These days, politics is rife with “spin” where news and other information is manipulated and slanted to affect its interpretation and influence public opinion. With some major exceptions, the media plays its part, as well, as commentators (and, sadly, some anchors) on both sides—that is, both conservative and liberal news outlets—engage in the practice.
The impact of spin on public opinion is probably less than we think since, as studies show, people tend to seek out candidates and media outlets that agree with what they already believe. But some issues require a closer look, especially economic issues that are too complex to be grasped in a 30 second soundbyte but have significant impact on people’s lives and the economy in which they live.
Tax reform—and how it will affect Americans—is one such example, and it’s a topic that’s been in the public conversation since the man who is now president walked down the steps at Trump Tower several years ago. During that time, and more so in recent weeks, the promises of what the proposed tax reform will do have been sweeping and the criticisms from its opponents, fierce.
Some may choose to stick with the “red state, blue state, me state, you state” approach and leave it at that. What's the saying? "It's a free country," right? But others may want to know in more detail just exactly what the Congress and Senate are doing with their hard-earned dollars. So, in a somewhat valiant effort to report on the facts, the Independent has attempted to compile a “this is what we know for sure” summary of the bill the House of Representatives passed a few weeks ago.
Setting the Stage
Right now, this is strictly a Republican effort. Not a single Democrat voted for the bill; in fact, only the most visible and vocal Democrats have even used air time to voice their objections. So, good or bad, succeed or fail, bi-partisanship has gone bye-bi and the Republicans, at this point, are running the show.
Why does that matter? Because the pressure is on. Paul Ryan has said it. Mitch McConnell has said it. Everyone from the tenured Senator Lindsey Graham to Congressman What’s-His-Name-and-Where’s-He-From has said, on camera, “We have to get something done that we told the voters we’d do, and this is our last shot to do it this year.” So, what's wrong with next year? Well, next year, there are midterm elections and a lack of legislative accomplishments may put Republicans at a disadvantage. So, the pressure is, indeed, on, and it has some in the Congress—and, likewise, the Senate—voting for a tax bill that, in past campaigns, they're railed against. That’s the nature of politics. Always has been and probably always will.
The plan, called the “Tax Cuts and Job Acts”, is just the first step in a process that is a long way from over. The Senate still has to pass a bill, which they hope to do after Thanksgiving, and, as of now, that’s far from a slam dunk. After that, the two bills have to be reconciled into one both houses can pass that the president will also sign. But, for right now, this is what we know.
5 Basic Facts about the House Bill
Fact number one: Big business wins big.
Corporate tax rates will be cut from 35% to 20%.
The United States has the highest corporate tax rate of all the developed countries in the world, which puts those corporations at a competitive disadvantage. Granted, the majority of corporations do not pay 35%, and there is debate about just how much higher U.S. corporate tax rates really are in comparison to others. Nonetheless, economists largely agree that it is our most economically damaging tax, which is why the need for reform is, and has been, acknowledged by members from both political parties.
Fact number two: There are less tax brackets.
Currently, there are 7 tax brackets. The bill collapses those brackets from seven to four:
12% for individuals earning up to $45,000 and couples to $90,000; 25% for individuals earning over $45,000 and couples over $90,000; 35% for individuals earning over $200,000 and couples over $260,000; 39.6% for individuals earning over $500,000 and couples over $1 million.
Fact number three: Most Americans will see their taxes go down.
The House plan almost doubles the standard deduction to $12,000 for individuals and $24,000 for married couples. Taxpayers will not pay taxes on the first $12,000 or $24,000, respectively. (The plan eliminates the $4050 personal exemption for self, spouse and dependents.)
It expands the child tax credit from its current $1,000 to $1,600.
The estate tax, paid when estates worth more than $5.5 million are passed on to heirs, doubles to about $11 million (and $22 million for couples). The tax is repealed altogether in 2024.
The Alternative Minimum Tax, created 40 years ago to prevent wealthier from paying greatly reduced taxes because of deductions, is repealed.
Fact number four: Almost all itemized deductions go away, with the exception of three.
Three deductions are saved: charitable giving, property tax deduction (capped at $10,000) and mortgage interest deduction (capped at $500,000).
The following deductions are eliminated: medical expenses, most tax benefits for college (including interest on student loans), state and local taxes, moving expenses, fees for tax preparation, alimony payments, theft or loss of values unless loss is due to a declared national disaster, plug-in vehicles, and others. Even the $250 deduction for teachers who spend that amount on classroom supplies is eliminated.
Fact number five: Most Americans will be able to file their income tax on a post card.
See fact number four.
Fact number six: Tax cuts for corporations are permanent. The others? Uh…no.
The House bill states that the tax cut from 35% to 20% is permanent.
All other tax cuts—such as the increased child tax credit—will expire in 2025. According to figures from the nonpartisan congressional Joint Committee on Taxation (JCT), by 2025, 24% of taxpayers will be paying more taxes than they’re currently paying, and most of those taxpayers would be classified as “middle class”. By 2027, all decreases will have disappeared, except for the wealthiest of Americans.
Finally, there’s one big factor to throw in the mix: this bill is expensive.
According to the Joint Committee on Taxation, the bill is estimated to add $1.4 trillion to the national debt. That’s $1.4 trillion with a “t”, and that’s not including interest.
That amount is equal to what all the NFL teams are worth together, and then some. It’s more than twice the Defense Department’s budget in 2016. It’s enough to buy 3.2 million homes at the current median price of a home in the United States. That’s a lot of clams.
So, who’s going to get all that money? According to the JCT, a big percentage will go to businesses. The rest will go to benefit many, but not all, in the middle class, and the richest Americans will benefit the most, by far. In fact, according to the JCT, initially 70% of the tax benefits will go to those earning six figures and above.
The drive to cut the corporate tax rate is based on the theory that, if corporations have that much more income, they’ll use it to create new jobs and raise wages. Some economists believe that is exactly what will happen.
However, there are a large number of economists who disagree. They predict corporations will take those profits and either return them to shareholders as dividends or use the money to buy back shares.
And these economists point to one simple fact to defend their prediction: in 2017, companies are experiencing record breaking profits. Those same companies are not raising wages or building factories; they’re spending a record amount—doing what? Buying back their own shares.
The Tax Cuts and Job Acts still has a long road to go before it’s signed into law. The House passed their version. Now the Senate has to come up with a version they can pass, which ain’t going to be easy given the slimmer margins and some of the provisions they’ve added.
What’s the bottom line? From the looks of things, tax reform has a long road to travel to the president’s desk, and it’s going to be a rough road, as well.