Politics

Tax Reform Just Got Real. Why the GOP Tax Plan Is Great News for America.

tax reform GOPBold tax reform got a big boost on Wednesday.

Leaders in the House, the Senate, and the White House have all agreed on a tax outline, meaning a true update to our broken tax system could be imminent.

First, the GOP tax plan framework would lower taxes for individual Americans. It would double the standard deduction for individuals and thereby expand the zero-percent bracket, and it would create three income tax brackets (down from seven): 12, 25, and 35 percent, respectively.

Most simply, this will allow all Americans to keep more of their hard-earned money in their pockets.

Importantly, the plan goes a long way toward fixing our business tax system, which makes it hard for U.S. businesses to invest in new equipment and new factories. Slow investment caused by our high and distortionary taxes has limited American job creation and slowed wage growth.

This isn’t some hidden truth known only to economists. Almost 80 percent of Americansunderstand that high corporate taxes lead to lower wages and encourage corporations to do business outside of the U.S.

The proposed new 20 percent corporate tax rate would mean a raise for hardworking Americans.

To maximize its benefits, tax reform must include permanent full expensing. This would allow companies to write off the cost of investments they make in their own workplace immediately, such as the cost of office space needed to hire additional workers.

Right now, the proposal grants five years of expensing, but that can easily be expanded at little additional cost. This simple change, if made permanent, could grow the economy by more than 5 percent over 10 years.

Without full expensing, the current system will continue to keep the cost of investing artificially high, thus discouraging business expansion.

The benefits of expensing are not just for large corporations. All businesses can take advantage of expensing, big and small. Permanent expensing must be a primary component of any tax reform plan that emphasizes economic growth and job creation.

The new proposal also includes a territorial business tax system. This would put American businesses on a level playing field with their foreign competitors and finally bring overseas profits back to the U.S.

As reform moves forward, focus will also turn to the more contentious reforms, some of which we cannot forget.

For years, politicians have called for getting rid of “special interest tax breaks” and “closing loopholes.” That sounds good in theory, but as soon as Congress gets specific, K Street lobbyists will swarm Capitol Hill to protect their favorite handouts.

One of the most important reforms in this vein is to eliminate the state and local tax deduction.

This provision benefits only a minority of taxpayers and creates a federal subsidy for expansions of government at the state level. This forces people in low-tax states to subsidize big-government states like California, Illinois, and New York.

The state and local tax deduction is both bad policy and unfair.

The tax code should not be used to pick winners and losers. The final tax package should eliminate unjustified tax subsidies that benefit politically favored industries, such as the myriad tax breaks for wind farms, solar panels, and nuclear electricity production.

There are countless other examples of preferences that need to go: the research and development tax credit, education tax credits, and the exclusion for municipal bond interest, the deduction for U.S. production activities, and the credit for low-income housing investments, to name just a few.

The president has already indicated that he would like to keep some of these provisions—but updating the tax code for the 21st century requires more than just cutting taxes.

True reform will include structural reforms like allowing permanent full expensing and rooting out all the accumulated carve-outs for special interests wholesale—not just the tax subsidies that are easy to get rid of.

Lastly, the GOP tax outline includes a new lower pass-through business rate of 25 percent for businesses that pay taxes through the individual tax code, repeal of the estate tax or “death tax,” and repeal of the corporate and individual alternative minimum taxes to simplify the tax system.

Each of these additional reforms should strengthen support for tax reform and add an additional boost to the economy.

Tax reform that follows the outline we heard from the president and Congress on Wednesday can truly make America great again by unleashing higher wages, more jobs, and untold opportunity.

From - The Daily Signal - by Adam Michel

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T. H. Friedman
3 years ago

Let’s eliminate all tax payers dollars going to sports arenas. This isn’t the business of government.

Donald Tucker
3 years ago

The plan penalizes Blue States (such as California that has an income tax rate of 13.3%) because of all their leftists bureaucracies and high spending habits. Can’t deduct that state income tax so it penalizes states that didn’t vote for Trump. It make no distinction between Liberals of Conservatives that are living in liberal states such as CA. See all of you in Texas if this passes.

