FAIR AND EQUITABLE TAXES

Jan believes that every person and entity should pay a fair and equitable share of taxes. Taxpayers in similar conditions should be treated similarly, without the tax code being riddled with special interest loopholes. Those at or near the top of the economic pyramid should pay at least the same proportion of their income as those in more modest circumstances, taking account of various forms of income, sales and other taxes. Also, taxes should be sufficient to fund essential social programs and government functions, including providing, repairing and replacing vital infrastructure.

Accordingly, Jan favors increasing tax breaks for our vanishing middle class, not awarding huge boons to the ultra-rich and wealthy corporations. Income funneled through “pass-through” businesses should not be accorded more beneficial rates than that earned directly by individuals. The federal government should not facilitate huge concentrations of wealth through raising the federal estate, gift and generation-skipping transfer tax exemptions to exorbitant levels (currently above $20 million per couple). The tax code also needs to be adjusted to reflect new financial developments and assets, including cryptocurrencies like Bitcoin and Ethereum. Taxes should be used to fund vital social programs and repair and replace aging infrastructure, not to give more to the wealthy and provide corporate welfare. Further, tax policies may themselves serve social ends, such as cigarette, gasoline and perhaps carbon taxes.

TAX CUTS AND JOBS ACT

The Republican Tax Cuts and Jobs Act of 2017 (Pub. L. 115-97, “TCJA”) did just the opposite of most of these goals. The TCJA passed the Senate on a wholly partisan basis and the House without a single Democratic vote, and it was signed by President Donald Trump on December 22, 2017. The TCJA cuts totaling $1.5 trillion primarily benefit the top 1% and wealthy businesses. Meanwhile, the Act is now expected to cause the deficit to rise to $1.5 trillion in 2028. Accordingly, the TCJA was essentially a “reverse Robinhood,” in favor of the richest few and wealthy corporations at the expense of most Americans and our children and grandchildren.

New Tax Provisions

Businesses. The TCJA lowered corporate taxes from a top rate of 35 percent to a flat rate of 21%. The TCJA also converted the United States from a “global” tax system (corporations paying at the U.S. rate for income earned in any country) to a “territorial” system (paying at the usually lower rate of the country in which legally established). In addition, the Act repealed the alternative minimum tax for C-corps. Unlike the tax cuts for individuals, these and other corporate benefits are permanent.

Beyond that, the TCJA cut taxes on income from “pass-through” entities — S corporations, LLCs, and partnerships, whose profits are attributed directly to their owners and taxed at the owners’ personal levels. Pass-throughs got an initial reduction of 20 percent for “qualified business income,” effectively reducing their maximum rate from 37% to 29.6%. Unlike the permanent corporate cuts, however, these pass-through reductions last only through 2025, unless Congress extends them.

Individuals. For individuals, the TCJA kept the seven-bracket structure of previous law, but the income ranges in several brackets were modified, and the new brackets have slightly lower rates. The rates range from 10% to 37%, as opposed to the previous 10% to 39.6%. The Act, however also adopts a new formula for calculating inflation (C-CPI- U). This may be a more accurate gauge, but it will result in more people rising more quickly into higher brackets.

The TCJA did nearly double the standard deduction: to $12,000 (single taxpayer), $18,000 (head of household) and $24,000 (married and filing jointly). But the Act totally eliminated many itemized deductions, including casualty and theft losses, employee business expenses and tax preparation fees; it limited others, including state and local income taxes (SALT) deductions to $10,000 and mortgage interest to a maximum new mortgage of $750,000; and it modified some others, including for charitable contributions, medical expenses and gambling losses.

Some “above the line” deductions are also eliminated, including alimony expenses. On the other hand, the Child Tax Credit was doubled to $2,000. The TCJA also raised the exemptions on the alternative minimum tax from $54,300 to $70,300 (single), from $84,500 to $109,400 (married filing jointly) and from $42,250 to $54,700 (married filing separately) and also increased the phaseout levels.

Transfer Taxes. Despite intense pressure from some conservatives, the TCJA did not repeal the estate or so-called “death” tax. Instead, the Act doubled the federal estate, gift and generation-skipping transfer exclusions to $10 million indexed for inflation per person and $20 million indexed per couple (resulting in limits of $11,180,000 and double that respectively in 2018). These provisions too expire at the end of 2025.

Individual Mandate. The TCJA also repealed fines for not having health insurance pursuant to the Affordable Care Act (Obamacare), effectively killing the individual mandate. This might be considered tantamount to a tax hike, because it means fewer eligible people will sign up and receive federal subsidies.

Surprises. Among many other provisions, some surprises were buried in the TCJA. For example, the Act requires the federal government to hold lease sales in the Arctic National Wildlife Refuge. For another, contrary to repeated Trump campaign promises, the Act preserves the “carried interest loophole,” allowing hedge fund managers to pay a lower capital gains rate on their share of fund profits. For a third, after intense lobbying by the National Automobile Dealers Association, the Act preserves 100 percent deductibility of floor plan loan interest.

Deficit Increases

The Congressional Budget Office released its annual report, The Budget and Economic Outlook: 2018 to 2028 on April 9, 2018. It analyzed the effects of the TCJA, combined with the Bipartisan Budget Act of 2018 (P.L. 115-123) enacted on February 9, 2018 and the Consolidated Appropriations Act, 2018 (P.L. 115-141) enacted March 23, 2018.

The CBO now projects that the federal deficit will near the trillion-dollar mark next year and exceed that level in following years. More specifically, deficits are expected to rise from $665 billion in Fiscal Year 2017 to $804 billion in FY 2018 and $981 billion in 2019. Beyond that, the CBO projects deficit growths to $1.5 trillion in 2028. Accordingly, deficits would increase from 3.5 percent of GDP in FY 2017 to 4.0 in 2018 to 5.1% in 2028. Overall, the increase in the deficit is projected to mount to $5.7 trillion over the period 2018 to 2023 and $12.4 for 2018 to 2028.

Differential Effects

According to the nonpartisan Tax Policy Center, in 2018 households in the lowest 20 percent of income distribution (earning about $25,000 or less) are projected to receive an average tax cut of $60, while those in the top 1% (with incomes of $733,000 or more) will get an average cut of approximately $51,000 and in the top 0.1 (with incomes over $3.4 million) of about $193,000.

After-tax income will rise by 0.4% on average for households in the bottom quintile, 3.4% for the top 1% and 2.7% for the top 0.1%.
Over time, the TPC distributional estimates for the TCJA (excluding the impact of repealing the ACA individual mandate) show households in the bottom quintile projected to gain 1 percent of the federal tax change in 2018 and 1.3% in 2025 and to have a negative share of -4.5% in 2027.

Meanwhile, the figures for top 1% the figures are gains of 21%, 25% and 83% respectively and the top 0.1% gains of 8% 11% and 60%

Vern Buchanan (R-FL16) Major Beneficiary

Our congressman, Representative Vern Buchanan (R-FL16) is a major beneficiary of the legislation he voted for in both committee and the full House. According to his congressional financial disclosure forms, Representative Vern Buchanan (R-FL16) is a partner or managing member of over 30 pass-through entities. He was also the owner of several dozen car dealerships, a number of which are now run by his son.