Tax reform will be the litmus test for Republicans and President Trump and will be decisive in determining the latter’s re-election. With repealing and replacing Obamacare now relegated to the shed and progress on the border wall looking sluggish, tax cuts across the board might become the ace in the hole.
November 2 saw the unveiling of the new tax reform bill, entitled ‘Tax Cuts and jobs Act of 2017,’ in the Congress (House of Representatives). The New York Times did a great round up of the bill and what it entails, if it were to pass through the Congress and signed into law.
In a move to streamline the tax brackets in individual income tax, the new bill sets out four easy brackets, some of which involve merger of existing brackets. The bill also revises the income ranges for the brackets. Under the new bill, the top tax rate will be applied to households making $1 million and above as compared to $480,050 under the existing structure, thus relieving the burden on six digit earners. While low income earners ($0 – $19,000) will be taxed at 12%, up 2 percentage points from the existing 10%, a larger child tax credit for low income families might make up for the earnings lost in the mark-up.
Repealing the estate tax, which might double the amount of tax exempted inherited wealth to $11 million, seems like a huge windfall for the rich. Critics of the tax reform bill will and have certainly used this giveaway to label the bill as ‘tax cuts for the rich.’
But the real bonanza lies in the bill’s proposal to double the standard deduction – fraction of income immune from taxation. This is applicable to all but married couples with multiple children.
On the other hand, the bill proposes to eliminate local and state tax deductions – a move touted to negatively affect blue state residents more than red state residents, as the former have higher taxes. Could this be an attempt to pressure blue states into reducing their state and local taxes? The next few weeks might answer this question.
Pass-through businesses (sole proprietorships, partnerships, and S corporations) will be taxed at a new single tax rate – 25%. Although a fine streamlining measure, the flat tax rate seems high given the fact that most of pass-through businesses are small and medium enterprises that operate domestically and contribute a lion’s share to the economy. Taxing them lower than the proposed flat tax rate for corporations might make it reasonable and might win over at least one Senate Republican – Sen. Ron Johnson (R-Wis). Winning Senate Republicans over is critical for the passage of the bill, as we shall see later.
The corporate tax rate, under the bill, will be slashed to 20% from the current 35% – one of the highest in the world. The 35% tax rate doesn’t include taxes imposed by the state and local councils. The existing tax burden means more and more US corporations park their money abroad in ‘tax havens.’ The only way to lure that money back and earn taxes on it is to become competitive and incentivize firms to hold their money in the US. The change will have to be coupled with closure of all possible tax loopholes to make sure that the new policy delivers the proposed goodies.
The connection between tax relief to corporations and job creation and better wages is tenuous, yet widely leveraged. But it sounds sanguine and gets the masses to rally around such proposals – an indirect measure to influence the voting patterns of the elected representatives.
On the other hand, there might be some wisdom in cutting taxes for small businesses in a bid to create jobs, as these businesses hire locally and cannot replace human labor with automation due to the high costs of the latter. That’s one more reason to lower the tax rate for pass-through businesses.
The Senate has its own version of tax reform, which if passed, will need to be reconciled with the House version. The Senate version agrees with the House version on most of the key elements. Notable differences include further lowering taxes on overseas profits, an unreasonable tax to begin with, as the profits were made elsewhere and probably have been taxed locally.
The Senate has also added a repeal of Obamacare’s individual mandate that requires everyone to get health insurance or else pay a tax penalty. This is a huge boon for those who don’t want to buy health insurance or can’t afford the ever-increasing costs of O-care. This might also save the government some money, as there will be fewer people requiring health subsidies. The Congressional Budget Office (CBO) estimates that repealing the individual mandate will earn the federal government $338 billion in revenue, which it would otherwise spend on health subsidies.
On a conspiratorial note, the Senate’s repeal of the mandate might be a cloaked attempt to gradually chip away at Obamacare.
The tax bill has passed the House and is awaiting the Senate’s consensus over its own version, following which the complicated ‘reconciliation’ process will begin. Although the tax bill made it through the House without breaking a sweat, its Senate counterpart might have to struggle, given the fact that the Democrats are unanimously opposed to it and only three Republicans need to vote ‘nay’ for the Senate version to fizzle out. Given the current mood, the Senate version seems to be hanging by a thin thread.
