So You Want to Fight About Taxes?
No one likes paying taxes. Even progressives who believe in the idea of a big, compassionate government that provides for its citizens grumble all the way up to tax day. The forms are complicated, there are a lot of deductions, and still it always seems like someone else is always faring better. Instead of fixing the tax code, for years we’ve just been adding things to it like Christmas ornaments and tangles of tinsel until the whole thing is just about ready to fall over if the cat so much as looks as it wrong.
We need to reform the tax code. No one disagrees with that. It’s regressive in many places, with a disproportionate burden falling on the poor. It’s too complicated, it takes too long, and there are too many loopholes. So it makes sense that tax reform is a key part of the Republican platform.
What doesn’t make sense, however, are the proposals they put forward.
The bills put forth by the Republicans share an overall thesis — the desire to cut the corporate tax rate from 35% to 20%. Where the House and the Senate bills differ is in how they’ve chosen to pay for it. Cutting the corporate tax rate by 15% will cost upwards of $1.3 trillion dollars over ten years. With the other tax cuts they have put forward both bills could cost as much $1.7 trillion dollars. While there are no plans to offset all those costs, for the bill to pass the Senate via reconciliation (requiring only 51 votes instead of 60 — don’t worry, we explained it here), the GOP does have to reduce the bill’s impact on the deficit over a ten year period.
The House has passed their version of the bill, and it’s honestly a garbage fire. The Senate version has made it out of committee, but has not yet come to the floor for a full vote. If this is all starting to sound a little too familiar, you’re not alone, and it’s only going to get worse.
Both bills also reduce taxes paid for by pass-through companies (like the Trump Organization), and establish a territory based tax system wherein U.S. companies do not have to pay taxes on income earned abroad. Both bills reduce the estate tax, or the tax on inheritances, though the House eventually eliminates it entirely and the Senate bill does not. The broad strokes are similar enough that when I was researching this post, I had to check several times to make sure that Vox explainer I was reading was the right one.
If you’re planning to fight your family about tax reform over the holidays, however, there are probably some more details that you’ll need to know. Below are a couple of quick facts for each of the current pieces of legislation, and the broad argument for and against. Your key talking point, however, is this: Tax reform is a good idea, but this is not tax reform. This is giant, deficit exploding tax cut for the wealthy, paid for by just about everyone who makes less than $500,000 a year. And both bills are designed to benefit the Trump Organization, specifically.
If you need a short version, you can download this PDF with the quick and dirty so you can fight with you family and friends this week. Happy Thanksgiving!
The House bill does a couple of interesting things. First, it consolidates the tax brackets from seven to four. The claim here is that this simplifies the tax code, even though the brackets aren’t what make it difficult for the everyday taxpayer. I don’t know about you, but I had no idea what tax bracket I was in until I started researching this bill.
Second, many Americans will see a tax cut, but not all. And some will see their taxes go up according to the Tax Policy Center. And even more people will see their taxes go up after 2023 when certain provisions of the tax legislation sunset.
Third, what does make filing taxes simpler under the House bill is the elimination of many of the deductions we use to make our taxes lower. To (partially) offset getting rid of these deductions, the standard deduction threshold goes up to $24,000 from $12,000 (this basically means that your first $24,000 is tax free) and the child tax credit goes up from $1000 to $1600. The House Bill also introduces a Flexible Family Credit of $300 a year for individuals and $600 for couples.
Here’s a fun list of things that the bill gets rid of, however:
- Deductions for student loan payments (and most other tax benefits for college)
- I make the same amount of money (approximately) as the other assistants in my department at work, but some of them have paid off their student loans already, or didn’t have them. This is going to mean that we’re paying the same in taxes even though I arguably have less money.
- Deductions for moving expenses
- Deductions for medical expenses
- Deductions for plug in (greener) vehicles
- We use the tax system as a reward system sometimes, and while that does make the tax code more complicated, in some instances (like this one) it also makes the world a better, more liveable place.
- Non-taxable tuition waivers. Basically this one means that the government starts to tax tuition benefits as income. So everyone who receives tuition benefits from the janitors taking night classes to your friends in PhD programs are going to see their taxes go up to a prohibitive level. Holy aristocracy, batman!
- State and local tax deductions.
You’ll note that a lot of these things are going to be hard to defend to your conservative relatives. Sometimes saying things like, “sure, but I know it’s going to make paying my student loans harder” can be effective. It makes it personal for people who care about you. But they also probably do take the state and local tax deductions. This is going to be a more effective argument in blue states where those taxes are typically higher, but it’s useful for pointing out the ways in which this bill will affect everyone.
You should care about this bill because it also does sneaky things like try to establish legal status for fetuses (this is in the Senate bill too), a vital part of anti-abortion rhetoric. It does this by changing the language around college savings plans — which you can already establish in advance of having a child — by saying “nothing shall prevent an unborn child from being treated as a designated beneficiary.” Also, because 36 million families are expected to see their taxes rise as a result of this bill.
You may also want to ask your relatives why they think the tax breaks for the middle class go away after a few years, but the corporate tax rate stays at 20%.
