The “Republican” tax reform bill hurtling toward passage in Washington, D.C. may indeed wind up being a boon for the economy. Wealth may indeed find a way of “trickling down” to the middle class, and a massive corporate tax cut may in fact spark a wave of new hiring (as opposed to a flood of fatter dividend checks).
That’s what the GOP is betting on, anyway …
Given these possible outcomes, we’re not opposing the measure. Anything that keeps money in the private sector and out of the greedy, grubby paws of government is a good thing.
As we’ve stated repeatedly, though, “Republicans” have missed a major opportunity to target tax relief where it is most needed – and where it would have had the most significant economic impact. We’re referring of course to America’s middle income earners and small businesses, who are perpetually squeezed between welfare statism on one side and crony capitalism on the other.
This plan fails them … and they know it.
“Tax relief must stimulate investment, to be sure – and there is certainly a need to reduce America’s punitively high business tax rates,” we noted in our original assessment of the GOP plan. “But tax relief must also act to stimulate the consumer economy – which continues to struggle.”
Unfortunately, “Republicans” haven’t cut enough … and they haven’t cut it in the right places.
What happened? At the end of the day, the GOP simply wasn’t willing to make long-overdue cuts to the bloated bureaucracy in Washington. They refused to fully repeal Obamacare. They refused to enact budget cuts submitted by the administration of U.S. president Donald Trump.
Less cuts = less money available for tax relief.
Bottom line: “Republicans” put the demands of the demonstrably failed favor factory known as “the swamp” ahead of the interests of the people they are supposed to be representing. In fact, the legislation that emerged from a conference committee has only exacerbated this problem.
As our friend Robert Romano of Americans for Limited Government (GetLiberty.org) has repeatedly pointed out over the last few weeks, the inclusion of long overdue spending cuts within this proposal could have dramatically expanded the size of this tax cut.
“There is an opportunity via spending cuts for far deeper rate reductions to ensure everyone’s taxes are cut,” Romano wrote earlier this month.
Unfortunately, the GOP did not listen.
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In fact, the final version of this plan adds a further cut for individuals making more than $500,000 per year (and married couples making more than $600,000 per year). These taxpayers will see their tax on this income drop from 39.6 to 37 percent. Modifications to the estate tax (a.k.a. the “death tax”) also cater to the uber-wealthy.
Again, we don’t oppose tax relief for millionaires. What we object to is the lack of sizable tax relief for lower income earners – and its lack of permanence in this plan.
“The largest tax reductions are for the middle class, who have been forgotten,” Trump told voters in Pennsylvania last October.
That campaign promise simply hasn’t held up. The plan scheduled to pass Congress this week provides an estimated $1.46 trillion in total tax relief. Of that sum, $1 trillion is eaten up via corporate tax relief and the remaining $460 billion is achieved via various tweaks to income and estate tax laws.
Trump has claimed the average family will see $2,000 in tax relief after the proposal becomes law, but there’s no guarantee your family will see that amount of relief. It depends – on where you live, how much you make, whether you are married and have kids, how many kids you have, what you’ve been deducting, etc.
And this middle class relief won’t be permanent – it expires in eight years.
The same goes for small businesses. While “Republicans” gleefully slashed the corporate tax rate from 35 percent to 21 percent in perpetuity, what is being sold as a mirror reduction for “pass-through” companies (i.e. small businesses) will expire in 2025. And as we’ve repeatedly pointed out, there are serious questions regarding which businesses will be eligible to claim this relief – and at what levels.
The message is painfully clear: Large corporations get guaranteed tax relief, while small businesses must wait and see if they qualify. That’s unacceptable. Ninety-five percent of businesses in America are either sole proprietorships, partnerships, limited liability corporations (LLCs) or S-corporations – i.e. “pass throughs” that see their income taxed on the individual returns of their owners.
Why shouldn’t they receive the same guaranteed, permanent tax benefits as the big corporations?
The U.S. House is expected to vote either today or tomorrow on this plan – with the Senate following either tomorrow or Wednesday. And Trump is expected to sign the bill by the end of the week. At that point, all of us will have to hold our breath to see whether the legislation provides us with anything resembling substantive relief. Just as importantly, we’ll have to hold our breath to see whether the aggregate relief does anything to stimulate the economy.
The fact that we don’t know the answers to these two questions is truly frightening … and the best evidence yet that the GOP has failed.
“Republicans” had a simple job: Target tax relief to the middle income earners who drive the consumer economy and the small businesses that drive employment – and stop the cancerous growth of the bureaucratic swamp state in the process.
They didn’t do their job …
We are not going to oppose this plan. In fact we believe lawmakers in Washington should pass it because it will likely provide some measure of broader economic benefit. But this is not the tax relief Americans were promised in 2016, nor is it likely to produce the level of economic stimulus our nation desperately needs to escape the shackles of the “Great Recession.”
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