How To Understand The Latest Proposal for Tax "Reform"
The latest proposal for tax reform has been making its rounds in the Congress and the media. Let's take a first pass at trying to understand it.
First, note that the word "reform" typically accompanies proposals to monkey with existing tax law. It seems the one (and possibly only) thing that Democrats, Republicans, liberals and conservatives (and whatever other subset of the political spectrum you care to identify) can agree on is that taxes need to be somehow reformed. It's an easy sale if you're a politician. Do you know anyone who's enamored of the tax code? Rich, poor, and in between, everyone's got a beef. So the sound of "reform" chimes harmoniously in the ears of all constituencies.
What about this particular go-round of reform? Is it worth parsing the proposals as they now stand? Frankly, if you think so, plenty of sources will take you through the mud. So you can go there for "the facts." Here, instead of summing up what we know or don't know, let's focus on what's coming next: There will be a version put forth by the Senate, and one by the House. Compromise then ensues. What's left goes to the desk of the President for signature - if it ever gets there. So our first pass at trying to understand the bill might be whether or not a bill ever emerges.
Oh, let's not forget, Mr. Trump has declared he wants a bill on his desk by Thanksgiving. Check your calendar: Thanksgiving will be here in, what, 17 days? Good luck with that. Then again, you never know, miracles do happen occasionally. Of course, if history proves a reliable guide, one might be tempted to compare this "push" with the great Presidential Push to overturn Obamacare. Weeks turned into months and months turned into - nothing: A bill was eventually presented; it was promptly voted down; and that was that.
Will that ultimately be the fate of tax reform this go-round? Depending on what compromises emerge, that may well be the final story.
The two biggest hurdles to ever agreeing on a bill, never mind landing one on the President's desk appear now to be 1) the "unfair" treatment of certain parts of the country caused by the loss of a tax deduction for local property taxes, as well as state and local taxes on your federal return; 2) the idea that the proposed corporate tax cuts will be paid for by ordinary Americans - the common thread being loss of these deductions. As for the former, using the the "bookend" states of New York and California as an example, it's claimed that wealthier residents, whose taxes would apparently skyrocket, will leave these states for greener pastures. The result would be a loss of tax revenue, the effects of which would devolve on the less wealthy remnants. As for the latter, the loss of those deductions emerge as a clear and present danger to many of us, no matter the effect on the wealthy.
If I had to bet, these will be a bear to get through either House or Senate, unless some sort of "populist" tale can be spun that convinces enough of us who fall in the middle of the economic spectrum that a loss of these deductions will somehow be made up for by other parts of the bill. Right now, that seems a stretch. But you never know with politicians. If they can't convince Americans that loss of these deductions somehow makes sense, they may just drop the idea and pass a bill leaving the deductions intact, without balancing the loss of tax revenue that represents with some other provision. The result: more government borrowing to make up for government spending that's not funded by our taxes.
Hmmm...when you think about it, that may be an appealing alternative - at least for politicians. It allows them to continue to spend what they want to please the voters in their districts so the voters will keep them in office. At the end of the day, that's what lights the fire in most politicians' bellies, isn't it?
First, note that the word "reform" typically accompanies proposals to monkey with existing tax law. It seems the one (and possibly only) thing that Democrats, Republicans, liberals and conservatives (and whatever other subset of the political spectrum you care to identify) can agree on is that taxes need to be somehow reformed. It's an easy sale if you're a politician. Do you know anyone who's enamored of the tax code? Rich, poor, and in between, everyone's got a beef. So the sound of "reform" chimes harmoniously in the ears of all constituencies.
What about this particular go-round of reform? Is it worth parsing the proposals as they now stand? Frankly, if you think so, plenty of sources will take you through the mud. So you can go there for "the facts." Here, instead of summing up what we know or don't know, let's focus on what's coming next: There will be a version put forth by the Senate, and one by the House. Compromise then ensues. What's left goes to the desk of the President for signature - if it ever gets there. So our first pass at trying to understand the bill might be whether or not a bill ever emerges.
Oh, let's not forget, Mr. Trump has declared he wants a bill on his desk by Thanksgiving. Check your calendar: Thanksgiving will be here in, what, 17 days? Good luck with that. Then again, you never know, miracles do happen occasionally. Of course, if history proves a reliable guide, one might be tempted to compare this "push" with the great Presidential Push to overturn Obamacare. Weeks turned into months and months turned into - nothing: A bill was eventually presented; it was promptly voted down; and that was that.
Will that ultimately be the fate of tax reform this go-round? Depending on what compromises emerge, that may well be the final story.
The two biggest hurdles to ever agreeing on a bill, never mind landing one on the President's desk appear now to be 1) the "unfair" treatment of certain parts of the country caused by the loss of a tax deduction for local property taxes, as well as state and local taxes on your federal return; 2) the idea that the proposed corporate tax cuts will be paid for by ordinary Americans - the common thread being loss of these deductions. As for the former, using the the "bookend" states of New York and California as an example, it's claimed that wealthier residents, whose taxes would apparently skyrocket, will leave these states for greener pastures. The result would be a loss of tax revenue, the effects of which would devolve on the less wealthy remnants. As for the latter, the loss of those deductions emerge as a clear and present danger to many of us, no matter the effect on the wealthy.
If I had to bet, these will be a bear to get through either House or Senate, unless some sort of "populist" tale can be spun that convinces enough of us who fall in the middle of the economic spectrum that a loss of these deductions will somehow be made up for by other parts of the bill. Right now, that seems a stretch. But you never know with politicians. If they can't convince Americans that loss of these deductions somehow makes sense, they may just drop the idea and pass a bill leaving the deductions intact, without balancing the loss of tax revenue that represents with some other provision. The result: more government borrowing to make up for government spending that's not funded by our taxes.
Hmmm...when you think about it, that may be an appealing alternative - at least for politicians. It allows them to continue to spend what they want to please the voters in their districts so the voters will keep them in office. At the end of the day, that's what lights the fire in most politicians' bellies, isn't it?
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