PaulE
3 years ago
Reply to  Donald Tucker

The idea is to try and shock the mindless liberals, who keep voting for every Democrat and their spending initiatives, no matter how ludicrous or wasteful, into taking a cold, hard look at what this is costing them (and us conservatives stuck in these states with these idiots). The goal, at least according to the Washington inside the beltway crowd, is that when liberal residents of the Blue states see their new, higher tax bells, they will rise up and demand their Democrat Governors and Legislators start doing spending cuts and cut-backs big time. Personally, I don’t think any Democrat politician know the meaning of spending cuts or making due with less, but that is supposedly the plan. I agree with your solution of moving elsewhere, if the Democrats controlling these Blue states think they are just going to continue and tax and spend as usual without the federal tax deduction in place.

As a New Jersey resident, who is stuck in the same sinking Democrat majority state boat as you, with just slightly less water filling the boat, I understand what you are saying. However, the reality is that the Red states have been actually subsidizing the Democrats who control the Blue states for decades, since they don’t have the onerous taxes we do yet Washington keeps more of their money so they can cover the tax deduction afforded to the Blue states.

Donald Tucker
3 years ago
Reply to  PaulE

Pretty soon CA will have only homeless and Illegal aliens. I wonder who will pay the bills when that’s all they have in the state.

Jim
3 years ago

If it is fair why do singles get screwed. Why do they have the lowest income brackets so they can pay more in Taxes. You have grown kids, grand kids, etc. help on education vs what we all paid! I still on not sure what is deductible, how are 401’s handled so IRS forces you out of existence because you live longer than they think you should, IRA’s, Roth, healthcare insurance and out of pocket, taxes on SS which by the way the laws of 1984 & 1994 never adjusted for inflation, sales tax vs state income tax, HSA’s Etc. It goes on because millionaires and billionaires came up with policy. Those in the middle still get screw

Tom
3 years ago

Looks like this proposal is better BUT it still shows that our representatives are so far embedded in the present system that they are not interested nor do they intend to make real hard changes. The avenues for corruption will still not be cut off. The Dems and Reps officials are in too deep and real honest change will expose them negatively politically ( and probably financially ). So you can shuffle the deck all you want, you’re still playing with marked cards. You want fairness and equality and honesty — bite the bullet– FLAT TAX NO DEDUCTIONS PERIOD.

Bob R
3 years ago

Much is very good about the new tax proposals. And I generally support them. But somethings are too vague. What I’d like to learn is the following:

1. By how much will this reduce the number of employees at the IRS? (And save us lots of $$$!)

2. Will we be able to rerun to simple tax forms, requiring about an hour to complete, not requiring an accountant. (Saving us more $$$!)

3. What will be done to reduce the number of Americans now paying NO federal taxes? Currently that percentage of Americans NOT PAYING ANYTHING is 46%! That is fundamental wrong. Only those legitimately below the poverty level should be exempt (and than only for a limited number of years.)

4. How will these changes impact the national debt. ANY increase is a serious problem as the REAL national debt exposure is close to $80 trillion dollars (not just $21 trillion.) We must begin reducing that figure or we’ll bankrupt our grand kids.

PaulE
3 years ago
Reply to  Bob R

All good questions Bob R. Well thought out, that’s for sure. So far, based on what has been released, we only know the answers to a few of these questions. As the House and Senate committees paste together the details of what REALLY will occur, we’ll get a better view of what the final product will look like.

To question one, the answer is NONE. The Ryan / Brady tax plan does nothing to reduce either the size and spending of the overall government, nor does it reduce the size and spending of the IRS specifically. There are NO reductions in federal spending in this tax plan. The entire concept of reducing the size and scope of the federal government is completely absent from this plan. Everything is predicated on the federal government continuing to spend more and more each year.

