National GOP leaders on Wednesday released a 9-page document that they called a tax “framework” (available here on the Washington Post site) describing in vague terms how they intend to cut taxes for the nation’s wealthiest people while doing very little that serves the government needs. Overall, the GOP framework would amount to about $2.2 TRILLION in less revenue to support federal programs (like protecting the environment from corporate pollutants, supporting higher education loans for students, funding basic university research) (assuming $5.8 trillion loss to lowering rates and shift to territorial system and maybe $3.6 trillion recouped by eliminating as yet unspecified deductions). See GOP proposes deep tax cuts, provides few details on how to pay for them, Washington Post (Sept. 27, 2017).
- They promise 3 rates (12%, 25% and 35%, without stating what the applicable income brackets for those rates should be). That lowering of rates is primarily beneficial to the wealthiest, since the people who just barely get by on their wages (especially with the new corporate regime of calling people in for short shifts, as needed, rather than paying them a regular full-time job) are hit hardest by the payroll taxes that won’t be lowered at all under this plan. That is, ordinary wage-earners in the middle and lower classes are generally already taxed on a consumption basis–they spend what they earn and have little left for saving for the future. They pay relative low income taxes but pay significant payroll taxes through withholding on their wages (with no deferral). This is another excursion into the current GOP’s ‘alternative fact’ universe, where huge tax cuts mainly benefiting the wealthy are sold as a ‘simplifying’ reform that will benefit ordinary people.
- Although the lowest rate is higher than the poorest wage-earning taxpayers pay now, the planners claim that this is still a tax cut because of the “doubling” of the standard deduction for those taxpayers that do not itemize. However, the personal exemptions are eliminated, so that the combination of the standard deduction and the higher rate is likely to be at best a minimal cut for small families and an actual tax increase for larger families. See, e.g., this article.
- They promise to eliminate the “alternative minimum tax”, a tax provision that was enacted as a safety provision to ensure that wealthy taxpayers who can afford tax planning and generally can most easily benefit from the various loopholes and tax subsidies written into the code would pay some modicum of taxes rather than get off scott-free from any tax burden. The “framework” (page 5) claims that “it no longer serves its intended purpose and creates significant complexity.” It is admittedly somewhat complex, but not unduly so with modern tax preparation software which makes that complexity a minimal problem. I have been required to pay the AMT, and it hasn’t made my life or tax return filing more complex. In fact, the people who owe the AMT should be paying more tax than they would pay without the AMT, and that means it is in fact serving its intended purpose of ensuring that taxpayers cannot aggregate too many of the various haphazard subsidies in the Code to permit them to essentially escape a reasonable tax burden on their economic income. Elimination of the AMT is a tax break for the well-to-do: Trump, for example, has had to pay the AMT (real estate developers are one of the much-favored groups in terms of various tax expenditures in the Code that benefit them).