Special interest groups line up to oppose GOP tax reform

The law of unintended consequences applies to crafting legislation as well as life, and the Republican Congress with its tax proposal reforms is now facing a backlash, even protests, as what it sees as a signature piece for their power trifecta with Donald Trump as president.

First up last week was when the National Federation of Independent Businesses, a huge GOP supporter, became angered at a sleight-of-hand trick that would have only some of its members get a tax break with the proposed pass through. Upset at the backlash, Chair of the House Ways and Means Committee Kevin Brady Brady's turnaround “proposed amendment would provide a lower tax rate for smaller firms that otherwise wouldn't have qualified for the 25% rate on pass-through businesses,” reported Business Insider, on their website.

"We are very grateful to Chairman Brady for listening to our concerns and working with NFIB to ensure that tax reform benefits the greatest possible number of American small business owners," Juanita Duggan, president and CEO of NFIB, said in a statement.

"This amendment would create substantial tax relief for millions of small business owners who were left out of the original bill. We urge Republican and Democratic members of the House to support this amendment going forward," she added.

That bullet dodged, next up were the objections of the National Home Builders Association who felt that doubling the standard deduction would be harmful to the new housing deduction, for those filers that itemize on their federal returns, would not have an incentive to build new homes, and perhaps prepare to stay put, or rent.

Current rates reflect 21 percent of filers take this deduction, but NHBA predicts that this could drop to 4 percent if the proposal passes.

If a man’s house is his castle, then a new one, forgetting about the moat, under the GOP plan is going to take more gold than Fort Knox, says the housing industry, and depress the value.

“Specifically, the legislation calls for capping the mortgage interest deduction at $500,000 instead of $1 million [in value]. It would also limit the deduction for state and local property taxes at $10,000. The fear, at least in the housing industry, is that these tax breaks could sap demand for pricey homes, especially in expensive markets. Many of those markets, such as San Francisco and Manhattan, are in high-tax states. That's a problem because the GOP tax plan would eliminate state income tax deductions altogether,’ says CNN Money, and as we have previously noted before.

The National Association of Home Builders warned the GOP tax plan "slams the middle class" by hurting home values. The group complained that Republicans didn't include its proposal to replace the mortgage deductions with a tax credit. "This tax reform plan will put millions of homeowners at risk," said Granger MacDonald, chairman of the NAHB.

Not to be outdone, “The California Association of Realtors is fighting back against GOP tax reform plans, taking out full-page ads in seven California newspapers calling on state Republicans to oppose provisions curtailing tax benefits of homeownership.

Measures seeking to curb mortgage interest deductions, property tax deductions and capital gains exemptions will dampen homebuying while “punishing” millions of other California homeowners, the ads say,” says the Orange County Register on their website.

Things got dicey and somewhat personal when the ads noted, “Tax reform shouldn’t hurt Californians, but the House of Representatives proposal does, in a big way,” the ad says. “How could any member of the California congressional delegation think this plan is good for the Golden State?”

Desperate for a win and sticking to party lines, “U.S. House Majority Leader Kevin McCarthy, a Republican from Bakersfield, [Ca.] issued a statement this week defending the tax plan, saying it amounts to a tax cut when all provisions are taken into account,” they reported.

Or does it? Most that have read the proposal have remarked like, Fortune Magazine, that, “Even though mortgage interest deduction remains, it will no longer have value for current itemizers who would take the standard deduction under the Trump plan. Only the few taxpayers who would still itemize will receive any income tax savings from mortgage interest, however, those tax savings will likely be substantially smaller than under existing tax rules.”

In a nutshell, “The elimination of mortgage-related tax savings for most homeowners, and reduction for others, compounded with the loss of tax savings from deducting property taxes means the after-tax cost of home ownership will increase.”

As early as August, when the details of the proposed tax reform came to light, charitable organizations were worried, and the first on the list was the Lilly Family School of Philanthropy at Indiana University. And, again the culprit was doubling the standard deduction to 35 percent from 39.6 percent, and which has the potential to reduce charitable giving, from between $5 billion and $13 billion, or up to 4.6 percent.

As CNN Money then reported, “Few people donate simply because of the tax breaks and are unlikely to stop giving altogether if they don't get any. But analyses from the Congressional Budget Office and others have found that tax incentives typically increase how much you choose to donate -- whether in life or at death.”

“The double whammy of doubling the standard deduction while lowering the top rate to 35% from 39.6% could reduce giving by between $5 billion and $13 billion a year, or up to 4.6%, according to a recent study by the Lilly Family School of Philanthropy at Indiana University.”

“Of those two changes, increasing the standard deduction has the greatest negative effect because it would reduce those who itemize to just 5% of filers, down from 30% today. That's because the only reason to itemize is if your deductions combined exceed the value of the standard deduction,”

“The 25% who used to itemize will probably give some but not as much," said David Thompson, vice president of policy at the National Council of Nonprofits.

While we may not want to ignore the opportunity for tax reform, since the last try in 1986, it seems that unintended consequences are making the whole deal reek like limburger cheese. Yet, there seems to be hope for some reconciliation at least according to Speaker of the House Paul Ryan who says that it will go to yet another House committee rather than an up or down floor vote.

Many on Capitol Hill are concerned about the deficit, another detail that perhaps GOP lawmakers have not carefully considered.

Last month we reported the following concern: “Rep. David Schweikert, of Arizona, the soon to be retired Sen. Bob Corker of Tennessee, and Rep. Mark Sanford of South Carolina; all of whom seem to see less light, than darkness, on the horizon with what has been proposed. “The numbers are really uglier than almost anybody around this place seems to have digested,” said Schweikert . . . a member of the tax-writing Ways and Means Committee.

The Hill, the ultimate inside the beltway publication, said that “The tax plan could cost the government $1.5 trillion in revenue over the next decade, but advocates argue that would be made up for through economic growth unleashed by the corporate and individual tax cuts included in the plan.”

At that time Treasury Secretary Steven Mnuchin said that the tax plan would bring in $2 trillion because of economic growth, which would be enough to actually lower the deficit. Some were not so sure, even then, and even more so now.

“The running joke in our office is we work in a math-free zone,” said Schweikert, in opposition to that statement.