[Two great, new updates.]
There is and will continue to be much digital ink spilled in analysis of the House Republican tax plan, and while OTE readers are, by definition, invariably well-informed, here are some links to worthy pieces you might have missed.
–Catherine Rampell at WaPo and Ben Casselman/Jim Tankersley at the NYT both dig in the weeds this AM. Rampell highlights the fact that the new pass-through loophole introduced by the bill is particular generous to what she calls the “lazy/idle” rich, as it lavishes its goodies especially on passive investors (those who do less actual work for the S corp, partnership, etc.). The Times piece reveals that the R talking point on how no middle-class families taxes will go up under the plan to be false. In fact, millions of such households face higher taxes under the House plan. The reasons are the same I note below from Kamin’s piece: the fading of the $300 child credit, the shift to the chained CPI, the loss of personal exemptions (which are indexed to inflation whereas the Child Tax Credit expansion is not), and the loss of various deductions.
–David Kamin does some very useful number crunching on some tricky details re the dynamics of the plan that, as he estimates, turn one of their examples of a tax cut, relative to current law, into a tax increase.
In rolling out their plan, House Republicans focused on an example family — a married couple making $59,000 per year and with two kids. They said that family would get a tax cut of over $1,182 in 2018 (compared to what they paid in 2017). But, what they didn’t say is that a family making $59,000 would face a tax increase by 2024 relative to current law, with the tax increase potentially rising to nearly $500 by 2027. This is even as tax cuts for those at the top are maintained.
The reasons are: the loss of personal exemptions, the expiration of a $300 family credit the plan initially offers, and the switch to a slower-growing price deflator to index brackets and other tax parameters (this means, e.g., that growing nominal incomes will pass into higher brackets more quickly than they would under current law and that tax credits indexed to inflation will rise more slowly).
–Steve Pearlstein made the same point in the WaPo that I made a few weeks back in the American Prospect: Hey, Dems! Plan beats No Plan. Though playing defense right now justifiably sucks up a lot, if not all, of progressives’ bandwidth, I’ve long felt that the absence of plan that embodies real tax reform is a big hole that should be filled. I like my ideas–surprise!–but Pearlstein and I share some of the same ones. This really isn’t rocket science: you’ve got to raise the necessary revenues, as progressively and efficiently as possible. That typically means closing a bunch of wasteful loopholes that squander resources on the wealthy, often subsidizing activities, like buying big houses or saving for retirement, that they’d do anyway. From my Prospect piece:
Real tax reform would begin from a clear-eyed assessment of the resources government will need to meet these needs, all of which fit neatly under the rubric of public goods, social insurance, and risks that will not be met by market forces. The raising of ample revenues, done in a way that balances efficiency and equity considerations—i.e., that minimizes the kinds of distortions you get by favoring one income type over another, while maintaining tax progressivity—that’s real tax reform.
–I thought this Washington Post editorial made a good point re non-credible claims that the tax cut will pay for itself by generating implausible growth effects:
If Republicans really believe that the experts [i.e., those of us who disbelieve the growth predictions] are wrong, they can put their legislative language where their mouths are. They can allow their tax cuts to phase in only so long as the federal government meets revenue targets. If early cuts appear to produce economic growth and significant new federal tax income, more cuts could automatically kick in. Alternatively, most or all of the cuts could begin immediately, and some could be scaled back if the federal budget takes a big hit. The GOP plan calls for phasing out the estate tax over several years. At the least, that egregiously unnecessary measure could be canceled if the budget suffers from the rest of the tax plan.
Republicans might worry that uncertainty about future tax rates would blunt the boost cuts would give the economy…[but they] could design a trigger that would close more unnecessary tax loopholes in case promised revenue does not appear, ensuring that the lower nominal tax rates they favor would not change [since in their supply-side fairy tales, it’s the rate reductions that do the magic]. If the deficit rises under the GOP plan, additional limitations on tax subsidies that help wealthy people buy expensive houses could automatically phase in, for example.
Of course, the editorial makes the mistake of taking the growth rhetoric seriously, as opposed to just part of the sales job.
–Also in WaPo, I feature an important, new bit of analysis by CBPP’s Chuck Marr regarding the tax plan’s extension of the Child Tax Credit. The tax plan extends the credit, but the extension is asymmetric: it only goes up, not down the income scale. That is, the current phase-out range is increased so higher income families with kids will now get the credit, but because the refundable part of the credit is unchanged, low-income, working families, who would benefit most from the extended credit, don’t get it (they end up with the same amount of the CTC they’re currently getting).
–Adam Looney provides a useful explainer to which you should really pay attention so that next time you hear whining and caterwauling about how US mulitnational corporates can’t access their offshore earnings, you will plug up your ears and run the other way (my bold).
Given how we talk about these earnings, you could be forgiven for thinking U.S. companies have stashed their cash inside a mattress in France. They haven’t. Most of it is already invested right here in the U.S.
U.S. multinational corporations can defer paying tax on profits they earn abroad indefinitely by agreeing not to use the earnings for certain purposes, like paying dividends to shareholders, financing domestic acquisitions, guaranteeing loans, or making investments in physical capital in the U.S. In short, the rules prohibit a company from using pre-tax money in transactions that benefit shareholders. No one believes this is rational or efficient, and it is certainly onerous for shareholders, who would rather have that cash in their pockets than held by the corporation. But those rules don’t place requirements on the geographic location of the cash. Multinational firms are allowed to bring those dollars back to the U.S. and to invest them in our financial system.
I’ll update this post accordingly, and if you have any good items you think we should look at, please post the link in the comments section.
That said, I must say I’m reminded of the great Tom Lehrer song about the war against Franco: “Though he may have won all the battles, we had all the good songs.”
OTOH, resistance is not futile! Look at this recent Pew poll result, which shows a marked, 7 ppt swing towards D’s on taxes in late October. OTOOH, we’re not talking about the world’s more representative group of politicians. To state what is, or at least should be obvious, they’re playing to their donor base, not to their constituents.