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The President’s tax plan.

April 27, 2017

The announcement of the President’s “massive tax reform package” did contain some meat, but a lot of it was by necessity a lot of steak sauce and luscious sounding baked potato toppings, without the spud.

On the positive side, the proposal does away with the alternative minimum tax and the inheritance tax in addition to the already revealed three-bracket tax levels for individuals, a greatly lowered single rate tax for C-Corp. businesses, an expanded standard deduction, and keeping the childcare tax credit as well as the home mortgage and charitable deductions. The plan would also protect retirement savings.

Also of interest was the statement that the administration wants all these changes to be retroactive to January 1 of this year. If you are smart, that’s a goal you will take with fist-size lumps of salt.

There were also some losses in deductions implied or actually stated. The most striking would be not being able to take a deduction for state and other Federal taxes (like the gas tax, for instance). Also left unspecified was whether excessive medical costs, including those caused by sky-high ACA premiums and deductibles could still be claimed if they exceed 2017’s 10% of income threshold.

Businesses received no guidance on whether they would still be able to deduct indirect costs like workman’s compensation premiums, uniforms, tools, maintenance and repair costs, business loan interest and employee health insurance premiums.

Also missing was any specificity on things like income brackets and income averaging (loss carry backs and carry forwards), or what types of non-wage income might still be taxable (such as investment dividends, rental income, or interest on non-retirement savings and other passive income.)

And let us not forget the art of the deal.  It remains to be seen whether there is flexibility on such things as the corporate tax rate, but history so far tells us there is probably room for negotiation.

The package seemed to have a lot in it for middle class taxpayers and S-Corp business owners, not just large businesses.

What about the specter of increased deficits?

There is no doubt that if everything else stays the same, less cash inflow is going to increase the deficit.  Even the most confirmed tax cut enthusiasts acknowledge that.

But who says things will stay the same?  The one way to force Washington to do more with less is to give them less. It’s amazing how frugal you can become if you have less money.

The one change that would sell this thing is some form of balanced budget legislation. That way, if the President is wrong, and tax revenue doesn’t increase because of higher employment and corporate repatriation, Congress can’t just vote to add to the national debt. If he’s essentially right, but there is still a shortfall, both he and Congress will have to deal with it by cutting spending whether they want to or not.

Pragmatists warn that an awful lot of the promised benefits, i.e. more jobs, hinge on whether big businesses will actually repatriate, and there is no mechanism that forces them to do so.  What if they just move their headquarters offices back to the U.S., but continue to manufacture goods or provide services using overseas labor?

Obviously the actual nuts and bolts of the thing are going to be determined by Congress when the legislation is actually formalized. There will still be a LOT of regulations necessary to define those variables, so tax preparers will not be able to build new office space in place of the voluminous storage needed for the current 74,608-page IRS tax code.

And then there is the left.

Of course there had to be one reporter who got out her little electronic pencil and conjectured that just using the very few facts at hand, the President would have only paid 5.3 million dollars on his 2005 income, instead of 35 million dollars.

And that pretty much tells you where the left, segments of which want a 50% to 90% tax rate on the One Percenters, is going to go with this announcement.

In their zeal to extract all the pounds of flesh possible from the rich, they are, as they have always been, quite willing to hurt everyone else.

Given the complexity of upending the current system, if the administration can come to terms with Congress even by October 1, it will be little short of a miracle.

Still, miracles do happen.  Infrequently to be sure, but they do happen.

From → op-ed

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