aside Republican US Senators Need To Learn Math When It Comes To Their Tax Cut Plan

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The republican President Donald Trump tax cut bill has been undergoing several rewrites by republican senators as they try to figure out how to make the math work.

Meanwhile they have been hard at work in disseminating the standard republican talking points. The number one tale is that the US corporations cannot be competitive with other countries if their businesses are required to pay more taxes. The truth is that while the US stated tax rate is 35% for companies, the average company with tax loopholes pays less than 19% of its income in taxes. So, the reduction of the tax cut rate to 20% will have little impact in helping companies pay less tax.

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The next talking point is that the tax form and laws will be drastically simplified. On a TV news show, a republican legislator was asked, what corporate tax loophole will be eliminated? He couldn’t give an answer but said that this was in process of being determined.

So far, the the estate tax for those with estates worth over 5 million dollars will be not be in the bill along with the Alternate Minimum Tax requirement (AMT), which means for those who find lots of loopholes, they will have to pay a specified minimum amount.

During the campaign season, the president promised over and over again to eliminate the carried interest loophole where a hedge-fund company can pay taxes on income as a capital gains tax at 20% versus what the rest of us have to pay on our incomes from 25%-35%.

Then there is the pass-through business loophole. As per a 10/4/17 LA Times report, “The ‘pass-through’ loophole in the Trump tax plan is a huge handout to the 1%” by Michael Hiltzik,  “Pass-through” income is business income that’s reported to the IRS only by individual owners of, or partners in, the business. These businesses can be organized as partnerships, S-corporations, or sole proprietorships. They’re distinguished from C-corporations, which are almost always big businesses with public stockholders; C-corporations pay the corporate income tax, and the shareholders pay personal income tax on their dividends and capital gains.”

“Over the last 30 years or so, pass-through rules have been a boon to the 1%, who take great pains to designate as much of their business income as possible as pass-through earnings rather than C-corp income. That’s because individual tax rates are generally lower than corporate tax rates.”

“The Trump/GOP tax plan wants to make this arrangement even better for the 1%, by taxing pass-through income at a rate even lower than the ordinary individual tax rate. Currently, the top marginal individual rate is 39.6%; the new tax proposal would reduce the top rate on pass-through income to 25%. Pass-through income from an S-corporation, by the way, already is exempted from the Affordable Care Act surcharges that raised the top income tax rate on some high-income earners by as much as 4.7 percentage points.”

The House Republicans bill proposes a special low rate for pass-through businesses: 25 percent.

“Pass-through business income is substantially more concentrated among high-earners” than traditional business income, Treasury Department economist Michael Cooper and several colleagues observed in a 2015 paper. They also found that about one-fifth of it went to partners that were hard to identify, and 15% got sucked up into circles of partnership-owning partnerships, complicating IRS analyses. They concluded that the growth of pass-through businesses since the 1980s, when the rules began to get liberalized, cost the treasury an annual $100 billion by 2011, compared with what would have been collected absent the growth of pass-through arrangements. The effect is felt by all taxpayers, who have to pick up the slack from the handouts to the wealthy.”

This special new lane is actually a better deal for many pass-through owners, especially the very wealthy one

Finally, the corporations are sitting on record profits but yet, the executives have chosen not to share the spoils of all their monies by investing in the business, hiring more employees or by increasing the salaries for their front-line workers which have been stagnant for decades. Why would giving them more monies alter this paradigm?

My question is how would this republican tax cut bill created to further enrich cash rich corporations benefit the middle class, especially when any tax cuts targeting the average Joe worker, have a shelf life of only 5 years.

We haven’t even broached the subject on how this tax cut plan now called” TAX CUTS & JOBS BILL” will explode the already high US deficit.

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Here’s the rest of the story…

On November 1, 2017, Jim Tankersley, Thomas Kaplan and Alan Rappeport of the New York Times penned the following report, “Math Problem Bedevils Republican Tax Rewrite.”

Excerpts:

“There is a math problem at the heart of the Republican Party’s protracted introduction of a sprawling tax bill, and it grows, in part, from President Trump’s two nonnegotiable demands.”

“Mr. Trump has insisted on “massive” tax cuts, including reducing the top corporate tax rate to 20 percent from 35 percent and delivering a tax cut for the middle class. Both of those goals have proved difficult for the Republicans putting together the House version of the tax bill. They are running into political challenges as they try to offset lost revenue to stay within the confines of the $1.5 trillion tax cut that lawmakers have voted to allow.”

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“The tax rewrite is pitting businesses against individuals, as lawmakers look for ways to offset trillions of dollars of personal and corporate income tax cuts by limiting popular individual tax breaks, including preferential treatment for 401(k) plans and the state and local tax deduction. Business groups, meanwhile, say lawmakers run the risk of putting the United States at a global disadvantage if it does not reduce the corporate tax rate to a level commensurate with other industrialized nations.”

“The bill, which had been scheduled for release on Wednesday (11/1/17), is now expected to be unveiled Thursday, despite continuing struggles to reach agreement on how to pay for everything lawmakers want to include. Some industry groups familiar with the negotiations said the remaining shortfall was in the hundreds of billions of dollars.”

“On Wednesday, lawmakers were discussing a potential bandage solution to buy themselves time to figure out the hard math. That solution would call for phasing in some rate cuts over a period of years, and making some cuts temporary, which would lessen the short- and long-term revenue hit. Industry groups familiar with the discussions said such a move was not meant to be the actual legislative solution, but rather a place holder that would allow Republican leaders to work out the details of a new set of revenue-raisers that would be inserted in the bill before the full House votes on it.”

