern era.
In the 1909 Supreme Court case, American Banana Co. v. United Fruit Co., Justice Oliver Wendell Holmes introduced what is now called the "presumption against extraterritoriality," expressing his disgust that the U.S. could apply its laws to other sovereign countries. In Holmes’ time, “U.S. law was based almost exclusively on the territorial principle – the idea that the power of American law ends at the country's boundaries,” according to law professor William S. Dodge.
But not all case law reinforces the dominant thinking on extraterritoriality, Dodge notes. “In Morrison v. National Australia Bank, 2010, the Supreme Court held that in interpreting a statute, the ‘presumption against extraterritoriality’ is absolute unless the text of the statute explicitly says otherwise.”
This part of the tax reform plan in particular turns back the clock – in a welcome way.
The reforms overall could catapult us back to the consistently strong rates of growth of the Reagan era and the early Clinton years, assuming Democrats are unable to use their hateful class-warfare rhetoric to weaken Republican resolve.
When Republicans hold the reins of power, left-wingers love to pretend they care about deficits and the ballooning national debt. Democrats howl like wounded animals as they whine and bicker over fiscal impact statements.
But for the time being at least, before getting reelected begins to dominate the thoughts of House members a few months from now, tax reformers have the momentum in Congress.
Even if some tax hawks like Rand Paul aren’t satisfied with the plan as it now stands, it is nonetheless a giant step in the right direction.
President Trump and congressional Republicans unveiled their huge tax reform bill focused on the middle class yesterday, promising the proposed “Tax Cuts and Jobs Act” will stimulate strong economic growth as it makes the mammoth, out-of-control tax code simpler and fairer.
The proposal is "a great bill," and "another important step toward providing massive tax relief for the American people," the president said, adding he hoped the measure will become law before Christmas.
"Today is a great day for the American worker," Trump said. "Over the past 10 months, we've witnessed something remarkable happening to our country, a lot of change, a lot of difference. We've hit close to 60 records in the stock market since November 8, that very big day," Trump said, a reference to the day he was elected president.
