Republican Congressional leaders yesterday released the details of its tax reform proposal, prepared in conjunction with the Trump administration. The tax bill makes good on the middle-class tax cut promised by the President and Congressional leaders. Although not as ambitious as it might have been, its business tax cuts should promote growth. But the bill presented yesterday, though fleshed out from the framework announced earlier, still has a way to go before becoming law.
Some of the proposal’s features from the original framework remain intact, notably the 20% corporate tax rate, the 25% pass-through rate, the reduction of brackets (from seven to four), the near doubling of the standard deduction, the scrapping of the A.M.T. (alternative minimum tax), and tax simplification for many individual tax payers.
Other proposals were either dropped or modified to make them more palatable to important constituencies.
The Tax Foundation usefully details the personal and business provisions of the tax bill here. There will undoubtedly be further modifications in the back and forth between the Senate and the House of Representatives, each of which will have their own version of the Tax Cuts and Jobs Act, as it is now known.
The Tax Foundation analyzed the just-published bill by modeling eight households representative of different income levels, marital, and job status (employed or retired). It found “a reduction in tax liability for every scenario we modeled, with some of the largest cuts accruing to moderate-income families with children and fixed-income retirees. Individuals with pass-through income also benefit substantially from the lower pass-through rate…”
Thus, if the Act isn’t mutilated during legislative markup, it will make good on the Trump campaign’s promise of a middle-class tax cut — and not just the middle class.
Nevertheless, the Bill is premised on accepting a $1.5 trillion increase in the deficit over ten years. Future Congresses may find this unacceptable and raise taxes again.
But it is not true, as some opponents of the present tax bill have charged, that the tax cuts passed in Kansas in 2012 were a failure and demonstrate that the present tax bill will suffer a like fate. The problem with this narrative is that the Kansas tax cuts were not a failure but a success.
Still, one must ask, where are the funds to come from for a major expansion of missile defense, quantum computing, and the naval buildup that seems necessary to contain an increasingly threatening China and North Korea?
Click here to go to yesterday’s Founders Broadsheet (Trump gambles with Powell Fed chair appointment)