What does it profit a president and his party if they gain their first legislative victory with a new tax system . . . and lose their supporters?
That question is increasingly relevant in the wake of Tuesday’s elections, when Democrats notched some gains and Republicans got a scare. The GOP’s proposed tax measures mostly are not targeted at helping the middle class, and polls show voters understand that.
The GOP believes it must score a big win after its plans to repeal the Affordable Care Act bombed, so President Donald Trump is fighting for tax-code revisions cooked up by Republican leaders. The tax bills in the House of Representatives and Senate differ, but have something in common: a transfer of money from the middle-class to the wealthy so clear that even many of the most fervent supporters of Trump and the GOP can see through the con.
Lowering the boom on New York
Both bills would devastate middle-class taxpayers in New York in particular, by ending or capping deductions for state and local taxes. And a 10-year budget blueprint recently passed in the House calls for the money to be funneled to the rich by cutting Medicare spending by $500 million over 10 years and Medicaid by $1 trillion. If those cuts, which would devastate both programs, did not occur, the spending would be added to the nation’s $20 trillion debt the authors of this tax plan love to fret about.
Worst of all, the plan is not the tax reform we need. No one will be filing on a postcard. The system won’t be simpler, or fairer, or better able to improve growth and wages.
As attempts to advance the bills move forward, it’s important to their effects. The marquee changes in tax rates, deductions, exemptions and child tax credits are a wash for many filers. But there are huge winners and losers.
- In the House version, $269 billion would go to erase the estate tax that cost about 5,000 wealthy people approximately $4 million each last year. The Senate version doubles tax-free inheritance limits to $22 million per couple.
- About $770 billion would go to owners of “pass through” businesses like partnerships and S corporations. About 80 percent of this cut, $616 billion, would go to families earning more than $1 million a year.
- About $1 trillion would go to cut the corporate tax rate from 35 percent to 20 percent.
- Many cuts would be paid for by eliminating deductions for state and local taxes. They would be dropped in the Senate version, but in the House version, only a property tax deduction capped at $10,000 would survive.
No deductions for medical expenses
- Beyond these huge, ill-conceived changes, both bills contain nuggets that are just mean. The House version would eliminate deductions for catastrophic medical expenses and student loan interest. And both versions would end deductions for teachers buying school supplies for students, and casualty losses from disasters like superstorm Sandy.
If Trump and congressional leaders want to live up to their promise to kick the economy and wage growth into high gear, and want to spend $1.5 trillion on it, they should invest it in roads, bridges and other infrastructure and watch the economy roar. But spending that money to give huge tax cuts to the wealthy will do great harm to the economy, to the middle class, particularly in New York, and probably to the political futures of Trump and the GOP.
