In the Trenches: Tax Reform

News_Chris Funchess_Trump Tax_wikimedia

Wikimedia Commons

Chris Funchess
Staff Writer

The GOP’s push for historic tax reform is encountering several pitfalls. The Tax Cuts and Jobs Act of 2017 was released on Wednesday by House Republicans. Being slated for its public debut on Oct. 30, the tax bill underwent some last-minute revisions, causing its two-day delay. Tax reform is an incredibly difficult process, which may explain some of the division in the House Republican Conference, as well as substitution of “reform” for “cuts” in the bill’s name; reforms are easier to stomach and implement.

The two major problems are the response of interest groups — groups that lobby for favorable tax benefits for a particular industry, farmers, precariously employed actors, small businesses and everything else you can think of– and how the decrease in the tax rates causes a decrease in tax revenue. In regards to the latter, the GOP has sought to limit several popular deductions such as the State and Local Tax (SALT), dependent and personal exemptions and the mortgage interest deduction. Without limiting these deductions, it will be hard to make up for the other sources of lost revenue. But many Republicans cannot stomach the loss of these exemptions, changing the trajectory of tax reform.

The GOP budget is predicted to add $1.49 trillion in debt over the next decade. In other words, this tax plan will add roughly $149 billion to the budget deficit during the next 10 fiscal years. This is a significant amount of money, considering that the FY (fiscal year) 2018 budget is $440 in the red from the moment of passage. Factoring in the current budget deficit, the $149 billion loss in revenue if the bill were passed as is, plus the cost of unforeseen, unquantifiable but nonetheless inevitable emergency funding including things like disaster relief efforts, war funding, etc. over the next year, and the possibility of overly optimistic revenue projections, gives way to budget deficits that will balloon under the GOP tax plan.

On Oct. 28, Rep. Kevin Brady, Chairman of the House Ways and Means committee (the body that writes the congressional budgets and fiscal policy for Congress; spending bills must originate for the House, not the Senate), announced that the GOP tax plan will keep SALT deductions. He stated on the matter, “at the urging of lawmakers, we are restoring an itemized property tax deduction to help taxpayers with local tax burdens.” The lawmakers addressed are his fellow Republicans from high-tax states such as Rep. Chris Collins of New York. But there is also pressure from lobbying groups; both the National Association of Homebuilders and the National Association of Realtors oppose the tax overhaul, particularly due to how it has treated SALT and mortgage interest deductions.

The SALT deduction is complex because it involves property taxes levied by cities and counties paid by property owners. It is even paid implicitly by renters who don’t own their property and it is built into the price of goods that a consumer buys at a coffee shop for example, as well as state income taxes. The first tax is levied on all property owners, while the latter tends to apply to high-earners or to people who live in high-tax states such as New York and New Jersey; all squares are rectangles, but not all rectangles are squares.

This fact complicates how the SALT deduction benefits those who claim it. Jeanne Sahadi of CNN Money sums up how the SALT deduction affects different people at different income levels.

“The majority of the SALT deductions claimed by those who make less than $50,000 come from property taxes, according to a report from the Government Finance Officers Association. By contrast more than 70% of the SALT deductions from those making more than $200,000 are due to [state] income [tax contributions].” Every owner pays property tax, but SALT deductions benefit those high-income earners, particularly those who live in states with high income taxes.

The GOP, known for their view that the federal government is a thorn in the side of state and local leaders, is now finding the shoe is on the other foot. SALT and other popular tax deductions will remain in the Tax Cuts and Jobs Act and Republicans will have to find alternative ways to make up for lost revenue.



Categories: News, Politics

Tags:

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: