Could the Republican tax plan lead to bipartisan results?

That is the topic of my latest Bloomberg column, here is one bit:

If the bill succeeds in limiting these deductions, a logic is set in motion for future tax reforms. Let’s say the Republicans eliminate tax deductions for new mortgages above $500,000. That would become a sign that the homeowner and real-estate lobbies are not as strong as we might have thought. The next time tax reform comes around, legislators will consider lowering the value of the deduction further yet. After all, the anti-deduction forces won before and, in the new battle, those who expect to have future mortgages above $500,000 don’t have a stake anymore.

In other words, any squeezed deduction will remain a vulnerable target for more squeezing, or even elimination, over successive reforms.

And then:

The exact treatment in the House plan seems to be in flux, but the top rates from President Barack Obama’s tax reform are likely to stick in some manner. There even seems to be a rateof 45.6 percent on some earners, in the range of $1.2 million to $1.6 million a year. That is a far cry from Jeb Bush’s call in the Republican presidential primaries for a 28 percent top marginal rate, in the tradition of President Ronald Reagan. Some well-off Californians could possibly face a total marginal rate, all taxes considered, of over 62 percent.

You will recall that the Republican Party had in the past pressed strongly for reductions in the capital-gains rates, but that isn’t on the agenda now. Take that as a sign that Obama’s boost to those rates will stick.

If you solve for the equilibrium over time, maybe maybe you will get:

If we look at the Republican plan as a whole, it appears to be a recipe for a future tax code with many fewer deductions, lower corporate rates, higher income tax rates for the wealthy and a continuing inheritance tax. I’m not saying that the exact mix will or should make everyone perfectly happy, but is this not what a bipartisan tax reform compromise might look like?

My fear, of course, is that those deductions will not survive the next stage of the process.  Stay tuned…


This seems to get correlation and causation backwardards.

To paraphrase, the argument runs "if we can raise peoples' taxes now without too much squealing, that just goes to show that we can do it again."

But this logic does NOT imply that proposing tax hikes (and perhaps even passing them) makes it easier to pass more tax hikes.

So, when luxury goods makers take cheap Asian imports and raise their prices and put big marketing campaigns behind them and succeed in generating high profits, that's no sign that it's possible to take other no profit Asian goods and hike their prices and make high profits?

It is interesting that non-US firms are considered to be cheating when they sell goods at all-in labor costs with no profits because the prices are too low.

Those firms are taxed on labor costs, not profits, so governments provide more investment in workers cutting the firms' labor costs, also considered cheating.

After all, Apple is hailed by many economists for importing Asian goods and through marketing selling them at huge profits.

And Apple has just hiked the price of its standard cell phone benchmark. Do you argue that other firms should not hike prices to boost profits because just because Apple did it doesn't mean any other firm can?

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Starve the beast.

Indeed. However we have to take what we can get, given the current media slant. This bill, overall, reduces government revenue and is thus "a good thing". We need to keep our eye on the ball.

Do not listen to the media's random issues with bill. They will attempt to put random questions in people's minds in an attempt to split up the coalition. Do not listen. They are the enemy.

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I used to think that. It's been tried for the past couple decades, but nobody cares about the federal debt anymore ($20.5 trillion in future taxes for services already rendered and/or devaluation), so people appear to be getting all the government they want but only paying 90 cents on the dollar.

A tax cut for the rich (like the idiotic repealing of the estate tax) just makes the matter worse. Most of the people who voted for Trump have about a 0% chance of being affected by the estate tax or top marginal income tax rates.

The most likely Trump/GOP Congress scenario was always a tax cut for the rich (see, e.g. 2001.) To the extent the 'bipartisan' scenario Tyler describes comes to fruition, this is a much better outcome than anyone could have hoped for, and I think you'd have to give the Trumpian populists a lot of the credit in this event.

But I'm skeptical. Ultimately, I'd be surprised if the GOP didn't revert to form.

"Most of the people who voted for Trump have about a 0% chance of being affected by the estate tax or top marginal income tax rates." True, but most of those who are affected were Trump supporters. All the income groups over 50k went for Trump.

