Why This Matters:
Whether or not one believes they will benefit from the tax overhaul may depend on the
differences between two political parties, missing data and faith in the future.
For many Americans, there is little faith left and disenchantment with both main parties.
WASHINGTON, D.C. — The Republican Party has delivered a “big, beautiful tax cut for Christmas” according to President Donald Trump.
Following the House of Representatives’ concurring vote on Wednesday morning, the president also stated, “America is back to winning again.” President Trump signed the Tax Cuts & Jobs Act into law on Friday.
The law goes into effect in 2018, meaning taxpayers won’t see changes in filing until 2019.
The bill passed the House of Representatives Tuesday evening 227 to 203 along party lines with 12 Republicans siding with the 191 Democrats. Early Wednesday morning, the Tax Cuts & Jobs Act passed the Senate along party lines, 51 to 48. Sen. Marco Rubio, R-Fla., made a final effort to push for larger tax credits for working families. With the Senate GOP agreeing and passing an amended bill, the House reconvened later on Wednesday to concur — this time 224 to 201. The breakdown of the concurring vote still had 12 Republicans voting against it. In the second round, three Republicans opted not to vote and were joined by four Democrats also opting out.
The 12 Defiant GOP
The majority of the Republicans voting “no” were from New York and New Jersey.
According to reports by major media outlets, the concerns of the nine New York/New Jersey Republicans were centered largely on the $10,000 cap on state and local tax (SALT) deductions. Two representatives from California face stiff opposition by Democrats in their districts.
Representatives Darrell Issa and Dana Rohranbacher both represent districts encompassing parts of Orange County with Issa’s district also including part of San Diego. Issa was quoted recently by Bloomberg Media as stating changes to the tax bill, “do not go far enough to guarantee tax relief for constituents in my district.”
Congressman Walter Jones of North Carolina has opposed GOP leaders on crucial votes. With regard to the tax bill, Jones has expressed concern the bill will exacerbate the national debt.
Duckworth’s Senate Vote Stance
Sen. Tammy Duckworth, D-IL, issued the following statement prior to the Wednesday early morning Senate vote: “I’ve long said we need to reform our tax system, but it can’t just help mega-corporations and Donald Trump’s friends and family—it needs to focus on the small businesses that drive our state’s economy and hardworking families as well. This shoddy legislation does neither. It’s an absolutely shameful display of Republicans’ priorities that gives permanent tax cuts to those who don’t need them and writes provisions appearing to benefit everyone else with disappearing ink, once again forcing hardworking Americans to hand over their hard-earned pay so the wealthiest people in this country can get tax breaks they don’t need at taxpayer expense. It also leaves the small businesses that power Illinois’s economy at a competitive disadvantage and will double-tax Illinoisans by limiting the state and local tax deduction that millions of working families rely on. This is a bad deal for our state and for everyone who isn’t a multi-millionaire, tax lawyer or corporate CEO.”
LaHood On Tax Relief and The National Deficit
Congressman Darin LaHood, R-Peoria, countered Duckworth’s statement in that much of what the Democrats have been stating since the beginning of the tax reform debate has been misleading and in many cases not true.
LaHood said one goal of the tax reform was giving more money back to middle class and lower middle class families. The second goal is getting the economy thriving again.
“If you look at the last eight years with Obama, the highest growth rate we ever had was 1.8 percent,” LaHood told the Voice in a Wednesday morning interview. “It was between 1.3 and 1.8. It needs to be stated we had a financial crisis or meltdown and two wars we were fighting. But it was very stagnant and anemic. When you don’t have growth, you don’t have money coming in. Government doesn’t make money; we take it from the private sector; individuals. So our goal is to get the growth rate at 3 or 4 percent growth.”
LaHood noted that there has indeed been 3 percent or slightly higher growth the past three quarters of 2017.
“We’ve brought more money into the U.S. Treasury this year than the last three years combined,” he said.
