Seven Myths About the GOP Tax Reform


When the history of the current year in American history is written, the passage of the 2017 tax reform bill will likely take a very large role.
 

by John Carney
breitbart.com

After a decade of economic contraction and listless  growth, Americans demanded a new set of policies that would “make America great again.” And Republicans responded by passing a dramatic overhaul to the tax code that aims to break the hold of what liberal economists call “secular stagnation.”

The passage of the bill was greeted by the unedifying spectacle of the Democratic opposition, many in the mainstream media, and many leading economists joining to mislead the public about the Republican tax proposals. It played out almost as a Shakespearean play-within-a-play. But instead of Hamlet’s production of a play about the assassination of a king, we saw the blue-checkmarks of economics and budgets performing a miniature version of the resistance-without-regard-for-truth that has been performed by America’s orthodox elites ever since Donald Trump’s election.

Many of the reports about the tax plan, however, are demonstrably false. Others are not even wrong. Below are the top seven myths that critics of the tax overhaul have put forward–and the evidence that disproves them.

MYTH #1: They’re cutting taxes on millionaires while raising them for the middle class and the poor.
FACT: Middle-income Americans are the biggest winners under the tax bill.

Despite the ocean of ink and cloud-stuffing pixels spilled out to prove this point–and the more hyperbolic critics have described the tax bill as “class warfare” against the middle class and the poor–it is obviously wrong. The Senate bill, for example, cuts taxes for every income bracket and slashes the tax bill for nearly all taxpayers.  In fact, middle-class Americans would see the largest deductions in their tax bills.

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Here are the facts, all according to the nonpartisan Joint Committee on Taxation.

  • Middle-income Americans win the most. People earning between $40,000 and $70,000 would see their tax bills falling by 7.1 percent. People with incomes between $20,000 and $30,000 would see a 10.4 percent decline in their tax bills. Millionaires get just a 5.3 percent cut.
  • And most middle-income Americans win. Eighty-one percent of taxpayers earning between $50,000 and $75,000 get a tax cut under the Senate bill, according to the JCT. For people earning between $75,000 and $100,000, 84 percent get a tax cut. The same with those earning $100,000 to $200,000. Just 80 percent of those earning a million dollars or more get a tax cut.
  • A lot of families will owe no taxes at all. Most married couples with children earning less than $60,000 per year will have no income tax liability at all. That’s because under the Senate bill, the child tax credit rises to $2,000 per child. (Note, this is not from JCT but from the MarketWatch tax calculator.)
  • It’s actually the wealthy that disproportionately pay higher taxes under the bill. Very few people would face a tax increase under the Senate bill, and those people are disproportionately wealthy. According to the JCT, just 10 percent of taxpayers earning between $50,000 and $75,0000 will get a tax increase under the Senate bill, largely from the loss of some deductions. That number is actually probably too high, however, because it was done before Senator Susan Collins of Maine proposed an amendment to preserve the deduction for state and local property taxes up to $10,000. For lower levels of income, the numbers are much smaller. In the $20,000 to $30,000 range, for example, just 5.6 percent will see taxes rise. Around 19.2 percent of millionaires, however, will pay more in taxes because of the loss of deductions.

One of the reasons critics of the tax cuts say the bill actually raises taxes on the middle class is that many of the cuts to individual tax cuts are set to expire after 2025 in order to comply with Senate budget rules. And it is true that if those tax cuts were allowed to expire, then taxes would go up for many Americans. But there’s no reason to expect Congress will allow the tax cuts to expire, particularly if Republicans keep control of either the House or the Senate. You don’t have to take our word for it, though. The New York Times explained all this years ago: temporary tax cuts are typically extended or made permanent.

When opponents of the tax bills say the expiration dates mean the Senate bill hikes taxes on the middle class, they’re not telling the truth.

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George Soros' $18 Billion Tax Dodge Exposed


The wealthy have tucked billions into private nonprofits... where the IRS can’t touch it.

