THE GOP PLAN IS DEFINITELY NOT TAX REFORM

…Are we back to “Taxation without Representation?”

 There’s a big difference between “tax cuts” and “tax reform”.

 

 

As I have previously stated, I am not a fiscal tax expert or a well-established economist. 

 

But I am a retired business man that does understand the difference between tax cuts and tax reform.

 

Please be aware that, as you are listening to what is mostly horse manure from those in the Congress trying to pass the ridiculous tax cut/reform bill now being debated, try to remember and apply the following:

 

Tax Cuts:

“In order to responsibility have tax cuts in any economy, when you cut one person’s taxes or one company’s taxes, you then have to raise somebody’s or some other taxes to compensate for the tax cuts.  Otherwise, the responsibility for not being deficit-neutral is that paying for the tax cut deficit will fall on our children’s, or their children’s shoulders.”

Tax Reform:

“Tax reform is very different from tax cuts.  Tax reform is when you change how you tax, what you tax, how much you tax, and this is all intended as the main effort for growing the economy.”

 

So, what’s going on with the GOP’s tax cut proposals?

 

Today’s House Republican tax plan proposes repealing the state and local tax deductions.  Yes it does allow individuals to deduct up to $10,000 of local property taxes, but it eliminates the rest of the deductions. In expensive states like California, New York, etc, that $10,000 is chicken-feed and would end up costing the resident home-owners in those states billions of tax dollars.  This tax policy approach is precisely backwards to appropriate and smart tax reform.  It would end the normal deductions for local and state taxes.

 

This treatment of the state and local tax deduction is one of the central points of contention in the current tax-reform debate. President Trump and most Republicans want to repeal or modify these deductions, which could raise more than $1 trillion over the next decade. But as expected, the Republican and Democratic members of Congress from those expensive high-tax states are protesting any deduction repeals because it would disproportionately harm their constituents.

The reality is that the benefits and costs of these proposed state and local tax deductions are targeted at these high-tax, mostly Blue, Democratic states vs. low-tax, mostly Red, Republican states.  In other words, as the House Republican tax plan implicitly acknowledges, the issue is a high-tax state vs. low-tax state, or a rich-locality vs. a poor-locality issue.  This plan would allow the federal government to provide a disproportionate tax to high-tax states and high-tax localities, while basically giving low tax GOP states a free pass.

 

And those targeted in these high-tax states would not be just the top 2% wealthiest in those states.  It would include all those from lower middle class to the upper class, if they happen to be home owners.

 

It is also important that everyone understand just what local taxes would be considered as “deductible”.

 

First, you must understand that the state and local deductions are two different types of deductions.  This is important because states and localities fund very different things.

 

Local taxes typically benefit those that purchase private goods. When residents pay local taxes, those taxes fund local schools, parks and recreation, police and fire agencies, and so on.  But wealthy individuals benefit from their local taxes the same way they benefit from purchasing a membership to a private club.  No one seriously argues that a membership to a private club should be deductible, yet that is what most of the deductions for wealthy individuals that pay local taxes allows.

 

State taxes, on the other hand, spend a significantly higher percentage of their revenue on programs such as state welfare programs, funding for poor school districts and health care for low-income residents.   However, when wealthy individuals, pay state taxes, that cost looks more like a charitable contribution, so those deductions are considered to be more justified.

 

As is expected of the House Republicans, their proposal is doing just the opposite.

 

By retaining deductibility for local property taxes, their approach would continue to disproportionately subsidize wealthy, country-club-like localities.  By eliminating deductibility for state taxes, the tax plan would end the federal government’s subsidy for state governments, which spend a significant percentage of their revenue on re-distribution programs for those less fortunate.

 

The point of this bogus Republican tax cut proposal is that it is definitely NOT a tax reform program and it will slightly benefit the middles class short-term, but will benefit the wealthy both now and in the future.  It will also cost the poor and the middle class after the first five years and will seriously cost them after ten years.

 

Copyright  G.Ater  2017