Tax reform is a laudable goal in a nation burdened by a convoluted and often unfair system, but this legislation is indeed about cuts. It would reduce federal revenue by at least $1.5 trillion with no plan to replace it. Supporters say the cost would be covered by the growth that inevitably materializes as a result, but there is no evidence to support that claim.
Besides the huge addition to federal deficits, the bill’s clearest impact would be in favor of the rich — including, to a remarkable extent, the rich president who is the first in decades to conceal his tax returns from the public. It would phase out the tax on multimillionaire estates, reduce the levy on pass-through income from businesses such as the Trump Organization’s, and eliminate the alternative minimum tax that usually applies to higher brackets — which, according to a leaked partial return, forced Trump to pay $31 million more in 2005. While the plan retains the 39.6 percent tax rate for the highest incomes, it doubles the minimum earnings for married couples to which the bracket applies, to $1 million. And more of those taxpayers could take advantage of the lower 25 percent rate on pass-through business income.
The House bill would also cut the corporate income tax rate dramatically, from 35 percent to 20 percent. Given that the rate is the world’s highest and is widely avoided, a reduction is justifiable. Unfortunately, the plan does not take the opportunity to make the reduction revenue-neutral by eliminating targeted tax breaks and loopholes, and the lower rate it would impose on foreign assets might not be enough to discourage avoidance, rendering the cut another gift to wealthy interests.
To the extent that such giveaways are mitigated by the plan, it’s often by soaking blue states that don’t support Republicans. The scrapping of deductions for state and local taxes, except for up to $10,000 in property taxes, would disproportionately hurt high-tax states such as California and New York. So would the halving of the current $1 million cap on eligibility for the mortgage interest deduction: Only 5 percent of the nation’s mortgages are greater than $500,000, and nearly half of them are in California.
The plan’s benefits for middle-class taxpayers are likely to be more modest and uncertain. While the bill would increase standard deductions and child and family credits, it would also eliminate personal exemptions and deductions for student loan, medical and moving expenses.
Under the circumstances, it’s comforting that the bill already faces an array of opponents and is expected to change in short order. Moreover, passing it in any form will require a level of political skill that this president and Congress have yet to show.