Either way, the rich pretty much get around the estate tax anyways, so this will mostly bite into tax attorney revenue. The theme of this tax reform seems to doing away with double taxation scenarios, and the estate tax would rightly be on that agenda. (I definitely will not benefit from this cut)

So-called 'double taxation' is hardly a violation of some natural law.

Estate and gift taxes contributed $21.4 billion to the federal coffers in 2016. It's better than an income tax, since it taxes people for being rich rather than for getting rich. Fewer distortions, everyone dies.

It makes a lot of sense in the increasingly "winner take all" world of compensation we live in today.

Yes, "most of those affected were Trump supporters", but I'm thinking Trump brought in a helluva lot more of lower income folks than a typical GOPer, so maybe for once we will get a GOP policy that doesn't instinctively shower benefits on the rich.

Like I say, I'm skeptical, but maybe...

I do not like wealth taxes. They have the wrong incentives.

Estate taxes are easy to get out of with planning so, like corporate taxes, they have a large dead weight loss. Both share the attribute of making it worthwhile to pay an attorney $4 to save $5. Lawyers make out and everyone else loses.

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The way to 'get out of' estate taxes is basically to give the assets to charity instead of the government. The lawyers just help you do that most effectively. What's wrong with that?

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My understanding, which may be wrong I guess, is that there are a number of tax structures that allow you to pass on your estate, bypassing the estate tax.

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@TMC: there really isn't, if you pass your estate to your children or grandchildren via trusts you are limited by how much you can put in those trusts. If you gift your estate to charity then those assets avoid the estate tax.

Now there are some tricks like gifting assets to trusts for your kids and using those assets to buy life insurance on yourself, which means when you die those trusts will have a lot of money in them. But whatever is in your estate still at death is taxed, and again you can only gift so much from your estate to your family. The whole 'hey the rich just avoid the tax and it's those poor farmers (worth $11 million) who pay it' meme needs to be scrapped.

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Msgkings is showing you one. Endow your foundation, and employ your heirs in perpetuity at above-market rates for going to cocktail parties and the like. As he says, what's wrong with that?

Really the "pay an attorney $4 to save $5" stuff happens much closer to the boundary. The doctor with $6m in an IRA is paying a fair amount to make sure his wife and kids see that without Uncle Sam getting a large cut.

The estate tax really is one of the least ethical, least sensible parts of the tax code. But my bet is it's not getting cut. It's too easy to snipe people with small fortunes. They just don't draw sympathy. Maybe next time.

For now, they should just increase the annual gift tax exclusion. At least then you could do more without paying some extortionate planner.

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"I do not like wealth taxes. They have the wrong incentives."

The death tax discourages killing your rich relatives to inherit their wealth, which the tax system encouraged them to accumulate without giving it to you to spend because selling the wealth triggers capital gains taxes and then giving it to you to spend triggers gift taxes???

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@Lord Action: I'm showing him one what? You don't bypass the estate tax when you gift some assets to your kids and buy life insurance. And a foundation is charity, even if you can also set your kids up with those swell cocktail parties they still have to give away assets from the foundation.

Yes being rich enough to pay the estate tax gives you lots of options for how to pay it. But pay it you will. The point of an estate tax is to prevent a Bill Gates or Jeff Bezos from having descendants with trillions of dollars. You gotta reshuffle the deck. The kids of those rich enough to pay estate taxes will be just fine.

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the double taxation scenarios, and the estate tax would rightly be on that agenda

The inheritance(not death) tax is not double taxation. The dead do not pay taxes, they're dead! Their heirs pay the tax.

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The libertardians have long wished for a divorce between economic and social or nationalistic conservatives. They're on their way to getting it, but not the kind they wanted. But hey, they can always campaign in the ghettos for new voters. I hear "school choice" is a winner there. Or they can go for the votes of the college professors, just make sure never to mention who pays their salaries.

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"High earners may move their taxable income around to avoid the penalty. Or they will decline to work or invest on the margin, which is what creates jobs and lifts incomes. "

Anyone know of any example of a CEO refusing to work in protest of the high marginal tax rate? I'm sure there will be a few examples.

"Wait, did Bernie Sanders win the election?"

