The Editors: two good things trapped in a bad Republican tax bill

Volumes of tax regulations are stacked on the dais as the House Ways and Means Committee begins the markup process of the GOP's tax overhaul on Nov. 6. (AP Photo/J. Scott Applewhite)

We do not yet know if the sweeping tax bill proposed by Republican Party leaders will even make it to a vote in Congress, let alone reach President Trump’s desk, but it would be unwise to dismiss the entire package out of hand. There are at least two good ideas in the bill; the question is whether they will be used in service of something better for society than another massive tax cut for high-income households.

A centerpiece of the plan is the reduction of the U.S. corporate tax rate from 35 percent to 20 percent. As America’s editors have stated in the past, a corporate tax cut may be a good trade-off for other reforms that minimize tax avoidance and remove incentives for corporations to park profits in countries with lower tax rates—though the Obama administration’s proposal to cut the rate to 28 percent may still be more prudent than the more drastic cut being proposed by Republicans. President Trump has been incorrect in asserting that the United States is “one of the highest-taxed nations in the world,” but that claim is true when limited to corporate, rather than individual, taxation. (Only Chad and the United Arab Emirates have higher taxes on corporate profits.) However, a corporate tax cut should be accompanied by other provisions in the bill that discourage American companies from shifting assets overseas; these include a global minimum tax of 10 percent on the subsidiaries of American companies anywhere in the world and a one-time, low repatriation tax of 12 percent on liquid assets brought back to the United States. A lower corporate tax rate makes sense only if it leads to U.S. corporations investing more in their home country.

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A corporate tax cut should be accompanied by other provisions that discourage American companies from shifting assets overseas. 

Another good idea is to cap deductions for home mortgage payments; under the GOP tax plan, new homeowners would be able to deduct interest payments made only on their first $500,000 worth of loans. This is a reasonable fix. There are good reasons to encourage homeownership in the interest of family stability and healthy communities, but the tax code should not inadvertently encourage the construction and purchasing of ever-bigger and ever-more-expensive homes. And the 37 percent of U.S. households who rent rather than own (the highest level since 1965 and climbing), and are unable or unwilling to take on mortgage debt, should not be expected to subsidize the most affluent homeowners. The fact that a cap on the deduction would affect high-income (and Democratic) states more than others is not a reason to preserve this inequity.

However, any revenue gains from these two changes should not simply finance changes to the tax code included in the Republican plan that mostly benefit top earners—including the phase-out of the estate tax and lower taxes on income from “pass-through” entities like real estate partnerships and hedge funds. Fairness demands that at least some of any new revenue from capping the deduction for home mortgages go to rental assistance programs and incentives for the construction of affordable housing, given that the number of apartments deemed affordable for very low-income families dropped by more than 60 percent across the United State between 2010 and 2016. A boost in the Earned Income Tax Credit would be another appropriate use of any revenue gain from capping the mortgage deduction.

The fact that a cap on the home mortgage deduction would affect high-income (and Democratic) states more than others is not a reason to preserve this inequity.

The Tax Cuts and Jobs Act, as it is called by House Republicans, has the potential to dramatically reshape the U.S. economy and the way we fund government. We applaud the willingness of Republicans to make long-needed adjustments to the tax code—though this bill also includes unwise changes such as the elimination of the adoption tax credit. We also fear that their good ideas will only rouse intractable, and justified, opposition if they are seen as financing a windfall for the wealthiest.

Stephanie Barrett
1 week 4 days ago

The 500,000 cap of mortgage deductions on a house in the northeast is very low.
You also did not mention the deduction cap of 10,000 on home taxes.
We are not talking multimillionaire homes., These are barely affordable
homes or condos. The bill is putting the middle class out of buying range
of their own homes. An American Dream, that all should be entitled to.

