It’s long been a core belief that politics held the art of compromise as the means to an end, but House Democrats faced a unwillingness by their Republican counterparts on Thursday as they dominated their bill to rewrite the U.S. Tax Code, an ambitious, and long sought desire by many, but also a strong push to score a legislative victory for the Trump administration, who has not had one in the nearly 10 months that they have been in office, despite the benefit of dominating both Congressional chambers.
The bill after it exited committee, still faces a floor debate, but it has several prominent features that the GOP says will give almost everybody a tax bracket, and will help Main Street, as well as Wall Street.
Its main, and most controversial, feature is the removal of the state and local tax deductions, that after four days of debate, stuck fast, despite efforts by some to pry it loose from the gums of debate.
The bill also slashes the corporate tax rate from 35 to 20 percent, and claims to offer tax benefits to small business, and offer punitive measures to those companies that make money overseas, once it is repatriated to America.
“Americans deserve a new tax code for a new era of prosperity, and today we deliver,” said chair, Kevin Brady (R-Texas.)
In total disagreement are the House Democrats, who say, the “Joint Committee on Taxation estimates that showed some middle-class taxpayers would still see their taxes go up, particularly in later years,” and there are also claims that “This bill will raise taxes on the middle class. It will raise taxes on the middle class. It will raise taxes on the middle class,” said Rep. Joseph Crowley (D-N.Y.), reported The Hill, on its website.
“You don’t have very many tools available to you as the minority members of the House, not like the Senate,” said Ways and Means Committee ranking member Richard Neal (D-Mass.). “And so you use messaging to make your argument and hope that the other side might, on a couple at least, acquiesce.”
The proof of that pudding was in the eating, and the Dems had to swallow a lot as each of their objections were shot down as “political theater,” sniped Sen.T om Reed (R-N.Y.)
As has been noted before the removal of the state and local tax deductions will hit many people hardest, especially those with Democratic majorities, a fact that did not go unnoticed by Republican lawmakers.
The removal of the state and local income tax deductions seems punitive because it only hits those who itemize on their returns, plus those cities that voted in the majority for Hillary Clinton in the 2016 election. According to the Tax Foundation only 28 percent of taxpayers take advantage of this specific deduction, most Americans don’t, but the opposition remains.
New York City, as well as New York State, is a perfect example of how to raise the ire of those long used to something, to only have it taken away. The benefit allows the average New Yorker to deduct roughly $20,500 annually from his or her federal taxable income, according to the nonpartisan Tax Policy Center.”
“The Independent Budget Office has estimated that doing away with the deduction would increase New York City residents' taxable income by $28 billion, causing their collective federal tax bill to rise by $8 billion a year. The state and local deduction especially benefits people with incomes of $100,000 or more who live in places like New York, New Jersey and California, where state, local and property-tax bills are high,” says Crain's New York.”
Tax Policy Center senior fellow Frank Sammartino estimates the state and local deduction costs the government about $100 billion in annual revenue, so repealing it could help pay for the tax cuts Trump is proposing for businesses.
"There has been a big campaign by municipalities to save the deduction because they don't want folks to realize how large their tax burdens really are," said Nicole Kaeding, an economist at the Tax Foundation.
Taking it a step further, the bill also caps the property tax deduction at $10,000, but in an odd twist, the GOP seems to feel that this will be a benefit, after the loss of the state and local tax deduction.
As predicted the House bill did cut the corporate tax rate from 35 to 20 percent, which has been on the hit list of tax reformers as a way to increase, retain and attract business development, and especially to avoid those that create foreign headquarters to avoid paying U.S. corporate tax, currently the highest in the world.
The House bill also gives a sleight of hand trick with the pass through rate for small business. Robert Robb noted in his piece for azcentral.com noted: “Thirty percent of the total income a working owner receives is designed a return on capital and subject to the lower 25 percent rate. Or the business can come up with an alternative based upon somehow calculating actual capital invested and multiplying that by a rate of return dictated by the government. But, if an alternative is chosen, the business has to stick with it for five years. And some professional service firms – such as lawyers and accountants – aren’t eligible for the lower pass-through profit tax at all.”
In another critical assessment Forbes Magazine noted that, “The provision also discourages professional services and other business from taking advantage of the lower business income rate altogether. But perhaps most important, it would only help a tiny fraction of business owners, individuals with taxable income above $200,000, or $260,000 for couples,” often hedge fund owners.
The most vocal have been groups that have usually been squarely in the corner of the GOP, namely the National Federation of Independent Business, who in their protest, said, “"We believe that tax reform should provide substantial relief to all small businesses, so they can reinvest their money, grow, and create jobs.”
In contrast, and what will eventually be a center stage fight, is to reconcile the bill passed by the House, versus the Senate version, who differs on key points, and which has powerful backers, all who want to be the first to get a final product on the president’s desk by Christmas, and this is next.
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