No, Trump won the election. You won't find many real Trump supporters angry with Trump on this, just a bunch of "moderates"(not my term) who jumped on the Trump train on November 8 2016. The high marginal rate on Californians is due to...California and not relevant to this question. The marginal rate on high-earners only applies to those with incomes between 1.2 million and 1.6 million, in total high-earners are still taxed at a rate lower than what Obama wanted.

By "the marginal rate on high-earners" I'm referring to the 45.6% rate Summer is complaining about.

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"You won’t find many real Trump supporters angry with Trump on this"

+100. Pretty funny how the WSJ editorial board complained that "voters might as well have elected Hillary Clinton," I'm sure most of those writers voted for Clinton.

The WSJ ed board has gone batshit crazy. "Mueller must step down!" They have swallowed Trumpism whole. I wouldn't be surprised if most of them voted for him.

Mueller must step down!” isn't all that crazy. He was Comey's friend - conflict of interest, and may be indicted himself for his role burying the Uranium One investigation. Might as well put DT jr in charge of it.

"Mueller must step down" is past the sell-by date.

To be convincing it should have been immediate, and independent of the charges he found.

Sadly, many Republicans praised Mueller in his first month, only now to pretend he and they are completely different people. It is transparent positional logic.

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"Now that he found something, we don't like him anymore."

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You are correct. It's harder to do now, and should have been immediate. There was the second opportunity when his role in the uranium one investigation came to light though. It's tough after he made the arrests though.

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The uranium thing is odd. As I understand it, Bill made money for a speech? And somewhere else, "someone not Hillary" approved the sale of a Canadian(!) company to Russians.

What is the universal rule you would apply?

No ex-presidents should accept pay? Or just overseas?

No spouses of current government officials should do the same?

No US natural resources should be acquired by foreign investors?

It seems like you have to invent laws to have a crime, and it is still "somebody not Hillary" who did it!

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500 grand for a speech is a lot more than normal, and there's the 143 million to the Clinton foundation - but the timing of that is earlier than the transaction by enough that it looks odd, but not enough to really convict.

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Again, what is your general proposition?

A cap on ex-presidential earnings?

A ban in ex-presidential charities?

Not sure how either one would be Constitutional.

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If you are "nothing matters anymore" it is pretty easy to call anything your side does a win.

But is it harder if I ask you to explain how this tax plan benefits you and your family? Exactly?

It is a temporary tax benefit for the middle class, followed by scheduled tax increases for them all. Accompanied by vastly inflated government debt.

How is that good for you?

Other than "I will be worse off, but my side wins, yay!"

"If you are “nothing matters anymore” it is pretty easy to call anything your side does a win."

And it's pretty easy to win arguments with strawmen erected in your head.

"But is it harder if I ask you to explain how this tax plan benefits you and your family? Exactly?"

My taxes will go down and though it's not a perfect plan(I wish Trump had eliminated the carried interest loophole), the main selling point for me is elimination of the deductions. The "scheduled tax increases" will never happen as congress will almost surely adjust the brackets to match inflation.

Your argument is a house of cards, but especially if you ever in your life were a "debt limit" guy.

Let's establish that first, do you approve of more national debt as a transfer to your pocket?

Did you ever think "people voting themselves benefits at cost to all" is bad?

Once you clear that, admitting that you are just feeding at the trough, where do you get "congress will almost surely adjust" stuff? Is it fairy dust?

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But they have not eliminated the biggest tax dodge for businesses: the deduction of labor costs. It's that part of the business taxes in China, Germany, Canada, Europe, et al that Ryan, Trump, et al consider unfair.

To eliminate double taxation, the rest of the world rebates taxes on labor costs on exported goods because they all tax the labor costs in imported goods.

Economic theory argues that the only costs that are efficient are those that add value. And government should promote an efficient economy by providing investments in things an efficient economy needs that can't be monetized in any reasonable time frame by the market.

Ie, how does one invest in a new consumers who earn income high enough too be valuable consumers when that investment extends over two decades?