Joseph J Dunn
1 week 4 days ago

The Editors desire a tax policy that leads to U.S. corporations investing more in their home country. Going forward, a lower tax on U.S. generated profits would obviously help. But in terms of repatriating profits earned in foreign countries, so that it can be invested here (in factories, etc.), I am at a loss to see how a 12% U.S. tax on repatriated foreign profits, which were already taxed by the country in which they were earned, would help. The 12% U.S. tax would mean that of every $100,000 of after-foreign-tax profit to be brought back here, the corporation will have only $88,000 to invest here (after 12% U.S. tax), compared to investing the full $100,000 in the country where the profits were earned.
Editors also suggest a corporate tax cut should be accompanied by other provisions in the bill that discourage American companies from "shifting assets overseas." In many cases, the assets (profits) are not "shifted" overseas--they were created overseas, by making products in the country or region of the people who consume them. This is done not just to maximize profits, but to assure timely delivery (an important competitive consideration anywhere) and to satisfy the appropriate concern of the consumers (and their governments) who want to buy products made locally. For all these reasons, German-, French-, British-, Japanese-, (etc.) based firms have factories, service centers, etc., in their customers' countries, including in the U.S., and they do it without the tax burdens faced by U.S.-based firms operating abroad.
It's time for U.S. corporate tax policy to acknowledge that other countries have workers and customers just as sophisticated and demanding as Americans, and that our tax plan has become, through neglect, disinformation, and political ideology, uncompetitive and obsolete in such a world. The time for half-measures has passed.

MICHAEL PAINTER
1 week 4 days ago

Ummm, in much of California one would hard-pressed to find a home that would have any kind of mortgage below $500,000. Here in a middle-class neighborhood in San Francisco, the house across the street just sold for $1.6 MILLION! And it's not the average homeowner who is driving up the prices. We shouldn't be penalized for things that are so out of our control. If there's a limit, it ought to be pegged somehow to local conditions.

Chuck Kotlarz
1 week 4 days ago

Stock prices will rise or may have already risen assuming a corporate tax cut is imminent. A $½ trillion corporate tax cut (over ten years) could juice up an annual $½ trillion S&P 500 stock buyback.

In 2012, one hundred fifty CEO's started the campaign to “Fix the (federal) Debt”. Corporate lobbyists have since started a campaign to soak the kids and grand kids with $1 trillion in debt. Government debt as a percentage of GDP exploded after the Reagan tax cuts and exploded again after the Bush tax cuts.

No trained economist seriously believes that shoveling unearned benefits to the top 400 households is good for growth, productivity or anything else. The 400 wealthiest U.S. households receive nearly 75 percent of their income from stock dividends and capital gains from selling stocks.

Stuart Meisenzahl
1 week ago

Chuck
1)Yet again you cite statistics which have a temporal correlation but absolutely nothing which shows a causal relationship.
Example using your approach: Barack Obama substantially increased taxes on the wealthy and added $10 Trillion to the National Debt.....the biggest explosion of our National Debt in History....more than all additions by all previous Presidents.
Does that prove that increasing taxes caused that 2008-20016 Debt explosion? By your logic it must ; but in point of fact it doesn't prove anything more than that the Government spent more $$$&than it took in in tax$$. To use your own oblique reference: "Every Trained Economist" knows you cannot escape Debt if you spend more than your income.
2) Even tax liberal Warren Buffet thinks "Stock buy backs" are just fine...see his Annual Letter to Berkshire Stickholders for 2014.
3)please provide your statistical base that shows exactly what stocks the "400 Wealthiest US Households" own. Without your knowing that base of facts you cannot make any comment on how any potentially increased "stock buy backs" positively benefit/impact those 400Households. You simply are "surmising and intuiting " without a fact base for either approach.

Chuck Kotlarz
6 days 19 hours ago

Stuart, explain why soaking the kids and grand kids is the right thing to do.

Stuart Meisenzahl
6 days 11 hours ago

Chuck
Of course it is not right to burden the "kids and grandkids" with an absurd National Debt!!!
But that Debt was accumulated by excessive spending ...Spending well beyond any projection of the ability to pay for it.

1)First off realize the current National Debt does NOT include the amounts needed to fund Social Security or Medicare or any of the so called entitlements amounting to more than $84Trrillion. If all those unfunded liabilities were included then the National Debt would be over $104 Trilion !!! The only reason those sums are not included is because the Government fiction is that there are future required sufficient payments under SS and Medicare in addition to income taxes.These anticipated SS and Medicare payments are obviously insufficient because even today the annual shortfall in actual payments vs receipts is already added each year to the National Debt!
2) Second, the top 1% of US taxpayers actually pay over 50% of each year's income taxes....see CBNC 4/13 2015
3)Third, the top 1% have a total Net Worth of $10.5 Trillion .....see Federal Reserve Survey for 2016

