Tax reform has promise but not much for middle class
Sunday, December 17, 2017
Who isn't for tax reform? Faced with year-long record-keeping, maintaining files and setting aside several days to fill out tax forms, the option of completing a basic 1040 with a standard deduction gets a thumbs-up from most taxpayers.
Granted, a few die-hard souls probably enjoy crunching the numbers every year, look forward to the challenge of uncovering a hidden deduction among the numerous loopholes in the current tax code. And, of course, the tax attorneys, accountants and tax preparation services that depend on the current tax laws to give them work may differ. For most Americans, however, the easier, less-complicated path is a winner.
Hence, tax reform has a comforting nuance when it is equated with tax simplification — a motivation that Americans are being fed to buy in to the federal legislation that Congress wants to drop quickly on the desk of President Donald Trump — who is just as eager to sign it.
The legislation would, in fact, bring about a simpler method of reporting taxable income and going through the process of filing tax forms each year. The doubling of the standard deduction in the legislation will take much of the hassle and preparation out of filing for many taxpayers. And there's also tax relief.
But while it makes the process easier on most individual filers, and puts a few dollars — very few — in the pockets of average Americans, the legislation heavily favors corporations and the wealthiest Americans, whose rates drop significantly. The public has good reason to wonder why. Why, for instance, does tax reform have to favor the individuals and entities that already control most of the wealth in the country, rather than helping restore the economic vibrancy of middle class Americans, who have been losing ground for years? And, if tax reform is such a popular objective that it was made a campaign promise, why is such comprehensive legislation not being vetted more carefully and openly by Republicans? Why is it being rushed through to passage?
One answer to why all the rush, is not hard to find.
The U.S. Senate and House and the White House, all controlled by Republicans, need something to claim as a political victory. In a year of failed political objectives highlighted by disjointed legislative priorities, the GOP-controlled government has little to show for the party's year in power. Hence, party leaders are in a hurry to do something before the end of the year, something they can point to during the mid-term elections next year. Consequently, tax reform — a worthy goal, we agree — is being driven by political optics. The partisan objective seems to be, in effect: Pass something, anything, that can be construed as fulfilling at least one campaign promise in 2017.
That's troubling, especially since tax reform will affect Americans for the next decade and beyond. The law’s chief objective should be a firm foundation for realistic economic outcomes, rather than satisfying a political calculation. And that foundation — which is achievable with tax reform — should offer a better deal to more middle class Americans, who make up 95 percent of the population.
A key component of the legislation — reducing taxes, and in particular, corporate taxes — would drop the rate corporations pay from about 35 percent to 21 percent, giving many corporations and their shareholders a big gift. To popularize the giveaway, the public is asked to believe that by giving corporations a huge tax cut, the economy will be stimulated and jobs created — a plum aimed directly at middle America.
But take a look around. The economy is churning. GDP is up. Unemployment is at the lowest level in 17 years. Corporations are flush with cash. Credit is cheap. The economy is growing, up 3 percent in each of the last two quarters. That’s without any tax cuts — which will add a trillion dollars or more to the deficit, while having uncertain impact on the economy and those who need relief the most.
By their own admission, many corporate executives have even signaled that revenue from tax cuts won't be earmarked for new jobs, expansions or other economy-stimulating deals. The added capital from tax cuts, most of them agree, will do two things: retire corporate debt and go to shareholders.
There's no altruistic, socially-driven agenda being contemplated to help the broader American economy. There's no linkage between having more corporate cash available and raising the minimum wage — a step that would certainly aid the middle class and the poor.
So why the rush, and why is so much of what is being called “tax reform” aimed at helping corporations and the wealthy? Seems like Americans deserve to have answers to those questions before this legislation becomes law.