Improving the Tax Cuts and Jobs Act

Improving the Tax Cuts and Jobs Act: A Path for the Conference Committee

Heritage Foundation
Adam Michel
December 6, 2017

SUMMARY

The House and Senate each past different versions of the Tax Cuts and Jobs Act. The two versions now head to a conference committee where select lawmakers from both chambers will work towards one unified bill. The conference committee should begin with the Senate-passed bill because the political balance struck in the Senate will be important to maintain for final passage. The House bill, however, has many worthy provisions that will make the Senate bill even stronger.

The Best Parts of the House and Senate Plans

1. 20 Percent Corporate Tax Rate and Expensing. In both bills the corporate tax rate is cut from 35 percent—one of the highest rates in the world—to 20 percent. A 20 percent federal corporate tax rate is the upper bound for global tax competitiveness. Even after adoption of this recommendation, when average state taxes are added in, the U.S. would still have an average cumulative tax rate higher than the worldwide average of 23 percent.

2. Elimination of Tax Subsidies. Both the House and the Senate bills eliminate the state and local tax deduction for income and sales tax and cap the property tax write-off at $10,000. This true structural reform will increase the efficiency and fairness of the entire U.S. tax system. Removing the state and local tax deduction ends the current economically destructive subsidy whereby similar taxpayers in low-tax states pay higher federal taxes than those in high-tax states.

3. Individual Mandate Repeal. The conference committee should include the Senate’s repeal of Obamacare’s individual mandate. Zeroing out the tax, which forces individuals to buy health insurance, would provide tax relief to millions of Americans who cannot afford the rising costs of Obamacare insurance. Repealing the mandate would put anywhere between $695 and $13,100 back into the pockets of American families, if they choose to not purchase the type of health insurance that Obamacare requires.

4. Education Savings Accounts Expansion and Tax Credits Simplification. The House bill includes two important simplifications to education policy that are largely left out of the Senate reform.

Room for Improvement

1. Individual Tax Rates. Neither the House nor the Senate lower personal taxes as far as they should. The House plan consolidates the number of tax brackets from the current seven down to four, but does not lower the current top tax bracket of 39.6 percent. The plan actually raises marginal rates on some taxpayers making over $200,000 and includes a new “bubble tax rate” of 45.6 percent for some high-income earners.

2. Business Deductions. In response to concerns that small and pass-through businesses did not receive a big enough tax cut in the original Senate bill—a dubious claim—the Senate expanded the business deduction from 17.4 percent to 23 percent.

Outstanding Problems in Need of Solutions

1. Repeal the Alternative Minimum Tax. The House bill rightly eliminates the alternative minimum tax (AMT) in both the corporate and individual tax codes. The Senate bill retains both AMTs and raises the threshold where the tax kicks in for individuals.

2. Repeal the Estate Tax. The Senate, like the House, doubles the basic exclusion for the estate tax from its current $5.49 million per person. The Senate, however, never fully repeals the death tax.

3. Make Good Tax Policy Permanent. Due to Senate budget rules, the Senate reforms have many temporary provisions for both individuals and businesses. Tax policy should not be temporary, but instead should strive to provide certainty for taxpayers, now and in the future. Political realities of the Senate budget process mean that many provisions will remain temporary.

Read his analysis and charts HERE.

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The Democrats would have us believe that this new Tax Plan is a serious threat and would bankrupt the country. Perhaps they should remember that the tax code is more easily amended than nearly any act. Maybe they just don’t think Republicans can provide such a “wonderful” product as their own party members produced. Perhaps their objections are because two prominent DEMs wrote the code — Representative Richard Gephardt of Missouri and Senator Bill Bradley of New Jersey. Even the revisions of note were submitted by Democrats: the Revenue Reconciliation Act of 1990 under President George H.W. Bush and the Revenue Reconciliation Acts of 1993 under President Bill Clinton. There was a revision during GW Bush in 2001 that was Republican but it was repealing several penalties inflicted by the prior revisions.

Not one single completely new Tax Plan has been submitted by Democrats since 2009 including during this congressional session. They could have but chose to pick at the older Tax Code and add relief or “fix” only specific items of interest. The Republicans on the other hand have seemed to submit almost yearly at least one bill for a tax overhaul since 2009. So why are the Democrats objecting now — could it be they simply are realizing they might lose control if someone besides themselves actually comes up with a workable plan?

I do not believe that one party or the other has a “corner on the market” in writing tax codes, in fact I shudder when I consider that we are being basically “double and triple taxed”given that the colonies broke away from England over this very issue.

Maybe the tax plan won’t be a great one but then neither was the previous tax code.  U.S. Code: Title 26 -Internal Revenue Code has been on the books since 1986.  It has been added to, rarely revised, and constantly discussed since the day it was signed by the President. This plan will be no different but hopefully will start from a clean slate instead of saying “replace  the word xxx with yyy”.

Heritage Foundation has increasingly received recognition for their work and the current administration seems to rely on their opinions. This is why I am posting their information.

Without getting technical, I can at least see what they are agreeing with, worried about, and concentrating on. It gives me a lot more confidence to know that more than a few professional financial/tax advisors are carefully following what is being crafted into this bill. I just hope that the final product is worth all the angst and rants. 

I personally want to see that the 501(c)3 is slashed out of existence but have yet to see anything that suggests that will happen.

Still hope this helps a little for those like me who aren’t up on things and can only hope the final product is reasonable.

–Uriel– 

 

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