Free lunch economists seem to argue that eliminating government and taxes will create high income consumers from nothing to fill the demand by businesses for high income consumers. In China, taxes on work fund investment creating high income (for China) consumers. Sure, China has run up lots of debt paying workers to build capital assets, but the increased work increases tax revenue from taxes on work so the rising debt can be serviced: but this increases the supply of high income consumers and savers, so China is now doing the transition that the US did post WWII after workers saved huge amounts to fund high government debt, and then switched from saving to consuming, and investing in future growth in high income consumers by paying high taxes.

I'm one of those high income consumers created in significant means by high taxes paid by my WWII generation parents. I remember the constant debates in Indiana over hiking taxes to fund school bonds and other government bonds. Half the tax hikes were approved, and those that failed returned next election. The local economy grew until the anti-taxers consistently won, and then it shrank under the rise of Reaganomics free lunch economics. Cost cutting, tax cutting, cut the number of high income consumers, increased the quantity of low income consumers.

So, if the tax writers want to compete with the rest of the world on taxes, they need to eliminate the labor cost tax deduction and tax work at 20%. Or a 15% minimum tax on work.

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I am referring to this:

"By 2027, tax cuts would shrink for every group except the top 1 percent, and a quarter of taxpayers, many in the upper middle class, would pay more than they would without the new plan.

For example, taxpayers with incomes of about $150,000 to $215,000 would receive, on average, a $1,140 tax cut in 2018. But in 2027, they would pay $820 more than if nothing changed."

Isn’t this because the tax bill is being passed via reconciliation, which makes it temporary .... so all the cuts go away after 10 years and they have to renegotiate. The Bush tax cuts went away during Obama’s term and were renegotiated to restore the 39.6 rate. Its not like the GOP tax bill (or, for that matter, the Bush tax bill) legislatd the tax cuts away in 2027. It’s because of the rules for reconciliation. Im sure the NYTimes made this clear....being the objective news organ for the DNC.

Yes, everyone reports the reconciliation part.

The NYTimes article you quote does NOT indicate that higher taxes in 2027 is due to reconciliation. Additionally, their analysts (the liberal Tax Policy Center) assume the top rate will be 35%, not 39.6%. So, this piece is pretty much what we expect from the NYTimes -- garbage and misinformation.

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"There even seems to be a rateof 45.6 percent on some earners, in the range of $1.2 million to $1.6 million a year. "

This is referred to as a "bubble rate" and is not a new idea. The purpose of the bubble rate is to recapture the benefits of the new 12 percent tax bracket once one's income reaches a certain level. In this case, the level is $1 million for a single filer and $1.2 million for married couples. The benefit of the lower rate is fully recaptured at $1.2 million for singles and $1.6 million for married couples. At those higher amounts, the rate reverts to 39.6 percent (ignoring the Medicare surcharge, which varies according to the type of income earned). This is likely in response to those (largely progressive) critics who argue that, due to the progressive (!) tax rate system, a cut in the lower rates inevitably cuts taxes for higher earners. Not fair! they say.

For those who are making a big deal over the idea of the "highest marginal rate" being 45.6 percent rather than 39.6 percent, there are two possible interpretations of that term: 1) the highest rate within the tax rate structure; or 2) the rate applicable to the highest income.

Usually, economists who argue against high marginal rates are concerned about negative incentives--and for good reason. But, in this case, the "bubble rate" works both ways on incentives. The rate is definitely a disincentive for, say, those single persons earning a million a year to earn the next $200K. But, I can't help but think some of those persons are working just a bit harder to get past that bubble rate and back to 39.6 percent! Is the push greater than the pull? Who knows.

Finally, I've never heard mention from those who make a big deal of the bubble rate any mention or objection of the "highest marginal rate" of 38 percent within the federal corporate income tax structure.

Thanks for the explanation. The link to the WSJ was gated.

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Principles first: taxes should be a revenue objective of government, not a policy tool for social engineering. If a policy is good, subsidize it directly, separate from taxes. The reason this isn't done is few tax deductions or credits can stand on their own, but can easily become entrenched as part of a complex, unwieldy tax code - along with other sundry goodies exchange amidst the horse-trading.

Mortgage interest deduction subsidizes the home-buyer, real estate broker, & lender at the expense of everyone else, including renters trying to save for their own homes later. State & local tax deductions subsidize higher income people in high tax states at the expense of everyone else. 90% of those taking this deduction earn over $100,000. And so on, the same applies to all tax code goodies.