(The story is developing and so will the commentary. Check back periodically for updates.)
(Update: December 18, 2017)
President Trump must come through on his promises on tax, economic growth, jobs, and employment and the tax reform bill seems like the ace card. If nothing else, this bill upon passage will grant him the much-needed brownie points.
The bill sailed safe through the House and recently, the Senate voted on it. Here’s a brief, yet comprehensive, outline of the bill that passed the Senate.
The individual income tax remains tiered and progressive, but the brackets have been adjusted such that the highest rate (37%) is applicable to those earning half a million or above. Whether middle and upper middle-income families save the extra income, spend it, or invest it depends on a host of factors, including interest rates, stock market, and real estate. Nonetheless, it’s a significant tax cut for the middle class and a re-definition of the middle class through re-sizing of tax brackets.
A similar trend is seen in the alternative minimum tax (AMT) – a provision to ensure that individuals contribute their fair share – depending on how you define fair share. The trigger point for AMT and the threshold for phase-out have been scaled up significantly to move this burden to higher income individuals/couples, while lessening the burden on middle-income earners.
The bill is also a giant tax cut for corporations of all sizes – a point that has been used to malign the proposal as a ‘tax cut for the wealthy.’ Corporate tax will be diminished to 21% beginning 2018 and corporate AMT will be repealed. Repatriation of earnings will attract a modest 15.5% tax, which seems like an effort to not only lure businesses to keep their domestic earnings in the US, but to also move their overseas revenues stateside. Whether this move will deliver the proposed outcome depends on not just the tax rate, but also cost of compliance and scrutiny and any other regulations that may or may not burden the corporations. As I have said before, whether this influx of money will translate into more jobs is a highly questionable premise.
Business owners will have another means to increase their tax-free income – the pass through deduction of 20% applicable until $315,000 for joint filers and half that for single filers.
Repeal of Obamacare individual mandate, i.e. the unconstitutional requirement and the resultant penalty, stays.
The Senate version has left in state and local tax deductions, but has capped their net value at $10,000. This is a departure from the House version that proposed a complete repeal. A complete repeal could adversely affect the lives of mostly blue state residents and might perhaps, put pressure on state and local governments to reduce spending/taxation. If the House provision in this regard is rolled back to make way for the Senate provision, the chances of blue states controlling the growth of their governments seem fewer.
Mortgage interest deductible has been reduced to loans of $750,000. Upon researching into this scheme, I am not entirely convinced about its prudence. The deductible is just a means by which the government fiddles with the real estate market, contributing to a bubble. A total repeal of this deductible will be in line with free market principles.
The threshold for medical expense deduction has been brought down to 7.5%, which is a relief for the elderly and those with chronic illnesses. Additional measures to moving towards a free-market for healthcare hold the promise of making healthcare affordable for all.
The tax brackets for estate tax have been re-sized to re-define middle income families and to also provide relief to upper middle class. In addition, a sunset date has been put on this provision leaving room for amend.
The bill is currently being looked over for resolution of differences, following which it will reach the President’s desk. Trump has signaled his support for the bill and it is certain it will receive his assent.
Overall, although Republicans in Congress and representatives of Trump administration have skirted being quizzed about the windfalls the bill brings for the wealthy, it is increasingly clear that that tax reform bill is a tax cut for almost all.
The coming few weeks will be critical in deciding the direction of the economy for the next few years.
(Update: December 20, 2017)
The tax-reform bill passed the Senate 51-48 in a party-line vote. Sen. John McCain of Arizona was absent during the vote on account of medical circumstances. The cost of the bill is estimated to be $1.5 trillion over the next 10 years, i.e. individuals and corporations, in total, will save about one and a half trillion dollars over the next decade.
A self-inflicted wound: Trump surrenders the West’s moral high ground
For the better part of a century, the United States could claim the moral high ground despite allegations of hypocrisy because its policies continuously contradicted its proclaimed propagation of democracy and human rights. Under President Donald J. Trump, the US has lost that moral high ground.
This week’s US sanctioning of 28 Chinese government entities and companies for their involvement in China’s brutal clampdown on Turkic Muslims in its troubled north-western province of Xinjiang, the first such measure by any country since the crackdown began, is a case in point.
