The Big, Permanent Tax Increase Inside the Tax Cut Act
Let's talk about tax-bracket indexation.
by Justin Fox
December 21, 2017, 7:30 AM GMT+11
Let's take a closer look, shall we? Photographer: Zach Gibson/Bloomberg
It was not a signature element of Ronald Reagan's 1980 campaign or of the tax-cutting plan his administration unveiled in 1981. Several Republican lawmakers (among them Senate Finance Committee Chairman Bob Dole of Kansas) pushed hard for it, and Reagan agreed to include it in the Economic Recovery Tax Act of 1981 .. https://en.wikipedia.org/wiki/Economic_Recovery_Tax_Act_of_1981 , albeit with a delay until 1985 to mute its negative budget impact.
Over time, though, this indexing of tax brackets to inflation has become arguably the most significant and lasting consequence of the 1981 tax legislation. It's certainly been the most expensive, with a revenue impact that as far as I know is no longer tracked but by this point must be multiples larger than any other element of the 1981 cuts. It also seems to have been the inevitable and right thing to do. As the New York Times put it in an editorial .. http://www.nytimes.com/1984/11/05/opinion/next-year-s-tax-cut.html .. in 1984, when some lawmakers -- and Democratic presidential nominee Walter Mondale -- were pushing to delay or alter the provision's looming onset:
- Indexation is the fairest tax reform in many years. To tamper with it is to betray a trust. -
So anyway, you'll never guess what the legislation formerly titled the Tax Cuts and Jobs Act of 2017 does! It tampers with indexation! I wouldn't exactly say that the change is betrayal of a trust, but it is a tax increase that will get bigger and bigger over the decades, and it will weigh heaviest on those in lower tax brackets. Unlike most other individual income tax changes in the new law, it is permanent, and given its positive revenue implications, it is hard to imagine any future Congress rolling it back.
Did The GOP Just Open The Door To A Carbon Tax In 2025?
Dec 20, 2017 @ 08:48 AM 2,211
Howard Gleckman Howard Gleckman , Contributor
President Donald Trump holds an example of what he claimed a new tax form could look like during a meeting on tax policy with Republican lawmakers including House Speaker Paul Ryan of Wis., and Chairman of the House Ways and Means Committee Rep. Kevin Brady, R-Texas, right, in the Cabinet Room of the White House on Nov. 2. (AP Photo/Evan Vucci)
Supporters of the Tax Cuts and Jobs Act like to describe it as a once-in-a-generation tax overhaul. It is arguably true that it is the most wide-ranging tax bill in three decades .. http://www.taxpolicycenter.org/feature/analysis-tax-cuts-and-jobs-act . But key elements of the TCJA all but guarantee that Congress will be revisiting the tax code again in a few short years. The TCJA may be sweeping but it also may have a short shelf-life.
The first problem is its highly partisan nature. Republicans made no effort to craft a bipartisan bill and no Democrat voted for the measure at any step along the way. Already, liberals are vowing to overturn key business provisions should Democrats regain control of Congress in 2019. On Sunday, even before the TCJA passed, Sen. Bernie Sanders (I-VT) was predicting .. https://www.politico.com/story/2017/12/17/bernie-sanders-tax-bill-300456 .. a future Congress would reverse corporate tax cuts.
As long as President Trump remains in office, Democratic efforts to “repeal and replace” the TCJA likely will fail. But, copying the GOP playbook after passage of the Affordable Care Act, Democrats aim to use the tax bill as a political cudgel to try to regain control of government and, should they get the chance, rewrite the tax laws yet again.
A legislative Mulligan
But unlike the ACA, the TCJA explicitly opens the door to a legislative Mulligan. Because it repeals nearly all of its individual tax provisions by 2026, the new law not only encourages Congress to revisit tax policy within eight years, it requires it.
Republicans have described this as a binary choice for a future Congress. They say lawmakers must either extend the individual tax provisions or take the blame for the demise of what they believe will be popular tax changes, such as individual income tax rate reductions and a big increase in the standard deduction.
But Congress will have many more options than that. Of course, we have no idea who will control government in 2025. We do know that Donald Trump will no longer be president, even if he is reelected in 2020. And control of Congress is at best uncertain. Among other things, a major congressional redistricting may occur after the 2020 Census.
Punting on pass-throughs
As a small thought experiment, imagine that Democrats control the White House and at least one chamber on Capitol Hill in 2025. And imagine the debt has increased to about 90 percent of Gross Domestic Product .. http://www.crfb.org/blogs/final-tax-bill-could-end-costing-22-trillion , a fair assumption after taking into account the lost revenue from the TCJA
With the looming expiration of nearly the entire individual tax code, this future Congress will have an open door to rewrite the tax law in any way it wants. It could, for instance, keep the TCJA’s individual income tax cuts but allow key tax increases, such as curbs on the state and local tax deduction, to expire.
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Congress could help pay for those changes by eliminating, or at least rolling back, the TCJA’s special tax treatment for pass-through businesses such as partnerships. Even the GOP-controlled Kansas legislature did just that earlier this year—over the objections of one of the most aggressive anti-tax governors in the country.
A carbon tax?
Congress could also, in a new-found concern for the growing federal debt, undo some of the TCJA’s corporate tax rate cuts. It could reinvigorate the estate tax. Or, in a burst of ambition, it could enact a Value-Added Tax or a carbon tax. Imagine Democrats presenting US businesses and their congressional allies with a choice—an across-the-board corporate tax rate hike or some form of consumption tax. Are you confident predicting the outcome? I’m not. Tax laws often have unintended consequences. This could be a doozy.
In policy terms, eight years is the blink of an eye. And while the TCJA is a big, ambitious change to the tax code, it may also be an historically short-lived one.
"In Tax Overhaul, Trump Tries to Defy the Economic Odds"
President Trump arrives in the Oval Office in November to deliver remarks about the job market.
The economy is doing great and the president wants credit. He hasn’t earned it.
Derek Thompson Dec 20, 2017 Business
It has been a tumultuous year for Donald Trump, brimming with legal scandals and high-profile White House departures. But the president should give thanks this holiday season, because he is the recipient of an extraordinary present—an economy gift-wrapped and tied with a big, beautiful bow.
After a terrible recession and a slow recuperation, America’s economy is in a record-setting mood these days. The Dow has set an all-time high 70 times in 2017—once every five days—while the unemployment rate has neared an all-century low. Manufacturing confidence is higher than ever, and confidence among home builders has matched an all-century high. A yuletide glow illuminates even some of the darkest of corners of the economy: After a rough year for traditional retailers, holiday sales are projected to hit their highest level in three years.
Is this happening because of President Trump? Yes, according to President Trump.
“The reason our stock market is so successful is because of me—I’ve always been great with money,” Trump told reporters in November. “Virtually no President has accomplished what we have accomplished in the first 9 months, and [the] economy [is] roaring,” he said on Twitter. “At least we can all agree the economy is better under President Trump,” White House spokesperson Sarah Huckabee Sanders said, while also crediting job growth to a “Trump miracle.”
Like so many miracles, this is revisionist history. Even if Trump’s first 100 days had produced a bevy of new legislation, it typically takes about a year for policy to affect national economic statistics. But Trump’s first 100 days produced no major legislation, despite effectively unwinding Obama-era regulations for labor, environmental, and consumer protections. Instead, Trump is treating the U.S. economy the way he might treat the licensing of a fully built hotel: He has slapped his surname on the facade and shifted around the interior decor. But the foundation, scaffolding, and architecture of the thing either preexisted his term or are beyond his control.
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