To question three, the answer is it will INCREASE the number of Americans paying NO federal income tax. A number of Republican members of Congress have already come forth and admitted this. So as to the notion of broadening the tax base, by having more Americans actually contributing to the tax burden of paying for the federal government, this plan actually makes things worse. The people still paying federal income taxes will have to shoulder a larger burden as the overall number of actual taxpayers DECREASE.

To question four, since there is NO reduction in federal spending in the Ryan / Brady tax plan, the national debt will of course continue to increase. Government will continue to consume as much money as they collect from the taxpaying portion of the American public and then borrow the rest from foreign governments and entities. In short, business as usual.

No idea yet on question two. Lots of vague promises from various members of Congress so fa, but we all know those aren’t worth the hot air required to utter them.

Hope this answers at least a few of your questions.

Hank
3 years ago

I’m not sure how fewer, steeper stepped rates are going to be better. It seems a raise in salary could cause a net loss when crossing rate levels. This change will be short lived, and was not well thought out. Even a more gradual grade of tax rate increases eventually doesn’t make sense; how do you raise the tax rate when you’ve reached a 100% tax rate? Let’s consider the Fair Tax. One of the better aspects of the Fair Tax is EVERYONE gets subsistence. If you want more, you work for it. That way, you won’t lose income/benefits when you become employed or get a raise. A subsistence benefit for someone between jobs can be a life saver. For a millionaire/billionaire it’s barely worth their time it takes to sign the subsistence check. That weighs reasonably against discretionary income.

daniel lubberts
3 years ago

some more band aids on the income tax, right !, that will help. we have to get rid of the income tax and the IRS. with the (FAIRTAX.ORG). every person pays their fair share. and we keep ALL of our pay. check it out for yourself.

vicki
3 years ago

So what IS the fair tax? How is it figured?

HanziesMom Mom
3 years ago

Tell me why there is no provision to stop double taxation of our social Security?

Terry
3 years ago

House is considering tax free social security bill2552 I believe that would really help us

PaulE
3 years ago

What was announced yesterday was by and large the Ryan / Brady tax plan minus the BAT (Border Adjustment Tax). What was laid out were some tax cuts, but not true pro-growth tax reform. Another once in a generation opportunity squandered for political expediency. I was hoping that a more of Trump’s original tax plan from the campaign, the one based on past historical success and that would have truly delivered both significant, across the board tax cuts, as well as true, pro-growth tax reform would have made it into the final outline given all the delays we’ve had on this item. Kind of makes me wonder what justified all the months of delay to essentially put forth what was Ryan / Brady’s tax announced last winter. I’ve come to expect no less from this Congress after watching their horrendous performance around the non-repeal repeal of Obamacare.

Now I look forward to the various dog and pony side shows, otherwise known as the House and Senate tax writing committees, as they decide all the details. Popcorn anyone? It promises to be quite a show as what we end up with looks almost nothing like what they just proposed. That is of course except for the large C corp tax cuts. Those will sail through no matter what else has to be traded away to achieve a final bill. The Business Round Table and the Chamber of Commerce have spent way too much money on lobbying efforts on Congress for that part to fail. So buckle up and enjoy the show!

Keith Clark
3 years ago

The only thing that will actually help the crushed middle class is the fair tax plan. fairtax.org Make the criminals pay the same taxes as we do, including the Washington Criminals.