So is the imposition of visa restrictions on Chinese officials suspected of being involved in the detention and human rights abuses of millions of Uyghurs and other Turkic Muslims.
The irony is that the Trump administration has for the first time elevated human rights to a US foreign policy goal in export control policy despite its overall lack of concern for such rights.
The sanctions should put the Muslim world, always the first to ring the alarm bell when Muslims rights are trampled upon, on the spot.
It probably won’t even though Muslim nations are out on a limb, having remained conspicuously silent in a bid not to damage relations with China, and in some cases even having endorsed the Chinese campaign, the most frontal assault on Islam in recent history.
This week’s seeming endorsement by Mr. Trump of Turkey’s military offensive against Syrian Kurds, who backed by the United States, fought the Islamic State and were guarding its captured fighters and their families drove the final nail into the coffin of US moral claims.
The endorsement came on the back of Mr. Trump’s transactional approach towards foreign policy and relations with America’s allies, his hesitancy to respond robustly to last month’s missile and drone attacks on Saudi oil facilities, his refusal to ensure Saudi transparency on the killing a year ago of journalist Jamal Khashoggi and his perceived empathy for illiberals and authoritarians symbolized by his reference to Egyptian field marshal-turned-president Abdel Fattah al-Sisi as “my favourite dictator.”
Rejecting Saudi and Egyptian criticism of his intervention in Syria, Turkish president Recep Tayyip Erdogan gave the United States and Mr. Trump a blunt preview of what they can expect next time they come calling, whether it is for support of their holding China to account for its actions in Xinjiang, issues of religious freedom that are dear to the Trump administration’s heart, or specific infractions on human rights that the US opportunistically wishes to emphasize.
“Let me start with Saudi Arabia,” Mr. Erdogan said in blistering remarks to members of his Justice and Development Party (AKP). “Look in the mirror first. Who brought Yemen to this state? Did tens of thousands of people not die in Yemen?” he asked, referring to the kingdom’s disastrous military intervention in Yemen’s ruinous civil war.
Addressing Mr. Al-Sisi, Mr. Erdogan charged: “Egypt, you can’t talk at all. You are a country with a democracy killer.” The Turkish leader asserted that Mr. Al-Sisi had “held a meeting with some others and condemned the (Turkish) operation – so what if you do?”
The fact that the United States is likely to encounter similar responses, even if they are less belligerent in tone, as well as the fact that Mr. Trump’s sanctioning of Chinese entities is unlikely to shame the Muslim world into action, signals a far more fundamental paradigm shift: the loss of the US and Western moral high ground that gave them an undisputed advantage in the battle of ideas, a key battleground in the struggle to shape a new world order.
China, Russia, Middle Eastern autocrats and other authoritarians and illiberals have no credible response to notions of personal and political freedom, human rights and the rule of law.
As a result, they countered the ideational appeal of greater freedoms by going through the motions. They often maintained or erected democratic facades and payed lip service to democratic concepts while cloaking their repression in terms employed by the West like the fight against terrorism.
By surrendering the West’s ideological edge, Mr. Trump reduced the shaping of the new world order to a competition in which the power with the deeper pockets had the upper hand.
Former US national security advisor John Bolton admitted as much when he identified in late 2018 Africa as a new battleground and unveiled a new strategy focused on commercial ties, counterterrorism, and better-targeted U.S. foreign aid.
Said international affairs scholar Keren Yarhi-Milo: “The United States has already paid a significant price for Trump’s behaviour: the president is no longer considered the ultimate voice on foreign policy. Foreign leaders are turning elsewhere to gauge American intentions… With Trump’s reputation compromised, the price tag on U.S. deterrence, coercion, and reassurance has risen, along with the probability of miscalculation and inadvertent escalation.”
Trump’s effects on diplomacy
No longer has Trump’s haphazard behaviour persisted, more will be easy for his administration to enact actions against China, Iran and Taliban. The state department is in a quandary because of it, on each front. Trump’s entrenched eagerness to remain “great” and “first” on the chessboard of International power, could damage the world more ahead than before.