“Representative Kevin Brady, Republican of Texas and the chairman of the Ways and Means Committee, said that the intention was to make the corporate tax cut permanent, but that it might not appear that way immediately.”

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 “That’s our goal,” he told reporters. “I think it’s going to take several steps through the process to achieve that.”

“Mr. Trump has resisted a push to reduce the cost of the corporate cut — which is estimated to reduce revenues by $2 trillion over a decade — by phasing it in over time. Rank-and-file Republicans in the House have pushed back against efforts to raise revenues by limiting the amount of pretax dollars Americans can save in 401(k) retirement plans and limiting deductions for state and local taxes paid.”

“That has set off a scramble to find more revenue.”

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STEVE MNUCHIN / GARY COHN

“Mr. Trump used his Twitter feed to toss another wrinkle into the deliberations on Wednesday when he suggested once again that Republicans should tie tax legislation to the dismantling of the Affordable Care Act. “Wouldn’t it be great to Repeal the very unfair and unpopular Individual Mandate in Obamacare and use those savings for further Tax Cuts,” Mr. Trump said.”

“According to the Congressional Budget Office, getting rid of the Affordable Care Act’s mandate that most people have health coverage would reduce federal deficits by a total of $416 billion by 2026, mainly because fewer people would be enrolled in Medicaid and in private health plans subsidized by the government. The same analysis said that repealing the individual mandate would cause a substantial increase in the number of people without health insurance.”

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“While Republican congressional leaders originally hoped that repealing the health law — and its taxes — would help make their tax overhaul easier, most have decided that injecting the toxic politics of health care into the tax effort could imperil their chances of getting a bill passed. Senator Orrin G. Hatch, Republican of Utah and the chairman of the Finance Committee, said on Wednesday that health care should be kept out of the tax bill. Mr. Brady has also expressed concerns about marrying the two.”

” The Republicans’ plan is also likely to include a major concession to social conservatives: the repeal of a law known as the Johnson Amendment, which prohibits tax-exempt entities like churches from participating in political campaigns. The law, which has been in place since 1954, has been a source of contention for many Christian conservatives who have argued that it restricts the rights of pastors and other religious leaders to speak freely. Mr. Trump has repeatedly vowed to push to eliminate the law.”
Ed Wexler / Cagle Cartoons

“As the Ways and Means Committee scurried to finish the bill by Thursday, Representative Patrick T. McHenry, Republican of North Carolina and the chief deputy whip, played down the significance of the one-day delay, while adding that Republicans were still on pace to move quickly.”

“Arbitrary deadlines do not work,” he said. “We saw that with health care. We’re not going to allow the idea of rolling out on a Wednesday rather than a Thursday determine something as substantive and as important as tax reform.”

“Representative Tom MacArthur, Republican of New Jersey, said a plan was taking shape to resolve the conflict over the state and local tax deduction, which has threatened to derail the bill. Republican lawmakers from high-tax states have been adamant that the deduction remain largely intact or at least in some form that is acceptable to constituents. Mr. MacArthur said the plan would allow property taxes to be deducted, with a cap that he said needed to be higher than what had been sketched out.”

John Darkow / Columbia Daily Tribune

“I’m willing to accept the concept as long as it covers enough homes, and that’s what I’m after now,” he said. Mr. MacArthur said the Ways and Means Committee appeared to be leaning toward a cap on the “amount of tax dollars that you can deduct,” rather than a cap based on income, but he declined to specify a dollar figure.”

 “I think unless most of New York and New Jersey’s on board, the bill has a problem,” Mr. MacArthur said, “because there’s outliers on a whole bunch of other issues where they’ll lose some votes.  You can’t afford to lose the bulk of New York and New Jersey and have a bill go forward.”
Marian Kamensky / Austria

“Trust me if I tell you the bill is moving every hour,” he said.

“Once the bill is released, Mr. Trump’s top economic lieutenants will fan out to make the case for tax cuts.”

“Gary D. Cohn, the director of the National Economic Council, will give a midday speech to the Economic Club of Washington, while Steven Mnuchin, the Treasury secretary, will be in Los Angeles speaking to entrepreneurs at the International Franchise Association conference.”

John Darkow / Columbia Daily Tribune

“Lawmakers had not settled on a name for the bill on Wednesday afternoon, but outside groups said Mr. Trump had suggested “The Cut Cut Cut Act,” which House leaders had rejected.”

 “If it’s called ‘Cut Cut Cut’ and it includes massive tax cuts like this president is proposing,” she said, “I think we’d perfectly be fine with that.”
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5 comments

  1. Gronda, not only this math not work, they are solving the wrong problem. We need more tax revenue along with spending cuts to pay down the debt. If they continue on the path they are on, not only won’t they hold back the $10 trillion rise in debt, they will add $1.5 trillion more. On top of the current $20.5 trillion debt, that puts us at $32 trillion, per my math, in ten years. Of course, Trump knows a lot about bankruptcy having been in it so much. Keith

    • Dear Keith,

      You are right. If the republicans pass this poorly constructed bill, it will be malfeasance I agree that we need to increase revenues while decreasing our spending which means we cannot afford a tax cut for the rich.

      Hugs, Gronda

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