The Senate does a few things differently. It merely adjusts the seven tax brackets, rather than reducing them. It keeps most of the deductions in tact while also raising the standard deductions to $24,000 and updating the child tax credit. The charitable tax deduction is actually expanded, donations up to 60% of your salary can be deducted, though this primarily benefits the rich who can afford to donate more than half their salary.
To offset its own approximate $1.5 trillion contribution to the deficit, the Senate bill contains two major provisions. The first is that the Senate bill also sunsets middle class tax cuts by 2027 which allows the bill’s impact to stay within the ten year range, which is an attempt to make it eligible for reconciliation. The second provision, however, is the most dangerous
The most dramatic difference is that the Senate bill plans to repeal the individual insurance mandate, a plan which could theoretically save $300 billion. But 13 million people will also lose their insurance and everyone’s premiums will rise (even if you get your insurance through your employer), and some to prohibitive rates. This could lead to 15,600 preventable deaths per year.
I told you the deja vu was going to get worse.
Why Do People Want This?
The argument for all corporate tax breaks and tax breaks for the rich is the idea that it will increase investment, wages, and jobs. The idea is that our corporate tax rate is prohibitive. It prevents companies from expanding, from raising wages or investing their money in the American economy. There are some influential papers that support this idea, though they are the intellectual minority in their fields.
According to Vox, several of these papers have been produced which suggest that corporate taxes are paid by laborers in the form of lower rages — a 1% increase in taxes is offset with a 0.5–1% drop in wages. The data also suggests that “the revenue-maximizing corporate tax rate is about 26 percent, significantly below the US rate.”
This is a fairly standard belief for pro-market conservatives. For them, the market is an equalizing force, and left to its own devices, it rewards good behavior, innovation, and competition, which leads to a better situation for consumers. Businesses, when free from government regulation, and a restrictive corporate tax structure, will take off and we will all benefit.
Other deductions, such as the state and local tax deductions, concentrate wealth in urban and wealthy states, because while everyone is paying federal taxes, the state and local taxes vary. Those with higher state and local taxes get to deduct a higher amount from their federal taxes. (Of course people in urban areas and wealthier states often have a higher cost of living, but who cares.) And the estate tax, some argue, essentially punishes people whose relatives have just died by taxing income that’s already been taxed.
The Problem Is…
There isn’t a whole lot of practical evidence that the market actually works like the Republicans suggest. First, the same Vox rundown talks to another economist, Kimberly Clausing, who points out that there is very little evidence to suggest any kind of connection between wages and corporate tax rates. And while there is evidence to suggest that tax increases during recessions lead to stagnation, we are not currently in a recession. In fact, we in the longest period of post-war economic expansion on record, with record corporate profits, and yet we’ve seen no commensurate rise in wages or investment. And while the corporate tax rate is high at 35%, most companies use a variety of tax shelters and loopholes to avoid paying it. Not taxing their foreign income at all does not exactly encourage them to move their jobs back to the US, and it removes the little revenue we do gain.
Plus, CEOs themselves like Mark Cuban and others, have outright said that corporate tax breaks won’t lead to more investment, and have little influence on their decision making. Better suggestions for investing in the American economy and creating jobs include actually investing in infrastructure.
Dylan Matthews of Vox provides some other ways we can reduce or even eliminate the corporate tax rate as part of a progressive tax system. As with healthcare, Republicans have had upwards of ten years out of power to come up with a plan, and as with healthcare, they failed. Instead, what we have here is something haphazard, cobbled together to excuse a corporate tax cut that isn’t even going to do what they say it’s going to. And their plan, as always to make it harder for average Americans to do things like buy health insurance or go to college. And while lots of provisions don’t make much sense from a tax reform standpoint, they do make sense if your goal isn’t tax reform but concentration of wealth and screwing over liberal “elites.”
This bill isn’t a good facade of a tax reform bill. It is, in fact, a tax cut for the rich paid for by providing no tax cut or even raising taxes on those who are not rich. Even those in the middle class who will see tax breaks for the next few years will not see as many as the rich, and things like cutting or eliminating the estate tax concentrate the wealth in the rich generation after generation. Every piece of this legislation seems specifically designed to ensure the development or entrenchment of an American aristocracy. Even straight, across the board tax cuts can significantly increase the deficit and can be used to justify later cuts for social services, things that help level the playing field.
For conservative family and friends who insist that a smaller government is better, and that Americans know what to do with their money better than the government does, it may be hard to convince them that widespread tax cuts are a problem. But pointing out more efficient ways to grow the economy or reform the system might be helpful. You can also point out the haphazard way the legislation was thrown together or the way the bill concentrates wealth. You can point out that the tax cuts for most Americans aren’t actually tax cuts.
But the hardest part of the conversation is probably going to be that, like much of the conservative agenda these days, both the House and Senate versions of this bill are down right vindictive. And that can be hard to argue against. But armed with the facts, and ready to listen, I hope this summary provides you with what you need to make the more compassionate argument heard.
And before you go, don’t forget to call your senators and ask them to do everything they can to oppose this bill. 202–224–3121.