Following the Iran’s attacks on the Kingdom of Saudi-Arabia’s oil infrastructure, US wanted to deploy troops to the Kingdom. It is primarily a justification for why the US has been imposing sanctions over Iran. Is troops deployment a solution? Or will it provide safe horizon to Kingdom oil’s installation? Or will it be revolutionary in oil diplomacy? Or is it the only target retaliated on, by Iran. However, such kind of engagement has short term beneficiary spots, while in broader perspective it has consequential effects for all stakeholders. The episode of nuclear deal has, as a factor of quid-pro-quo, been further dramatised by the state department, withdrawing from. Notwithstanding, the deal has advantageous prospects for the Middle East, and an exemplary for rest of nations, has been further dramatised by the US, in order to seek its diplomatic wins. What significant at this point, is an agreement to reback to the deal.
Embracing a different economic model, China, is plausibly on a runner-up position to the US. Whether it’s 5G tech. Or leading status of green energy, or ultra-scales exports or its leading developments for the nations having indigent economies, is a source of chaos for US administration. The current trade war is an antidoting tool for the whole scenario. The US should, I assume, eye China’s hegemony a piece of cake, and welcome its come out while securing its interests under the umbrella of cooperation. This logic, while posing no threat, seems to be long term functional. Is it?
Trump, according to many native writers, is psychologically unfit, unstable and fickle, however have had strong narrative to prevent America’s engagement into “useless wars” and end “endless” wars. Following this token, Trump announcement of troop withdrawal from Syria and Afghanistan put the world politics and even his administration into chaos. This divided strategists and Washington security officials, which was underpinned by the resignation of James Mattis and recently John Bolton. The ten months of peace process which followed the US’s announcement of troop withdrawal, precipitously ended, putting once again the international and national politics into chaos. Trump, grandiloquently fired a tweet that talks with Taliban are dead and futile. The argument he contended was the Attack in Kabil, where one American soldier with 12 other people were lost. The policymakers and high officials in Washington who already negated the policy of troop withdrawal and then after peace deal. They, of course are winner in this policy discourse, have staunch beliefs in their opinion, who may make Trump’s change of heart. The Kabil attack was given, probably, an agent of resurgent for Obama’s approach. However, Trump’s administration had already scripted their policy framework for the region, and pretending Kabul attack was perhaps a way of redemption from the peace talk.
Trump’s factor in US foreign policy was chaotic to his subordinates for which, he attempted to compensate by cancelling peace deal with Taliban. However , on the domestic front, it is likely to be more pluses than on diplomatic front given to Trump in next year’s presidential election. Let’s see which side the wind blow.
Trump Cannot Be Impeached Over Ukrainegate, But Pelosi and Schiff Can Be Charged Criminally
Pursuant to United States v. Curtiss-Wright Export Corp., 299 U.S. 304 (1936), the U.S. Supreme Court issued an unmistakable clear edict concerning the foreign affairs powers of the President of the United States.
In its majority opinion, the Court held that the President, as the nation’s “sole organ” in international relations, is innately vested with significant powers over foreign affairs, far exceeding the powers permitted in domestic matters or accorded to the U.S. Congress.
The Court reasoned that these powers are implicit in the President’s constitutional role as commander-in-chief and head of the executive branch.
Curtiss-Wright was the first decision to establish that the President’s plenary power was independent of Congressional permission, and consequently it is credited with providing the legal precedent for further expansions of executive power in the foreign sphere.
In a 7–1 decision authored by Justice George Sutherland, the Supreme Court ruled that the U.S. government, through the President, is categorically allowed great foreign affairs powers independent of the U.S. Constitution, by declaring that “the powers of the federal government in respect of foreign or external affairs and those in respect of domestic or internal affairs are different, both in respect of their origin and their nature…the broad statement that the federal government can exercise no powers except those specifically enumerated in the Constitution, and such implied powers as are necessary and proper to carry into effect the enumerated powers, is categorically true only in respect of our internal affairs.”
While the Constitution does not explicitly state that all ability to conduct foreign policy is vested in the President, the Court concluded that such power is nonetheless given implicitly, since the executive of a sovereign nation is, by its very nature, empowered to conduct foreign affairs.
The Court found “sufficient warrant for the broad discretion vested in the President to determine whether the enforcement of the statute will have a beneficial effect upon the reestablishment of peace in the affected countries.”
