In: Accounting
Why has Congress not yet corrected most of the technical errors made in the Tax Cuts and Jobs Act of 2017?
Answer-:
The Tax Cuts and Jobs Act of 2017 was the largest tax overhaul since 1986. Rushed through Congress without adequate hearings and passed by a near-party-line vote, the law is a major legislative blunder badly in need of correction. The overall critique is simple: by providing large, regressive, deficit-financed tax cuts to an economy with low unemployment, rising long-term inequality, and high debt, the law was the wrong thing at the wrong time. It will take resources from future generations and from today’s lower- and middle-income households to enrich today’s well-to-do. It will take resources away from other badly needed social and economic priorities. The bill was so unpopular with the public that Republican members of Congress like Chris Collins and Lindsey Graham resorted to justifying their support by saying that their donors would cut off funding otherwise.
The law cut the corporate rate from 35% to 21%, repealed the corporate alternative minimum tax (AMT), transformed the taxation of foreign source income, introduced expensing of equipment investment, and provided a new deduction for qualified income earned in pass-through organizations. It also reduced personal income tax rates, eliminated the personal and dependent exemption, increased the standard deduction, expanded the child credit, adopted a less generous price index to annually adjust tax parameters, expanded exemption levels for the estate tax and the individual AMT, and eliminated the penalty on people who do not obtain adequate health insurance coverage. Almost all the individual income tax provisions – but not the price index change – expire after 2025, while most of the corporate income tax provisions – but not expensing – are permanent.
TCJA is regressive and will make the distribution of after-tax income more unequal. Most of the tax cuts benefit high-income households. It provides significantly larger tax cuts to high-income households than to low-income households.TCJA also aimed to simplify the tax forms themselves, an effort that failed miserably.
By removing the penalty for not having adequate health insurance, the new law will reduce health insurance coverage by millions of households. By reducing marginal tax rates, TCJA will reduce charitable contributions.
What else should policy makers do? Repeal the individual rate cuts and the pass-through provisions (or let them expire as scheduled in 2025). Revisit the international rules. Raise the corporate rate to the 25-28 percent range, and institute full expensing. Enact a carbon tax. Close capital gains loopholes. And increase the budget for IRS enforcement to deal with a jaw-dropping tax gap that is now approaching $600 billion per year.