The corresponding lower rates from a true revenue-neutral reform does harm those currently benefiting from special treatment in the short term, but promotes efficiency & discourages tax avoidance in the longer term.

This GOP plan & proposed amendments is perhaps a marginal improvement on the status quo, but is closer to the hodge-podge of mismatched favors of the current system than a simpler & purer system.

taxes should be a revenue objective of government, not a policy tool for social engineering.

Fair enough, but not very practical. The problem is that taxes inevitably affect behavior, one way or another, or favor some individuals over others.

So there will be debate over the effects, and opinions will differ as to their relative desirability.

"So there will be debate over the effects, and opinions will differ as to their relative desirability."

Then debate the tax effects separately from other policies. Hiding programs in the tax code makes the tax code more complex and prone to cruft.

In other works, hiding the incentive to pay workers in wages and benefits in the tax code is bad policy, so the tax deduction of labor costs must be eliminated from business tax code?

The tax system in most of the rest of the world is much saner because businesses are taxed on all of revenue, not on just the revenue not paid to workers?

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There will definitely not be some grand deal here. The best case scenario for bipar anything is that they all sign off on some extremely small reduction that expires in ten years. The small signs you see of R's reversing course on capital gains are more than made for by tons of goodies for the rich.

In particular, how this plan would give Trump and those like him tens of millions more dollars per year is mind boggling:

Capping the mortgage interest deduction at something reasonable like $500k is fine, but it is one of hundreds of ideas here, most of which are bad and/or politically infeasible, even for R's going it alone. The fact that eliminating the rest of the SALT deduction is a huge tax increase aimed at their political opponents make the optics terrible and opens R's for retaliation.

They increased the standard deduction. So a lot of people who lose the SALT deduction will have it made up for via the higher standard deduction.
If you're worried about how this affects poor people in blue states, why not push to increase the standard deduction even more? Or is your main concern for people who are already rich enough to use itemized deductions?

Most poor folks don't pay income taxes, so the standard deduction increase does nothing for them. (Note: They do pay payroll taxes, so if you wanted to help them, you'd go there or, similarly, earned income tax credit.) The standard deduction thing is most helpful for people making more (think top 50% of the income distribution) but who aren't benefiting much from itemization. Combine with the other changes, if you don't have a big mortgage and don't have much state taxation, this can be great. But if you have a lot of kids or own a house where houses are expensive, etc., this might not actually do a lot for you.

The AMT phases out most SALT deductions so capping SALT has no impact on those earning about a million, but eliminating the AMT has a big impact.

Those earning $200k to a million in wages are not impacted by the elimination of AMT, but are hurt by cuts in SALT deductions, and gain nothing from higher standard deductions. Taxes on work are higher than the AMT tax rate.

The tax cuts are targeted at non-work income which means the tax cuts promote rent seeking, monopoly profit seeking.

Every economic theory, at least before 1980, held that rent seeking, monopoly profits, were bad for the general welfare.

The basis of SALT is labor costs. Without labor costs, you have no consumer spending. The GOP is trying to promote high incomes with no or low labor costs. A free lunch.


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No analysis I have seen has determined that the current plan will lock in higher income taxes for the wealthy generally. In fact, the wealthiest pay much lower effective taxes under this plan.

Even the "model family" with two kids making the median income that Ryan keeps trotting out there as getting a $1000+ tax cut actually end up paying MORE taxes by year six. And that amount grows over time, due to inflation indexing of the brackets. Ryan's spox:

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It doesn't take much to divert the attention of this crowd. Will one gimmick (and another couple trillion added to debt) cause real tax reform sometime in the future? Sure. Cowen is giving credit to Paul Ryan and his comrades they don't deserve. They've had years to craft a real tax reform plan, and this is what passes as real tax reform? Cowen: "I’m not saying that the exact mix will or should make everyone perfectly happy, but is this not what a bipartisan tax reform compromise might look like?" So Republicans propose a large tax increase for the Democrat's funding base, and that's supposed to bring Democrats to the negotiating table? Is it the threat of even worse Republican tax proposals? Yesterday I linked to Ms. McArdle's essay criticizing the Republicans for weaponizing the tax code. Today Cowen puts a smiley face on the weapon.