In other words, the President was better suited for determining which actions and policies best serve the nation’s interests abroad.
It is important to bear in mind that we are here dealing not alone with an authority vested in the President by an exertion of legislative power, but with such an authority plus the very delicate, plenary and exclusive power of the President as the sole organ of the federal government in the field of international relations – a power which does not require as a basis for its exercise an act of Congress, but which, of course, like every other governmental power, must be exercised in subordination to the applicable provisions of the Constitution.
Separation of Powers Doctrine
In other words, neither the U.S. Congress nor the U.S. Senate can say or do very much of anything to prevent or interfere with this power, and if they do, they can in fact be held responsible for violating the Separation of Powers doctrine pursuant to the U.S. Constitution wherein the three branches of government (executive, legislative, and judicial) are kept separate.
This is also known as the system of checks and balances, because each branch is given certain powers so as to check and balance the other branches.
Each branch has separate powers, and generally each branch is not allowed to exercise the powers of the other branches.
The Legislative Branch exercises congressional power, the Executive Branch exercises executive power, and the Judicial Branch exercises judicial review.
National Security and Foreign Affairs
The Curtiss-Wright case established the broader principle of executive Presidential supremacy in national security and foreign affairs, one of the reasons advanced in the 1950s for the near success of the attempt to add the Bricker Amendment to the U.S. Constitution, which would have placed a “check” on said Presidential power by Congress, but that never passed, or became law.
If Speaker of the House Nancy Pelosi and other Democrats really wanted to interfere with or prevent President Donald Trump from engaging in the activity that they are trying to prevent vis-a-vis Ukraine, China, and Joseph Biden’s alleged corruption and its effect on National Security, they would have to first draft, propose, enact, and pass sweeping legislation, and this could take years and would most probably never pass.
Even so, it could not affect President Donald Trump’s actions already occurred, since the U.S. Constitution prohibits ex post facto criminal laws.
Turning This All Against Nancy Pelosi and Adam Schiff
To that end if Speaker of the House Nancy Pelosi and Congressman Adam Schiff persist in pushing said “impeachment proceedings” against President Donald Trump, it is actually they who could find themselves on the wrong side of the law, with formal and actual charges of Treason, Sedition or Coup D’ Etat being levied upon them by the U.S. Government.
The consequences of that occurring, are truly horrific indeed.
CPEC vs IMF in Pakistan
International Monetary Fund (IMF) was created just after World War II (WWII) in 1945. The IMF is an organization of...
What will Middle East gain from US’ “retreat”?
Throughout the year, American commentators have been sounding alarm over the weakening of the US positions in the Middle East....
I’ll leave the pain for tomorrow. Won’t even think about it until tomorrow. That is, if tomorrow ever comes. So,...
1.2 trillion rupees on the move: Modi’s greatest piece of purchase yet
Last week, the RBI (Reserve Bank of India) was taken aback by more than a surprise. Just when it was...
Military operation in northeast Syria could see unintentional release of ISIL affiliates
The ongoing Turkish military incursion in northeast Syria could unintentionally lead to the release of scores of people associated with...
Turkey in the Kurdish Rojava
Since the beginning of clashes in Syria, Turkey has aimed at annexing the left bank of the Euphrates up to...
Has Assad succeeded in overcoming the Syrian crisis?
A series of revolutions swept through the Arab region. The first torch was from Tunisia when protester Mohamed Bouazizi burned...
Middle East2 days ago
Landing in Riyadh: Geopolitics work in Putin’s favour
Urban Development3 days ago
Cities can fight climate change and improve lives by finding new ways to be cool
Defense3 days ago
The Game-changing Fallibility of BMD Systems: Lessons from the Middle East and South Asia
Newsdesk2 days ago
Bangladesh Economy Continues Robust Growth with Rising Exports and Remittances
Hotels & Resorts3 days ago
Hilton Announces Tajikistan Premiere with Flagship Dushanbe Property
Energy2 days ago
A Century of Russia’s Weaponization of Energy
East Asia3 days ago
Beyond China-U.S. trade and where is its outlet?
Newsdesk2 days ago
Tackling obesity would boost economic and social well-being