The comprehensive reforms lower the corporate tax rate to 21 percent, as well as lower the tax rate for small business such as S-Corps, C-Corps and LLCs to 25 percent. LaHood said many farmers and independent retail shop owners fall into that category. “Getting the economy going means you’ve got more people paying taxes in the economic stream. There’s a $1.5 trillion cost to tax cuts. In the long run, historically, when you’ve got 3 or 4 percent growth, that helps solve a lot of our problems. We want government to spend money on big things — infrastructure, education, research…But it’s hard to do that when you don’t have the money coming in. Lowering the corporate rate makes us more competitive worldwide and here.”
LaHood stated he has heard from companies that lowering the corporate tax rate would enable them to hire more workers, boost wages of current employees and invest in upgrades.
“The last time we had 4 percent growth in this country was 1999/2000,” he added. “We had a tech boom at that time. Bill Clinton was president; Newt Gingrich was speaker of the house. We had welfare reform. In 1999/2000 we had a debt of about $8 trillion. Of course we are at $20 trillion now. But when Bill Clinton left, we had wiped out the debt. The debt was gone because of a growth rate of 4 percent. Again, we have the highest tax rate of the industrialized world, but this (reform) will help that. It’s unfortunate this is a partisan issue.”
He pointed out that 137 economists have stated the tax reform will be good for the economy. While many of the names on the letter are associated with private groups or organizations, the bulk are individuals associated with public and private universities all over the country. Wallace Hendricks of University of Illinois, and Norman Lefton of Southern Illinois University, Edwardsville, are among the 137 people indicated on the letter.
LaHood conceded when the reform bill was first unveiled, he thought there were some “real boneheaded ideas in there.”
“They wanted to get rid of the deduction for state and local taxes. We have pretty high property taxes in Illinois. We worked with the different members of Congress. If you pay property taxes $10,000 and less, then you get to deduct that. If you have a mortgage — $750,000 or less — you get to deduct that. In McDonough County…I would argue 90 percent of the people fall into that category. We’re doubling the standard deduction. Seventy percent of the people in our district use the standard deduction. You go from $6,000 to $12,000 if you’re an individual. If you’re a family you go from $12,000 to $24,000. That’s a good thing.”
Earlier bill ideas also removed deduction claims for university employee tuition. Congress also changed how tax exempt status applies to Private Activity Bonds.
“A lot of universities use that to build with…the deduction of college expenses…we changed that in there. On the local education level, teachers are allowed to deduct the expense of buying supplies for their students. (Original sponsors) wanted to get rid of that, but we put that back in. This was a process where the things I expressed concern with got changed. There are benefits for our area whether you live in Macomb, Quincy or Peoria.”
LaHood continued: “When they say, ‘Oh, your taxes are going to go up.’ If you live in inner city Chicago, New York City or California or other high-tax states where they’ve jacked the taxes up…yeah, you’re going to have to pay more. When you look at the 710,000 people that I represent…and arguably the vast majority of people below I-80, they don’t have property taxes over $10,000; they don’t have a mortgage over $750,000. You have to look at the details. I have to say that the level of dishonesty has been breath-taking in just how (the Democrats) have ramped that up. You’ve got to look at the facts.”
LaHood suggests individuals seek out online tax calculators and decide for themselves whether they will benefit or not from the tax overhaul.
“The average family of four that makes $65,000 a year is going to get back over $2,000 a year. To somebody that lives in Washington, D.C., New York City or Chicago, that might not seem like a lot. But that is a lot. You can save up for a new car; save up for your kids’ education. Save up to go on vacation or reinvest in a small business. That’s real money.”
To spotlight the agriculture industry in his district, LaHood noted the bill had the support of the Illinois Farm Bureau. While the tax bill doesn’t get rid of the estate or death tax, reforms have been made.
“It makes it easier for families to pass farms on to the next generation. I’m proud that the Farm Bureau is in support of us, and we’ve been able to make some progress on that.”
Richard Guebert, Jr., president of Illinois Farm Bureau stated, “…Provisions including across-the-board cuts in individual tax rates and relief for ‘pass-through’ small businesses will enable most farms to reinvest and grow their businesses. Tax reform was long overdue. It has taken on added importance now as farmers experience a fifth consecutive year of declining net farm income. An economic analysis of the bill by American Farm Bureau shows farmers of all sizes, and with different levels of off-farm income, will pay a lower effective tax rate.”
