Tax Reform is now at the front of everyone’s minds, as Congress heads into its final weeks before the winter recess. At the time this is being written, the House and Senate are finalizing their own versions of a bill that is slated to reduce taxes for millions of Americans and slash corporate rates in an attempt to spark economic growth. Here, we’ll take a look at this bill, asses its pros and cons, look at its chance of passing each chamber, and I will give it a grade on an A-F scale.
One argument a lot of people have for voting Republican is that they will help improve the economy and cut taxes. This line of thinking tends to originally stem from the Reagan Presidency, when taxes were slashed and there was an economic boom. The present day establishment of the Republican Party has generally regarded President Regan as its vision for economic expansion through the ideology of Trickle Down Economics where tax cuts for corporations and the wealthiest in society “trickle down” to everyone by means of jobs. This way of thinking is often criticized by economic liberals, who argue that the positive economic effects don’t tend to always reach those that are economically disadvantaged along with the fact that cutting taxes means cutting revenue which creates deficits when spending is not reduced at the same rate.
This tax plan is seen as Republicans attempt at walking a fine line between Reaganomics and moderate tax policy. The plan keeps the 39.6% top rate but increases the income threshold for that rate to $500,000 for individuals and $1,000,000 for those filing jointly and reduces the total number of brackets from seven to four (12, 25, 35, and 39.6). This simplification is something Republicans have been advocating for, for years. The popular child tax credit will increase from $1,000 to $1,600 per child and there is a new Family Flexibility Credit that is $300 for singles and $600 for couples. Along with these changes, many current deductions are to be eliminated in favor of a higher standard deduction which would be $12,000 for individuals and $24,000 for joint filers. These family friendly proposals will help win over support from moderate Conservatives who might be turned off by other parts of the bill.
Although there is a large amount of consensus among conservatives on the parts of the bill laid out above, the in-fighting starts to become prevalent when other parts of the bill are brought up. One of the most contentious provisions is the drop in the corporate tax rate from 35% to 20%. While most Republicans have been advocating for a reduction in taxes for businesses for some time now, not all are on board with taking the rate down that far. Moderate conservatives have been open with their support for taking it to, at the lowest, 25%, so pushing for 20% seems like a stretch when the bill needs near full Republican support in the Senate to pass. Another piece of the bill that has been somewhat controversial across the board is the group of deductions that would end in favor of the higher standard deduction. If the bill in its current form were to pass, tax credits for plug in cars would end, people would no longer be able to write off medical or moving expenses, and can no longer deduct the cost of getting their taxes prepared. In the House version of the bill, taxpayers would no longer be able to deduct state and local taxes, which creates major red flags for Representatives from states with higher taxes.
All of the provisions in the bill discussed above have, for the most part, been unfavorable to Democrats, so Republicans will be relying on getting full support from their own in what is shaping up to be a near party line vote. The GOP can afford to have more than 20 Republicans vote against the plan in the house, but can only have two defectors in the Senate. The bill in its current form has a very good chance of passing the house right now, as not too many Representatives plan on voting no, but the Senate is another story. With the bill’s chance of survival resting in the fate of only a couple Senators, there is a lot less of a chance for passage in the Senate. Sen. Ron Johnson has already come out against it, leaving room for only one more Republican to vote no and the bill still survive. This no vote could come from anyone, but is most likely to come from a moderate such as McCain or Collins. Right now, I give the current bill less than a 50% chance of passing the senate.
Now to give the bill a grade. Considering the bill will most likely be amended at some point, this grade is only for the bill in its form as of November 16th. While this bill does reduce taxes on a majority of Americans, the changes on how deductions are handled are going to hurt millions of middle class Americans. Also, certain provisions, such as the Family Flexibility Credit, that directly help families are temporary, while parts such as the generous corporate tax cut are permanent. This cut would be more favorable if it was closer to 25% or even a tad higher. Overall, I give it a C-. There have definitely been worse tax plans put forward, but the disproportional tax cuts along with an expected rise in the deficit of over one trillion dollars, this plan could be a lot better and still create the jobs that Republicans are expecting to come out of any tax reform plan that’s put out.
Considering all of the strife and in-fighting in the Republican Party, next week I’ll be discussing the state of the GOP and what the possible outcomes for the party are.