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.
Scandinavia Veers Left plus D-Day Reflections as Trump Storms Europe
Mette Frederiksen of the five-party Social Democrat bloc won 91 of the 169 seats in the Danish parliament ending the rule of the right-wing Liberal Party group that had governed for 14 of the last 18 years. The election issues centered on climate change, immigration and Denmark’s generous social welfare policies. All parties favored tighter immigration rules thereby taking away the central issue dominating the far-right Democrat Freedom Party which has seen its support halved since the last election in 2015.
Ms Frederiksen promised more spending to bolster the much loved social welfare model and increased taxes on businesses and the wealthy. A left wave is sweeping Scandinavia as Denmark becomes the third country, after Sweden and Finland, to move left within a year. Mette Frederiksen will also be, at 41, the youngest prime minister Denmark has ever had.
Donald Trump has used the 75th anniversary of D-Day commemorations to garner positive publicity. The supreme promoter has managed to tie it in with a “classy” (his oft-chosen word) state visit to the UK spending a day with royals. It was also a farewell to the prime minister as her resignation is effective from June 7. Add a D-Day remembrance ceremony at Portsmouth and he was off to his golf course in Ireland for a couple of days of relaxation disguised as a visit to the country for talks — he has little in common with the prime minister, Leo Varadkar, who is half-Indian and gay.
Onward to France where leaders gathered for ceremonies at several places. It is easy to forget the extent of that carnage: over 20,000 French civilians were killed in Normandy alone mostly from aerial bombing and artillery fire. The Normandy American cemetery holds over 9600 soldiers. All in all, France lost in the neighborhood of 390,000 civilian dead during the whole war. Estimates of total deaths across the world range from 70 to 85 million or about 3 percent of the then global population (estimated at 2.3 billion).
Much has been written about conflict resolutions generally from a cold rational perspective. Emotions like greed, fear and a sense of injustice when unresolved lead only in one direction. There was a time when individual disputes were given the ultimate resolution through single combat. Now legal rights and courts are available — not always perfect, not always fair, but neither are humans.
It does not take a genius to extrapolate such legal measures to nations and international courts … which already exist. Just one problem: the mighty simply ignore them. So we wait, and we honor the dead of wars that in retrospect appear idiotic and insane. Worse is the attempt to justify such insanity through times like the “good war”, a monstrous absurdity.
It usually takes a while. Then we get leaders who have never seen the horror of war — some have assiduously avoided it — and the cycle starts again.
To Impeach Or Not To Impeach? That Is The Question
Robert Mueller let loose a thunderbolt midweek. Donald Trump had not been charged, he said, because it was Department of Justice policy not to charge a sitting president. Dumping the issue firmly into Speaker Nancy Pelosi’s lap, he reminded us of the purpose of the impeachment process. According to Mueller there are ten instances where there are serious issues with the president obstructing justice adding that his report never concludes that Trump is innocent.
So here is a simple question: If Mueller thought the president is not innocent but he did not charge him because of Justice Department policy, and he appears also to favor impeachment, then why in heaven’s name did he not simply state in his report that the preponderance of evidence indicated Trump was guilty?
Nancy Pelosi is wary of impeachment. According to the rules, the House initiates it and when/if it finds sufficient grounds, it forwards the case to the Senate for a formal trial. The Senate at present is controlled by Republicans, who have been saying it’s time to move on, often adding that after two years of investigation and a 448-page report, what is the point of re-litigating the issue? They have a point and again it leads to the question: if Special Counsel Mueller thinks Trump is guilty as he now implies, why did he not actually say so?
Never one to miss any opportunity , Trump labels Mueller, highly conflicted, and blasts impeachment as ‘a dirty, filthy, disgusting word’, He has also stopped Don McGahn, a special counsel at the White House from testifying before Congress invoking ‘executive privilege’ — a doctrine designed to keep private the president’s consultations with his advisors. While not cited anywhere in the Constitution, the Supreme Court has held it to be ‘fundamental to the operation of government and inextricably rooted in the Separation of Powers under the Constitution.’ Separation of powers keeps apart the executive branch, the legislature and the judiciary, meaning each one cannot interfere with the other.
Nancy Pelosi is under increasing pressure from the young firebrands. Rep Alexandra Ocasio-Cortez has already expressed the view that it is time to open an impeachment inquiry against Trump given the obstruction of lawmakers’ oversight duty.
Speaker Pelosi is a long-time politician with political blood running through her veins — her father was Mayor of Baltimore and like herself also a US Representative. To her the situation as is, is quite appealing. Trump’s behavior fires up Democrats across the country and they respond by emptying their pockets to defeat the Republicans in 2020. Democratic coffers benefit so why harm this golden goose — a bogeyman they have an excellent chance of defeating — also evident from the numbers lining up to contest the Democratic presidential primaries, currently at 24.
Will Trump be impeached? Time will tell but at present it sure doesn’t look likely.
When Republicans Are In Power, Banks, Real Estate, and Insurance Companies Crush The People
There is certainly a correlation by and between when conservatives and Republicans talk about “de-regulation” and “freedom” of business, in the outright and total crushing of the American people underneath a boot of immorality.
For example, insurance companies will start to increase the use dishonest and unethical “adjustors” to set out to deny lawful proper claims for insurance, such as when someone has fully paid their expensive premiums, but then is cruelly and out of hand denied much needed assistance from these insurance companies for various health problems, automobile accidents, home and renters policy mishaps, professional liability defense, general business liability assistance, property damage, and other types of accidents and mishaps that these insurance companies state that they were designed to protect their customers with.
These insurance companies know fully well that the poor and middle class do not have the ability to hire and retain competent high powered lawyers to defend their interests, either by entangling with them or in dealing with the entities that are coming after them in the above named types of life problems.
The Democrats had created and implemented such consumer watchdog agencies such as the Consumer Financial Protection Bureau (“CFPB”) and the New York Department of Financial Services (“DFS”) and these agencies were very successful in prosecuting, investigating, and beating back insurance company and banker predatory behavior, but then the lobbying groups for these industries began to buy and pay for Republican whores and populated the Congress and Senate with their “people,” and low and behold, we got an avalanche of “deregulation” from the Executive and Legislative Branches, gutted agencies and replacement of its leaders, all of a sudden leaving the American people at the will and hellish end of the retaliatory insurance and banking industries, and now things are worse than they ever were before.
Similarly, as the Insurance industry benefited from screwing over the American people, the Banking industry simultaneously have begun again to rape the American people, by instituting usurious collections and interest rates, sometimes as high as 50-60%, on such things as student loans in default through no fault of the borrower (due to sickness, injury, loss of employment, bankruptcy) and credit card companies now routinely rape and pillage the American people with ungodly APRs and other “bait and switch” mechanisms designed to fleece their customers, enriching themselves while impoverishing their customers.
All the while these banks and insurance companies are charging more than ever for premiums, simple day to day processes such as ATM machine usage, finance charges, late fees, and other highway robbery-type methods to steal from the American people.
The real estate industry, headed up by men such as Ben Carson of HUD, have now mercilessly began to crush tenants and mortgage holders, denying them basic warranties of safety and habitability, skirting all state and federal regulation so as to make a buck.
“Freedom” as used by Republican and conservative leaders was supposed to mean something different than giving trillion dollar international banks, real estate, and insurance companies the license to rape and pillage the American people, but “deregulation” is the proverbial “wolf in sheep’s clothing” or “trojan horse” by these communist industries to devastate the American people, and they must be reigned in once again by the Democrat led powers in the Congress and the Senate, and perhaps even the Judiciary (state and federal).
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