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Opinion: Tax Bill Xmas Gift a Lump of Coal for Many

December 27, 2017 Featured, Taxes No Comments

The recent non-scientific Sunday Poll asked about the Fair Tax Act of 2017. I made it the Xmas-eve poll topic because of the president characterizing it as a gift.

It’s a gift alright…for the wealthy. For the rest of us it appears like a gift…but within a decade it turns to coal.

In trying to justify the Republican tax bill, conservatives are quoting Bernie Sanders, of all people. The problem is that they’re taking the Vermont senator out of context.

In an interview last week, CNN’s Jake Tapper asked Sanders, “Next year, 91 percent of middle-income Americans will receive a tax cut. Isn’t that a good thing?”

“Yeah, it is a very good thing, and that’s why we should have made the tax breaks for the middle class permanent,” Bernie replied. “But what the Republicans did is make the tax breaks for corporations permanent, the tax cuts for the middle class temporary.”  (Conservatives take Bernie Sanders out of context to justify their tax bill | Salon)

Yes, those cuts designed to thrill Trump’s base are minor and temporary. He’ll be out of office before they realize what happened..if they realize it even then.

The Tax Cuts and Jobs Act of 2017 has nothing to do with economics. It is pure politics. Economists struggling to understand the unwieldy legislation are like biochemists attempting to explain contemporary ballet. Nobody seriously believes that the bill will boost growth. Everybody knows that it will massively increase the deficit; the only argument is whether it will be by $1.5 trillion, or just $1 trillion. The legislation has been drafted at breakneck pace, with few opportunities for costings or analysis: a recipe for errors. Senator Elizabeth Warren joked that she spent more time choosing her new refrigerator than the Senate managed for tax reform.  (The new tax plan is the worst Christmas present for the middle class | Brookings)

Me in front of the White House, October 2001. I wore a watch and on my belt a case for a point & shoot camera!

But it’ll help the middle class…

There are elements of the bill that help middle-class Americans. It nearly doubles the standard deduction—the amount taxpayers can deduct from the annual income figure on which they’re taxed—to $24,000 for families and $12,000 for individuals. At the behest of Sen. Marco Rubio (R-FL), the final version of the bill hikes the child tax credit, allowing parents to subtract $2,000 per child from your tax bill. (Both changes are temporary, set to expire along with the individual tax cuts in 2025.)

But ultimately this is a bill for businesses and the people who own them. “The most important part of this tax reform is the corporate tax reform,” says Dr. Wayne Winegarden, an economist with the Pacific Research Institute, a free-market think tank. “How each individual is going to fare will depend on their unique circumstances.”

Many small businesses in the United States known as “pass-through” companies—after the way income “passes through” to their owners—are currently taxed as individuals. The tax bill will grant these businesses a 20% deduction. But the jury is out on whether the windfall for businesses will contribute to significant economic growth as Republicans claim, or whether corporations will pump their profits into hiring more employees.

In other words, the new bill will be a test of trickle-down economics, the Reagan-era economic policy that many experts now consider a flawed theory. Even some Reaganites are unimpressed by the legislation.
(The GOP Tax Bill Isn’t for the Middle Class. And It Was Never Meant to Be | Time)

Many know trickle-down doesn’t work…just look at Kansas for a recent example:

For five years, Kansas’s Republican governor, Sam Brownback, conducted the nation’s most radical exercise in trickle-down economics — a “real-live experiment,” he called it. He and the GOP-controlled legislature slashed the state’s already-low tax rates, eliminated state income tax for most owner-operated businesses and sharply reduced vital government services. These measures were supposed to deliver “a shot of adrenaline into the heart of the Kansas economy,” Brownback said.

It ended up being a shot of poison. Growth rates lagged behind those in neighboring states and the nation as a whole. Deficits mounted to unsustainable levels. Services withered. Brownback had set in motion a vicious cycle, not a virtuous one. 

Last week, finally, the legislature — still controlled by Republicans — overrode Brownback’s veto of legislation restoring taxation to sane levels. The nightmare experiment is coming to an end.
(Trickle-down economics is a nightmare. Kansas proved it. | The Washington Post)

The poll results:

Q: Agree or disagree: the massive federal tax cuts “will be an incredible Christmas gift for hard-working Americans.”

  • Strongly agree 4 [12.9%]
  • Agree 2 [6.45%]
  • Somewhat agree 2 [6.45%]
  • Neither agree or disagree 2 [6.45%]
  • Somewhat disagree 1 [3.23%]
  • Disagree 3 [9.68%]
  • Strongly disagree 16 [51.61%]
  • Unsure/No Answer 1 [3.23%]

This tax code change will be a disaster for those of us not in the top income brackets.

— Steve Patterson

 

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