Congressional tax plans are not fair — and not reform

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 are different. They face different deadlines, with a House vote set for this week and the Senate’s after Thanksgiving. Both bills must match to become law, and there is no guarantee that can happen. But they do 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.

Both bills would devastate middle-class taxpayers in New York in particular, especially on Long Island and in New York City, by ending or capping deductions for state and local taxes. They would erode home values. The idea is so egregious that even Rep. Lee Zeldin, the Shirley Republican who is one of Trump’s most reliable supporters, is opposed. For the richest New Yorkers, who bear so much of the state and local tax burden, the loss of these deductions (even as the rest of the plan benefits them) would be so punishing that fleeing the state for lower-tax locales and taking their earnings and spending with them would be a no-brainer.

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 billion 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 that the authors of this tax plan love to fret about.

Worst of all, the plan is not the tax reform this nation needs. No one will be filing on a postcard. The system is not getting simpler, or fairer, or being reshaped to improve growth or wages.

A Congressional Budget Office report said last week the House plan will cost about $1.7 trillion over 10 years. Republican leaders hoped to cover this with the Medicare and Medicaid cuts, which would allow the Senate to pass its bill with 51 votes rather than the 60 votes required for legislation that increases the deficit. But the CBO report nixed that hope, at least for the moment, showing the plan costs too much.

As attempts to bring the bills together and knock the cost down move forward, it’s important to calculate what happens if some version of these bills passes. The marquee changes in tax rates, standard deductions, personal exemptions and child tax credits are nearly a wash for many filers. But there are huge winners and losers.

• In the House version, $269 billion would go for fully erasing the estate tax that cost about 5,000 fantastically wealthy people approximately $4 million each last year. In the Senate version, tax-free inheritance limits would be doubled to $22 million per couple.
• About $770 billion more would go to owners of “pass through” businesses like sole proprietorships, partnerships and S corporations that pay taxes at personal income rates. The plan would lower their maximum rate from 39.6 percent to 25 percent. This would mostly help extremely high earners. In total, an estimated 80 percent of this cut, or $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. That’s what this bill is really about. GOP leaders claim this huge boon would lead companies to hire workers and pay them more, significantly increasing income for Americans across the board. Most economists, though, say this is largely unlikely: Companies do not hire more people or raise wages when they have extra money. They distribute it to shareholders.
• Much of these cuts would be paid for by eliminating deductions for state and local taxes. They would be ended completely in the Senate version, but in the House version, the property tax deduction would be capped at $10,000. Nationally, taxpayers deduct more than $550 billion in state and local taxes each year.

• Beyond these huge, ill-conceived changes, both bills contain several nuggets that are shockingly mean-spirited. The House version, for instance, 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 campaign pledge to kick-start the economy and wage growth into high gear, and want to spend $1.5 trillion on it, they should invest that much in the nation’s 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.