The GOP fully embraces free lunch economics.

The want all costs related to labor to be heavily taxed, no tax at all on rents/monopoly profits based on eliminating labor costs driving rapid growth in consumer spending.

While workers earn less, they have more money to spend from tax cuts putting more money in their pockets than wages from working.

Even after Mitt Romney stated what the GOP complains about behind closed doors about Democratic voters paying no income taxes, the GOP leads every tax cut with how much money tax cuts will put in every consumers pockets to pay for tax rate reduced higher profits.

But seriously, how many more high profit imported iPhones, Trump ties and scarfs, are millionaires going to buy with their thousands of dollars in tax cuts in their pockets?

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This tax plan, if passed, will like raise my taxes quite a bit. I am ok with this; life is good and paying taxes is patriotic.

But what annoys me is that this tax "reform" didn't make taxes any simpler! I also worry a bit about the distributional effects.

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It isn't intellectually honest to claim that a bill that removes the inheritance tax is paving the way for a future with an inheritance tax.

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A pretty positive vision.

But lets face it, it is Oscar's plan and it really depends on Felix to show up and clean the apartment.

It is pretty amazing, the plan is skewed up and up for the top 0.1%

That is pretty bald faced.

Haha. His denominator in each case is the reduction in tax for the nation, not for each bracket.

No kidding, asshole, the lower brackets pay almost no income tax at all.

Huh? It is not his data, it is a Tax Policy Center report (pdf) with many graphs. For the one shown, footnote (c) is:

(c) After-tax income is expanded cash income less: individual income tax net of refundable credits; corporate income tax; payroll taxes (Social Security and Medicare); estate tax; and excise taxes.

Influential think tank retracts analysis of GOP tax bill

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The pdf I linked is also Nov 6. Is it the old or new analysis?

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This part seems to be agreement between the two:

"Ryan often says that a middle income family of four making $59,000 a year would pay $1,182 less in taxes next year, but that amount would decrease over time and would be a tax hike for the family by 2024, according to New York University tax professor David Kamin. A key new benefit aimed at helping the middle class — the Family Flexibility Credit — goes away after 2022 in the GOP bill. That credit is different from the Child Tax Credit that the TPC said was at the center of its initial mistake.,

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In case you were confused by (d):

(d) Average federal tax (includes individual and corporate income tax, payroll taxes for Social Security and Medicare, the estate tax, and excise taxes) as a percentage of average expanded cash income.

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Figure 1 really shows what is going on. A short term tax decrease for the rest of us is a sweetener on what is really a permanent reduction for the top 1%.

Tyler's "optimism" is that this is fine, because it can't last, and at some point Democrats will be elected "to be the adults" again.

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"No kidding, asshole, the lower brackets pay almost no income tax at all."

That's because they are taxed for working at almost 14%.

And that tax does not put enough money in the pockets of people no longer able to work to generate high profits for the people we who earn their money by not working.

The old and disabled people must be forced to spend more on high profit goods!

And poor workers should not pay that 14% tax so they can spend twice as much getting paid 85% of their current wages because cutting labor costs 15% will increase labor demand by 100% so low income workers will work 4 to 6 part time jobs instead of 2 to 3.

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I wonder if there's some way to apply the same logic to eliminating the deduction businesses get for employer provided health insurance.

Or just make it deductible for everyone, like food doesn't get taxed.

The income you used to buy the food was taxable.

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In the EU, China, all labor cost deductions are eliminated and labor costs are taxed at 17% to 20% by business taxes.

That is the tax that Ryan, Trump, et al consider unfair and much lower than the fake 35% US business tax.

Deductible labor costs eliminate almost all business taxes in the US, but not for free, with either businesses or workers incurring higher costs which are paid for by governments like China and the EU, also considered by Ryan, Trump, et al as cheating.

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That's a backwards way to put it. Businesses get a deduction for all "ordinary and necessary" expenses incurred in producing income. What is novel about employer-provided health insurance is that it is not taxable to the employee.

Response to Hazel, above.