NOW IF YOU OUTRIGHT CONFISCATED ALL $10.5 Trillion OF THE NET WORTH OF THE 1% ers, YOU COULD ONLY ELIMINATE 1/2 OF THE CURRENT NATIONAL DEBT AS STATED WITH THE FOLLOWING RESULTS:
A) the source of 50% of our annual tax collections would be permanently eliminated/wiped out.
B) our ability to pay $84 Trillion in unfunded liabilities would be compromised beyond recovery because all of the businesses represented by the $10.5 Trillion in wealth held by the 1%ers would be gone and those businesses and their employees would no longer pay SS taxes or Medicare Taxes because those businesses would be gone!
C) Further all of the income taxes paid by employees of those collapsed1%ers businesses would be wiped out
D) all of the corporate taxes paid by those 1% ers businesses would be eliminated.

In short :we have spent our way into a hole that we cannot conceivably tax our way out of!
Either we grow our economy to a size that allows us to pay off that debt or we fail to survive. Even that growth assumes that we hold current expenditures steady without the usual presumed need for an increase every year.
Put another way : you could eat the goose now but the eggs will stop and you will surely starve later.

I understand that you "just" want to put that proverbial goose on the equivalent of a strict diet ...but the consequence is still going to be fewer eggs.....which in turn will lead you to want to impose an even stricter diet resulting in still fewer,eggs, etc etc .....ad infinitum until the goose is dead.
It certainly was not the intent, but ironically our steeply progressive tax schedule has made us all increasingly dependent on the financial health of the 1%ers.

Chuck Kotlarz
2 days 16 hours ago

Stuart, the tax bill makes Trump’s family richer and that alone soaks the kids and grand kids a billion dollars. What’s the point?

Why cut corporate taxes? To increase business investment?

Between 1947 and 2016, business investment as a share of GDP rose 1.5% with a democrat in the White House and fell 1% with a Republican in the White House. Business investment as a share of GDP rose 3% during Obama’s presidency, roughly a $500 billion increase in a $15 trillion economy.

Rising inequality all but guarantees an eventual social security revenue shortfall. Since 1980, the income share of the bottom 95% of wage earners has fallen fifteen percent. Nearly forty percent of all full time American workers do not even bring in $20,000 a year. S&P 500 companies spent nearly $2.5 trillion on buybacks from 2003-2012 benefitting primarily the top 400 incomes. Over that same period, taxpayers provided an estimated $1.5 trillion in benefits to working families.

The donor class and their 10,000 corporate lobbyists have rigged the tax cut to benefit themselves.

Stuart Meisenzahl
2 days 6 hours ago

Chuck
You avoid the point of the above discussion.......just how are you going to get more this year from1%ers without impairing your ability to get that same amount or more next year....and the year after? Your Social Security shortfall will only worsen if 1%ers don't create profitable businesses.
Your statistics about the evils of buy backs are bogus......even liberal Warren Buffet defends them.
The rising inequality in the United States is primarily based on Stock Market values which were driven up by the Federal Reserve interest rate policies instituted because if the failures of the Obama Stimulous Program. During the same period housing values which make up the greatest part of middle class wealth were trashed. The Federal Reserve further deliberately drove money into stocks by its program of quantitative easing which added to the economy about $3.5 Trillion which had to find an investment home ....which was/ is the stock market.
There was/is a total disconnect between the actual ongoing businesses and the stock market evidenced by the terrible stagnant 2% recovery rate and a simultaneous rising stock market. In a 2% growth economy wages cannot rise, and indeed they have not.
Growth is the only cure for this delemma.....and no one thinks increasing taxes are pro growth enablers!

PS
Your conjecture as to the "$billion tax benefit to the Trump Family" indicates you must have investigational powers beyond those of the New York Times and the Washington Post combined. They have been unable to figure out the annual income of the Trump businesses after trying for over two+ years! You seem to have miraculously done the impossible , or as is more likely you just engaging in pure speculation masquerading as fact!

Tim Donovan
1 week 3 days ago

I agree that the proposed tax code should not merely benefit wealthy Americans. As a Special Education teacher (now retired) of students with brain damage, I made a decent salary, though I certainly wasn't rich. As a pro-life supporter, I not only oppose the violence of legal abortion, but capital punishment, and support stringent gun control laws. I also believe that our government should provide reasonable assistance to the millions of Americans in need. I agree that the tax code should promote adoption, and not eliminate the adoption tax credit.

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