 

by Tyler Durden
Zerohedge.com

Congress is still scrambling to find ways to pay for its tax cut, so perhaps it should pay closer attention to last month’s news that George Soros had transferred $18 billion of his fortune to a private charity that he controls. There it will be sheltered from the Internal Revenue Service forever. This may be the single biggest tax dodge in U.S. history, yet no one on the right or left seems to have raised an eyebrow.

True tax reform is predicated on the principle that all income should be taxed at a low rate once, and only once. But much of the wealth that Mr. Soros spent years moving into his Open Society Foundations will never be taxed. A gift of billions of dollars of appreciated stock escapes any capital gains tax, and the estate tax as well. So Mr. Soros can donate appreciated stock that Open Society Foundations can liquidate without the government ever taking a cut.

There’s more. When a person donates untaxed, appreciated assets to a private foundation, he may also deduct up to 20% of its market value on his personal return, carrying forward this deduction for five years. This double write-off may be the sweetest deal in the tax code.

The donors also can retain control of the money within the private foundation for years or even decades before it is disbursed. Since the foundation can employ family members at six-figure salaries for life to “administer” it, the umbilical cord to the donor never has to be cut.

Congress should stop ignoring this tax-avoidance scheme. The super rich have already poured hundreds of billions into private foundations, but the figure could soon be in the trillions. Mark Zuckerberg has pledged to give away 99% of his Facebook shares, currently estimated to be worth somewhere around $70 billion, and much of it will go to a foundation his family controls. Bill Gates and Warren Buffett have each put roughly $30 billion tax-free into the Bill and Melinda Gates Foundation. This has left the foundation so flush that it spent $500 million on a 12-acre, 900,000-square-foot office complex in Seattle for its 1,500 employees. This is philanthropy?

I don’t question these billionaires’ right to do with their money as they wish. I’m simply arguing that Congress shouldn’t let the rich and politically powerful use private foundations to escape taxation. This loophole is one reason for an anomaly in our otherwise progressive tax code: The top 1% of earners pay an effective tax rate of 23%, but the top 0.001% pay only 18%.

Mr. Buffett has sanctimoniously denounced the fact that he pays a lower effective tax rate than his secretary. His suggestion is that Congress raise taxes on capital gains. But even if the tax rates were lifted, say, to 50%, Mr. Buffett still wouldn’t have to pay it on the tens of billions of dollars he puts into private foundations, and he would still be able to deduct a fifth of that contribution on future tax returns.

This tax favoritism might be defensible to promote genuine philanthropic activities.

Many billionaires, such as the Gateses and David Koch, have heroically donated to fight cancer and malaria or provide relief to hurricane and earthquake victims.

But others, including Mr. Soros and Michael Bloomberg, have turned private foundations into massive de facto lobbying operations for bigger government and liberal causes like higher minimum wages, gun control, universal health care, and a carbon tax. Mr. Soros’s $18 billion gift alone is the equivalent of maybe 100 Heritage Foundations. This kind of weaponized philanthropy has the potential to undermine the American free enterprise system.

Yes, billions go to groups on the right, too, from Mr. Koch and others. But regardless of ideology, why shouldn’t tax be collected before the money is given away? What message does it send that the Republican tax-reform bills retain this trillion-dollar loophole for the super rich, at the same time as the House plan eliminates the adoption credit for middle-class families who want to help children?

One simple solution would be for Congress to apply the capital-gains tax to assets of more than $1 million before they are transferred to a charity. This could even finance cutting the capital-gains rate to 15% for everyone.

Alternatively (or perhaps in addition) Congress could cap deductions for any given household to $250,000 a year. Under this kind of plan, Mr. Soros would be able to write off only a tiny fraction of his multi-billion dollar gift.

This isn’t an argument against charity. But selfless and effective giving is not motivated by tax breaks. Two-thirds of Americans don’t itemize their deductions, yet millions give until it hurts. In the 1980s, individual donations to charities surged, even as the top tax rate—and thus the maximum value of the write-off—fell from 70% to 28%.

The question is whether a tax code that encourages dynastic family foundations is good for America. If Congress stopped letting billionaires pour money tax free into the foundation-industrial complex, it would go a long way toward lowering rates and making the tax code fairer for everyone. This would help the economy grow faster, which is the best way to help those in need.

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