SJSooze
3 years ago

I understand all of the good that our country can reap with the reduced corporate tax, loopholes, repatriating etc. But I think there is something you don’t know about or overlooked or (this is probably the case) just don’t care about as I read this article – “The state and local tax deduction is both bad policy and unfair.”. I live in southern NJ. I no longer have a life-partner. I live in a 62yr old farmhouse that is FALLING down around me. I’ve put money into my 401K. After my divorce I got my credit score where I could refinance my mortgage into one of the lowest rates. I am trying to prepare for my retirement. Doing everything I should be doing. My mortgage payment out paces my property takes by only 20.00!!!! I pay 750/month mortgage & 720/month property taxes. The HIGHEST in the country!!!!! This tax plan is NOT doing enough for me, as a matter of fact – I believe it will HURT ME. It will put MAYBE an extra 4% into my paycheck but then also takes away the ONLY RELIEF from this thievery that I have – the property tax deduction. That’s all I’ve got! I will LOOSE money on this tax plan.
I’ve worked ALL of my life since I finished school, not even one day of unemployment. I’ve paid off my student loans, I raised 5 kids who are all working tax-paying salt of the earth family people with kids of their own who are now the same!
I have been paying for other people’s “FREE” food, electric, section 8 housing, health care, addiction counseling, child care, school meals for almost 40yrs. Heck, I even pay for “FREE” cell phones & internet, too now!!! I am just wondering when do I get my break? When does working & teaching my kids to be tax-paying, working, contributing, law-abiding, voting citizens STOP HURTING me??? I’m TIRED of it – I’m helpless!! I’m hopeless!!! I didn’t think Trump would screw me over like this!!

Keith Clark
3 years ago
Reply to  SJSooze

well said. I’m in the same boat, same state. We are now expected to work until we die and the State will seize the property for taxes when we are with God. It’s not right, but that’s what these fools are talking about. I still think the Fair Tax is the only way to do it.

Chris
3 years ago
Reply to  SJSooze

I understand your frustration and pain, but you have to understand that if we keep that deduction it’ll only give your State, NJ, even more incentive to keep sticking it to you. Your problem is with your state, why should people who have kept their states under tighter reign have to pay for the fact that NJ (a State they can’t vote in) exacts so much from its citizens? Once the citizens of NJ feel the pain, they’ll start making their State change. I wish there was a better way to make that happen and I feel for the people it’ll hurt the most like you (and I have family that lives in NJ who will also suffer similarly). Usually when they do eliminate deductions, they phase it out over time, like 20% a year. That should give you and your fellow citizens of NJ time to force some changes before it gets untenable.

And yes, I’m 100% for scrapping the income tax altogether and going with the FairTax plan, but until I see even an inkling of a chance that’ll happen, we work with what we have and what we can get.

Lee McQuillen
3 years ago
Reply to  Chris

Are you sure they’re talking about property tax? I thought they meant the income tax we pay to state and local tax agencies. I agree about the property tax – that needs to remain as it’s as important as the mortgage deduction.

PaulE
3 years ago
Reply to  Lee McQuillen

Yes, it is state income tax in the document I read.

Jorge
3 years ago
Reply to  Lee McQuillen

If a larger standard deduction covers both of your items then you save the time to do the paper work and the space to save the paper work.
We have to save receipts indefinattelly ! The new receipts turn blank in a few months, if IRS audits then what??

Hen3ry
3 years ago
Reply to  Lee McQuillen

NJ property taxes seems to be hot topic. And for good reason.
For many of us by far the largest single expense.
And we get
Left leaning politicians and schools.
Over regulation and over staffed bureaucracies
And the highest costs per mile for road building in the nation
And the irony of seeing municipal workers and teachers upon retirement
Leave the state because of the high taxes.

steve
3 years ago
Reply to  SJSooze

SJSooze,

My first reaction was very similar to yours. Certainly you make some excellent points. I too live in a part of a state which has stratospheric property taxes with minimal payback to the homeowner. But the article makes some good points as well. Why should this benefit be worth more to residents of one state than to people who live in more fiscally responsible states? Why don’t you NJ’ers get Porky out of the Krispy Kreme long enough to do some good for the residents? And failing that (it’s not too hard to assume that your neighbors are benighted fools who think the more taxes the better, that’s the case here in SE MI) why not MOVE? That’s what I am preparing to do. Why fight it? There are nice things about living in MI, and I’m sure that’s true for NJ as well. But all states have something to recommend them, and pleasing and affordable areas that suit your unique perspective can be found. Go for it! You’re not getting any younger.

