I promised a final blog in our Taxation in America
series immediately following final passage of tax legislation; otherwise, I would not post this close to Christmas. This is the final part; the prior four parts can be accessed on our website: www.mllg.us
. We are taking a brief holiday respite; thus, our next post will not be until January 14.
My “take” on the new tax law is similar to that of many other commentators; nonetheless, I hope to add some fresh insight and perspective. For corporations and businesses, the new law is utterly transformational. Lowering the corporate rate to 21%, expensing 100% (for 5 years), changing to a territorial tax system and the deemed repatriation tax all are highly salutatory. These changes make America competitive with most other nations and will result in a veritable cornucopia of new investment, job creation, productivity and economic growth for years to come.
For individuals, there is little to cheer. There are modest tax cuts for most taxpayers and the $24,000 standard deduction, combined with the new deduction limits, will provide simplification to many. Repeal of the Obamacare individual mandate is a big winner. For individual taxpayers, Congress missed a once-in-a-generation opportunity to substantially lower taxes and to reform and to simplify the tax code.
Regrettably, the law also contains many lese-majeste provisos: (1) seven tax brackets; (2) absurdly high (106%) marginal brackets due to recapture; (3) gaming potential and complexity on the business pass-through tax; (4) high capital gains rates; (5) sunset provisions after 8 years; (6) failure to repeal the death tax; (7) the enhanced and now partially refundable child care credit which is pure social policy; and (8) the tax treatment of carried interest remained unscathed. The changes to the individual parts of the tax code will produce little or no economic growth.
Tax Law Exposes a Deeply Flawed Political Process
A parallel story about the 2017 tax legislation is the structural flaws it exposed in our political process. The Byrd Rule (no deficits beyond 10 years) hamstrings and contorts the ability of Congress to act. CBO scoring is pure voodoo; they are consistently wrong and highly political, yet they establish the parameters the law must follow. The PAYGO rule, requirement to offset higher spending, is also unleavened sorcery that thwarts the will of the people. Reconciliation is yet another political dysfunction that determines what can and cannot be considered a tax matter.
The political process also is pregnant with demagoguery. No matter what the law contains, progressives were going to assert it favors fat-cat corporations and the rich and savages the poor. Recall that: (1) the top one-half of one percent of Americans pay 70% of all income tax; (2) America has the most progressive (by far) tax regimen in the world; and (3) the bottom 60% of Americans pay less than 1% (net of credits).
The Bottom Line
As always, the proof is in the pudding. The 2017 revolutionary transfiguration of corporate and business taxes and the repatriation of trillions of dollars has the potential to bring about a Reaganesque revival. The best hope for America’s future lies in sustained, robust economic growth; it is not only the most important thing, it is the only thing that matters. Without strong growth, we cannot properly defend ourselves; we face an imminent debt and deficit crisis and the social fabric of our beloved republic will be further rent. All Americans should hope the pudding tastes good!
Best Wishes for a Merry Christmas and Happy New Year
Our next post is scheduled for January 14, 2018