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Well, health care is not taxed as income in Europe, so you are arguing that the US should have higher taxes than Europe?

The GOP argument for many business tax changes is to have lower taxes than Europe.

What a strange comment.

"Health care is not taxed in Europe".

Well, health care is also not taxed in the United States.

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Dismaying to see so many oppose it from the left when top marginal rates aren't even coming down!

AMT anyone?

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If I understand well, the Alternative Minimum Tax was for people claiming very large deductions, so that their taxable income after deduction, and their taxes, became ridiculously low with respect to their real income. Since with the new plan, most big deductions are either discarded or capped, it seems that very few people, if any, would still be able to claim enough deduction to be a candidate for the AMT, if it was maintained: with no deduction for medical expenses, for local taxes, and a low cap and deduction for interest payments on mortgages, it doesn't remain much (perhaps gifts to charitable institution? Not sure how the rules are changing for that). In other word, getting rid of the complex AMT is a no-brainer.

Was supposed to be an answer to Bill above...

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AMT also hit if you had "too many" tax free municipal bonds.

Muni bonds provide a lower nominal interest rate than corporate bonds with an equivalent risk profile because of the tax break.

These bonds also fund useful projects that society would otherwise have to pay for out of tax dollars or higher interest loans.

If someone earns $800,000 in Muni bond interest, they could have earned $1 million in normal bond interest and paid taxes which brought their after-tax income down to $800,000.

Assuming that my math is right and that the market is appropriately pricing Muni bonds to compensate for the tax treatment, I don't see how this is a handout to the rich.

We're basically transferring money from the federal government to local municipalities.

If we abolish the special muni bond treatment, towns would have to be charged higher interest rates on their bonds. The federal government would get more revenue while towns would have higher expenses or lower rates of public infrastructure investment which would make the economy poorer in the long run.

I think the way we tax interest and dividends, and then try to fix it again with IRAs and other special accounts is very silly. If I were starting from a clean sheet of paper I would make interest and dividends tax free for small savers. And then let them choose risk adjusted return from whatever. The part above some threshold would be taxed at some rate tbd.

But without that clean sheet? I think eliminating the AMT will increase preference for munis among "high tax salience" investors.

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Implicit in Cowen's blog post is that capping the mortgage interest deduction at $500,000 rather than $1 million taxes the rich and, therefore, can be the basis for bipartisan tax reform. Rich people don't have $500,000 mortgages, indeed, they don't have $1 million mortgages. Upper middle class people have mortgages between $500,000 and $1 million. At one time my brother was a banker. I asked him what percentage of his loans were for the very expensive homes in the nearby highly exclusive resort. He laughed. What's funny, I asked. Those people don't have mortgages, he responded. It's like subsidized flood insurance, often described as a give-away to the rich. The limit on flood insurance is $250,000. What's the point if the home is worth $10 million. Rich people don't buy flood insurance. I'm no fan of the national flood insurance program; indeed, it's illogical in many ways. If one has a home in a flood prone area and the living area floods, flood insurance will pay to rebuild the house (subject to the policy limit), even if the living area of the house is below the flood plain. On the other hand, if one has a house in a flood prone area that is elevated so that the living area is above the flood plain, flood insurance will pay only a nominal sum to rebuild the part of the house below the flood plain. The rationale is that owners of elevated home ought not have structures below the living area. I've yet to see a house that floats in the air above the flood plain, but I haven't traveled all that much. The point of this comment is that one needs to look beyon the partisan talking points to see what's really at stake.

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" Upper middle class people have mortgages between $500,000 and $1 million. "

My heart goes out for those poor trod upon people who only get a tax deduction on the first $500K of their mortgage.

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I am amazed how far you will go to find value in the Republican Tax Cut/Reform plan. You are basically saying, this is a start; next time it will be better! Yet, there is no guarantee of a next time and you ignore the forest for the trees.

The trees are the few deductions you talk about.

The forest is the huge tax cut to corporations and pass-through entities you ignore. (Maybe next time they can be even bigger!)

Why do you ignore the heart of the Republican tax plan?

Please answer that question. (Which, of course, you won't.)

If you don't answer that question, we will know where you stand: with the corporations and against the people.

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