Question

As you might of heard the new republican tax plan was recently released.  I would like you to comment on the effect or lack of effect the public policy cycle has had on the development of these new tax proposals.  In your opinion, was there enough time and resources devoted to developing the policy?  Discuss in some depth with reasons why or why not.

Answer 1

Republicans haven’t let the fact that the bill is full of broken promises stand in the way of notching a legislative win by the year’s end. The final bill lowers the corporate rate from 35 percent to 21 percent, gives pass-through businesses like the Trump Organization a 20 percent tax deduction, increases the standard deduction, expands the child tax credit, and temporarily lowers individual rates across the board.

It’s a bill that by almost every official analysis overwhelmingly benefits America’s highest earners, and doesn’t do much to simplify the tax code. But as Republicans said, in the first year almost all Americans will see at least a marginal decline in their taxes.

A massive corporate tax cut has been the centerpiece of the Republican tax plan from the beginning. This bill permanently cuts the corporate tax rate from 35 percent to 21 percent to bring it closer to that of countries like Canada, which has a 15 percent corporate tax rate, or Ireland, which has a 12.5 percent rate.

Republicans also repealed the 20 percent corporate alternative minimum tax, which was set up in the current tax code to ensure that corporations paid at least some taxes.

The bill also changes tax provisions for American companies abroad: Corporations will no longer have to pay corporate taxes on money they claim to have earned abroad — a move that could encourage companies to keep income in foreign tax havens. Corporate income brought back to the United States will be taxed between 8 and 15.5 percent, instead of the current 35 percent.

The idea is that the lower tax rate will push corporations to invest more in the United State, raise wages, increase jobs, and unleash unprecedented economic growth.

After Republicans spent the greater part of the year pushing unsuccessfully to repeal Obamacare, tax reform was the last frontier for major legislative change in Trump’s first year in office — a reality that served as a major motivator to get the tax bill done by Christmas.

But in addition to getting a legislative win under his belt, this tax bill is also good for Trump and those in his family, personally.

Trump and his administration have continued to insist that high earners like Trump would not benefit from this tax bill. The “rich will not be gaining at all” with the tax bill, Trump said. Another time he promised that bill would cost him a “fortune.”

That’s not true.

Trump, and the ultrarich like him, would benefit in several ways. First, the tax bill cuts the top individual tax rate to 37 percent from 39.6 percent. Next, it also increases the exemption on what Republicans call the “death tax” — the 40 percent tax (after deducting donations and spousal gifts) on the wealth of deceased persons before it’s distributed to their heirs — from $11 million to $22 million for married couples.

Trump would also benefit from the tax bill’s “pass-through” provision, which Republicans say is aimed at helping small businesses, but also give wealthy investors, like Trump, a major windfall.

Currently, owners of pass-through companies, like LLCs, partnerships, sole proprietorships, and S corporations — the Trump Organization, for example — are taxed as personal income. The Republican tax bill will now give pass-through businesses a 20 percent deduction, in addition to cutting the top individual tax rate.

The Trump Organization is a large pass-through; the holding company owns golf courses and hotels and pulls in about $9.5 billion in annual revenue. But because it is exempt from the corporate income tax, and its profits are instead taxed upon distribution to shareholders, this tax break for pass-through income is a huge win for the Trump family — and the many other businesspeople who structure their companies like this.

Republicans have promised a “giant” tax cut for Christmas — across the board.

In the short term, those will come to fruition. The Republican tax plan lowers the individual tax rates and increases the standard deduction.

In 2017, for a married couple the brackets are:

• 10% (taxable income up to $18,650)
• 15% ($18,650 to $75,900)
• 25% ($75,900 to $153,100)
• 28% ($153,100 to $233,350)
• 33% ($233,350 to $416,700)
• 35% ($416,700 to $470,700)
• 39.6% (taxable income over $470,700)

Under the new plan they’d be:

• 10% (taxable income up to $19,050)
• 12% ($19,050 to $77,400)
• 22% ($77,400 to $165,000)
• 24% ($165,000 to $315,000)
• 32% ($315,000 to $400,000)
• 35% ($400,000 to $600,000)
• 37% (taxable income over $600,000)

Most middle-class taxpayers would land in the 12 percent bracket; upper-middle-class households go from the 25 percent bracket to 22 percent, or from 33 percent to 24 percent, or from 39.6 percent to 35 percent. Families will also be able to benefit from a slightly expanded child tax credit.

According to an analysis from the Tax Policy Center, the bill would reduce taxes for Americans in all income groups in 2018 — increasing after-tax income by an average of 2.2 percent.

The tax cut for individuals will slowly decrease over time — and end altogether in 2025.

As Matthews explains, the thresholds for individual tax brackets are adjusted according to chained CPI, a lower measure of inflation than standard CPI, which is used currently. This will increase tax revenue over time by pushing people into higher tax brackets.

Then in 2025, the individual tax relief in the Republican tax bill expires altogether. This is due to a Senate budget rule that restricts the cost of the tax bill to $1.5 trillion. Republicans decided to sunset nearly all the individual tax cuts in order to make the corporate tax cuts permanent.

The result will be a tax increase in 2027 for more than half of all Americans — 53 percent, according to an analysis from the Tax Policy Center.