Other Policy Highlights
According to information from the House Ways and Means Committee and Senate Finance Committee, the mortgage interest deduction will not change for existing mortgages. Homeowners with new mortgages on a first or second home will be able to claim the interest deduction up to $750,000. The bill also expands medical expense deduction for 2017 and 2018 for medical expenses exceeding 7.5 percent of adjusted gross income and raises to 10 percent beginning in 2019.
The bill eliminates the individual mandate initially implemented under the Affordable Care Act (Obamacare). The tax bill now makes individual health insurance an option free from penalty at tax time.
While concerns have also been raised about oil and gas leases on federal lands in Alaska, policy highlights indicate the tax bill provides for two lease sales to be held over the next decade with surface development being limited to 2,000 federal acres — about one-tenth of the Arctic National Wildlife Refuge. The refuge encompasses 1.57 million non-wilderness acres. The non-wilderness acres have been set aside for potential future development.
The report states the action “boosts American energy production. Responsible development in the 1002 Area (non-wilderness area) will raise tens of billions of dollars for deficit reduction in the decades to come, while creating thousands of new jobs, reducing our dependence on foreign oil and helping to keep energy affordable for American families and businesses.”
As a side action, the bill provides temporary increases in revenue sharing for the Gulf Coast in 2020 and 2021, “allowing those states to invest in priorities such as coastal restoration and hurricane protection.”
The Budget Committee Report
A budget request from Senate Budget Committee ranking member Sen. Bernie Sanders prompted a report showing the distribution of deficit and positive revenue generated by each of the tax income brackets from 2019 to 2027 in two-year increments. The joint examination by the Joint Committee on Taxation and the budget office took into account the effects of the bill on revenues and the portion of refundable tax credits as outlined in the bill. The analysis included effects on premium tax credits stemming from eliminating the penalty for not having health insurance. CBO Director Keith Hall relayed in his office’s report that other spending changes related to eliminating the health insurance penalty were not included, and the outlying effects of the oil and gas leasing provisions were not included in the joint committee’s earlier analysis.
Hall said his office did not attempt to make any estimations as to costs associated with the government for providing any subsidies or costs to individuals seeking non-subsidized health insurance.
Hall stated in his report: “The combined distributional effect of the provisions analyzed by JCT and CBO was calculated by subtracting the estimated change in federal spending from the change in federal revenues allocated to each income group…Overall, the combined effect of the change in net federal revenues and spending is to decrease deficits (primarily stemming from reductions in spending) allocated to lower-income tax filing units and to increase deficits (primarily stemming from reductions in taxes) allocated to higher-income tax filing units. Those effects do not incorporate any estimates of the budgetary effects of any macroeconomic changes that would stem from the agreement.”
In summary, the CBO states — not taking into account financial effects of the change in health insurance subsidies or major economic boosts (such as hitting 4 percent growth) — the combined effect for federal revenue and spending will be to decrease the breaks given to lower-income tax filers and to increase the number of breaks given to higher income filers.
This report is what many of the bill’s challengers have been rallying behind leading up to this week’s historic votes.
The report’s income breakdowns indicate the amount of money generated from the “Less than $10,000” category will increase by $1.5 billion in 2019 with the highest category of “$1 million and over” decreasing by $36.9 billion. The changes to net federal revenues and spending in 2019 from all taxpayers were projected by CBO to be down $253.5 billion. By 2027, the figure from all income categories combined would be estimated at a positive $32.69 billion.
Again, the data does not take into account health insurance subsidies or money generated from the “tens of billions of dollars” expected to be generated through the oil and gas leases on the 2,000 acres of the Arctic National Wildlife Refuge.
The full text of the tax bill can be found online at: http://bit.ly/2j8OBhv
The report from the Congressional Budget Office can be found at: http://bit.ly/2pcs60J
Reach Jared DuBach by email at firstname.lastname@example.org.
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