Errors, unpopularity, and disagreements between the chambers.
The GOP in Congress are no doubt desperate for a victory after the failed Obamacare repeal attempts, but that desperation could come back and bite them. They want to pass the tax bill before Christmas, but all the rushing and late nights have caused errors. From The Washington Post:
Questionable special-interest provisions have been stuffed in along the way, out of public view and in some cases literally in the dead of night. Drafting errors by exhausted staff are cropping up and need fixes, which must be tackled by congressional negotiators working to reconcile competing versions of the legislation passed separately by the House and the Senate.
And the melding process underway has opened the door to another frenzy of 11th-hour lobbying as special interests, including President Trump’s rich friends, make one last dash for cash before the final bill speeds through both chambers of Congress and onto Trump’s desk. Passage is expected the week before Christmas.
A report from Politico last week showcased some of these errors as the Senate tried to cram in as much as they could:
Others would have unintended results, like a last-minute decision by the Senate to keep the alternative minimum tax, which was designed to make sure wealthy people and corporations don’t escape taxes altogether. For many businesses, that would nullify the value of a hugely popular break for research and development expenses.
Some provisions are so vaguely written they leave experts scratching their heads, like a proposal to begin taxing the investment earnings of rich private universities’ endowments. The legislation doesn’t explain what’s considered an endowment, and some colleges have more than 1,000 accounts.
In many cases, Republicans are giving taxpayers little time to adjust to sometimes major changes in policy. An entirely new international tax regime, one experts are still trying to parse, would go into effect Jan. 1, only days after lawmakers hope to push the plan through Congress.
Usually when lawmakers write tax legislation they will take the time to figure how a tax lawyer may try “to game a proposal.” While it’s hard to stop every possible scenario or even think of every scenario, they still take the time to at least consider it.
But the rush of this bill has taken that out of consideration.
AMT Plus State & Local Tax Deductions
The House and Senate each passed their own bill, which means the lawmakers must reconcile to make it one bill.
Sen. Chuck Grassley (R-IA) told CNBC this morning that the two chambers have to compromise on the alternate minimum tax (AMT) and state and local tax deductions. The Senate originally the AMT, but added it in at the last minute to win votes to pass. CNBC explained the AMT:
The AMT makes corporations or individuals pay a minimum tax if tax breaks make their burden too low. The corporate AMT is currently set at 20 percent, and some corporations pay the higher rate after calculating their tax obligations under both the standard corporate structure and the AMT. Since Republicans want to chop the corporate rate to 20 percent from 35 percent, the corporate AMT could affect numerous companies under the proposal.
Businesses swiftly pushed back against the Senate proposal, arguing that it could stifle research and investment. Top House tax writer Rep. Kevin Brady, R-Texas, and House Majority Leader Kevin McCarthy, R-Calif., have slammed the alternative minimum tax.
The GOP wants to make the corporate tax rate 20%, but the government will lose money (oh darn) due to the changes on AMT and the local deductions. Grassley said that making the corporate tax rate 22% would offset the changes, but agreed it should be 20%.
See, this is the problem. The government doesn’t have a revenue problem. I have said over and over again that this is NOT tax reform, but a tax reshuffle because the government did not concentrate on spending. They wouldn’t have these problems if they cut their spending instead of trying to find places in the bill to shuffle the burden.
Marginal Tax Rate
The lawmakers must also find a way to fix a part of the Senate tax bill aimed at high-income business owners. From The Wall Street Journal:
Some high-income business owners could face marginal tax rates exceeding 100% under the Senate’s tax bill, far beyond the listed rates in the Republican plan.
That means a business owner’s next $100 in earnings, under certain circumstances, would require paying more than $100 in additional federal and state taxes.
This is caused by :the combination of tax policies designed to provide benefits to businesses and families but then deny them to the richest people.” But as we all know, in America, we want to work hard and move up the ladder. Business owners want a lucrative company. That way they can expand, create more jobs, and make better products. But if their income keeps going up then they will phase out of those breaks and “each dollar of income faces regular tax rates and a hidden marginal rate on top of that, in the form of vanishing tax breaks.”
Thus causing the punishment of being successful that the GOP and conservatives have lashed out against. WSJ provided these examples:
Consider, for example, a married, self-employed New Jersey lawyer with three children and earnings of about $615,000. Getting $100 more in business income would force the lawyer to pay $105.45 in federal and state taxes, according to calculations by the conservative-leaning Tax Foundation. That is more than double the marginal tax rate that household faces today.
If the New Jersey lawyer’s stay-at-home spouse wanted a job, the first $100 of the spouse’s wages would require $107.79 in taxes. And the tax rates for similarly situated residents of California and New York City would be even higher, the Tax Foundation found. Analyses by the Tax Policy Center, which is run by a former Obama administration official, find similar results, with federal marginal rates as high as 85%, and those don’t include items such as state taxes, self-employment taxes or the phase-out of child tax credits.
The GOP also has to deal with the fact that the bill is not popular. A CBS poll showed that 53% of people disapproved of the bill. It only received 35% approval. From The Hill:
Sen. Marco Rubio (R-Fla.) on Friday warned that the Republican Party cannot become identified with the “country club-big business image,” citing a famous speech Ronald Reagan gave in 1977 using those same words.
Rubio on Friday warned there are “going to be problems” if Senate and House negotiators working on the final legislation reduce the bill’s child tax credit or increase the corporate rate without making the child tax credit refundable to help lower-income families.
“It makes a lot of sense in a tax-reform bill to provide some relief to those on the lower end of the income scale as well as the upper end,” said Whit Ayres, a Republican pollster who does work for Rubio.
Ayres said Rubio is right that “it will help the overall perception of this bill if it’s perceived of helping everyone who’s working, not just those at the upper end of the income scale.”
Rubio along with Sen. Mike Lee (R-UT) tried to add an amendment to the tax bill that “would have made the child tax credit refundable against payroll taxes. It ultimately failed on the floor.
Retiring Sen. Bob Corker (R-TN) believes the bill will destroy the belief that the GOP is the fiscal conservative partyDONATE
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