That was my second thought. But I’ve come full circle on this (or as I heard on the radio once, “I’ve had a 360 degree change of opinion”. The argument is that this “benefit” is worth more to some than it is to others. This is not true. We are looking at being double taxed, paying taxes on money that is being used to pay taxes. The deduction does not result in any money being refunded, we are just not being double taxed. And it’s not like the residents of WY and other low tax/no tax states are paying more taxes than anyone else, they merely are not able to deduct money that was confiscated by another taxing district, because in their case NO money was confiscated. If the deduction is eliminated, the WY folks (and others) will not pay one cent LESS in taxes, but those of us living in highly taxic states will pay MORE. And that’s a bad deal for all!

At the end of the day, taxes are taxes. All are a confiscation of our wealth, no matter where they end up. Our goal should be to lower any and all taxes, to reduce the amount going to feed the beast.

Final point, I assume most states are like MI in that they tax income based on the Federal AGI. Why? We should be able to deduct our federal taxes from our state income basis. We’re being double taxed again!

Ivan Berry
3 years ago
Reply to  steve

If each State covered their own “dependancy expenses, those who had the highest dependancy class or greater benefits would no longer be taking advantage of more frugal States’ taxpayers.
Should those expences per individual taxpayer get exempted from income taxes, other States taxes or Federal borrowing would make up the shortfall.

Red from MD
3 years ago
Reply to  steve

That was the original idea for the tax deduction to eliminate double taxation wherever it might occur. This principle is now being scrapped and will hurt everyone living in these high taxed states without helping anyone in lower taxed states. This is the way this is being “paid for” and results in more Fed taxes being paid on top of the state taxes that now won’t be able to be deducted. Another redistribution ploy.

PaulE
3 years ago
Reply to  SJSooze

Yes, as a fellow New Jersey tax payer, we get the “privilege” (that’s how one Democrat politician currently running for Governor of New Jersey on the Democrat side phrased it to me) of paying for all the “free stuff” the “more deserving and needy people of this state should get to achieve both social and economic justice for all”. All blue state politicians have used the federal deductibility of the state and local income taxes to mask their runaway spending. So every blue state is in the same boat. Our state, just like every other blue state in the Northeast, is about to get a big wake-up call. The mask hiding the real costs of all the giveaways in the blue states is about to removed, if the state and local tax deductibility goes away. The costs for all that “free stuff” and social welfare programs that have been used for decades to cultivate a large Democrat voter base will then be exposed to the public to see.

The idea of course is to force the blue states, most of which are approaching bankruptcy in any case, to scale back these giveaway programs massively or out-right eliminate a lot of them. Otherwise, the tax payers of this state will NOT be able to continue living here. Now the trick is of course getting Democrat controlled states, which New Jersey really is no matter who sits in the Governor’s mansion, to behave in a fiscally responsible manner and rollback their largess to the dependency voter base. Do you honestly think the next likely Governor of this state, if you believe the current polls, who is not only promising free college, free healthcare, etc. etc., will actually do anything like that? I sure as he** don’t. Nor do I expect any other blue state Governors. They would lose their dependency class voter bases over-night. Of course they will all face a massive taxpayer revolt, if this plan goes through. Either that or a mass exodus of taxpayers from the state (see what has been going on Connecticut for the last two years) . Either way, they would lose the ATM machine that funds their various giveaways to their voter base.

So yeah, I expect this tax reform plan will be very painful for us. The Trump tax plan from the campaign would have been far less painful, because our tax rates would have been lower than under Ryan / Brady. Flat 15 percent for everyone with almost all deductions gone. So more cash in your pocket to off-set the deduction loss when all is said and done. However, that is not the plan on the table. Any tax reform plan similar to this Ryan / Brady plan, that would simply level the playing field by across the board elimination of certain tax deductions without reducing the income tax rates enough to off-set the negative impact, by exposing the massive over-spending of Democrat-controlled states, would be painful.

Jorge
3 years ago
Reply to  SJSooze

One way a larger standard deduction helps is that we spend hours a week saving receipts and at the Tax time we are close to either standard or itemize. So if we know that we would be taking the standard, no need to do all that work year round.

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