Notes on the impending tax bill (part 1 of 2)
I have seen two things of interest in all the current debate over “tax reform”: a commentary at http://econlog.econlib.org/archives/2017/12/house_bill_sena.html that compares the House and Senate versions (and misses the point on at least half of the differences, and reports of a very good idea that got smashed in the Senate. Herewith is an attempt to summarize both issues.
- Scott Sumner, the econlog writer, extols the virtues of the House version over the Senate’s, as follows:
Let's hope the House wins at least a few battles in committee, because the Senate tax bill has a number of disappointing features:
Keeps mortgage interest deduction as is: The Senate bill would still let you claim a deduction for the interest you pay on mortgage debt up to $1 million. The House wants to cap the loan limit at $500,000 for new mortgages.
Preserves the Alternative Minimum Tax: The original Senate bill, like the House-passed bill, would repeal the AMT. But to help offset the cost of other late amendments, the final revision of the Senate bill now keeps the AMT in place but raises the amount of income exempt from it.
Preserves the estate tax, but exempts almost everybody: Unlike the House GOP bill, Senate Republicans have not proposed repealing the estate tax. But they are proposing to double the exemption levels -- which are currently set at $5.49 million for individuals, and $10.98 million for married couples. Even at today's levels, only 0.2% of all estates ever end up being subject to the estate tax.
Increases teacher deduction: Teachers who buy their own supplies for the classroom may deduct up to $250 today. The Senate bill doubles that amount to $500. The House bill, by contrast, eliminates the deduction.
Expands the medical expense deduction: Today itemizers may deduct their medical and dental expenses that exceed 10% of their adjusted gross income. While the House bill gets rid of that deduction, the Senate bill not only keeps it but temporarily lowers that 10% threshold to 7.5% for tax years 2017 and 2018.
Where shall I begin?
"Keeps mortgage interest deduction as is" ... Well, if that means those who have legitimately earned their way in the world, producing something that other value and choose to purchase, in such quantity that money is “no longer an object” … cool! Unfortunately, the vast majority of those who are in this upper-income bracket, where a $999,999 house is in the picture, have done so by either being or buying Congressmen! I see no problem with a cap at a half-mill, after which you have to get your accountant to write something else off.
"Preserves the Alternative Minimum Tax" ... Again, not sure how many people are affected by this; not sure I care much at that level.
"Preserves the estate tax, but exempts almost everybody" ... Senate wins this one; raising the exemption is a valid way of not penalizing wealth, even though neither is brave enough to remove it entirely.
"Increases teacher deduction" ... If there is one issue that should be a no-brainer, it’s this one. The doubling is a positive; it should be unlimited, at least to the amount of a given teacher’s entire tax liability. They do a job that is essential (even though it should not be under the purview of a federal cabinet department, agency or union!).
"Expands the medical expense deduction" ... Once again, if there is any effort to enable people to take care of their own health (with only catastrophic insurance in that realm), this would be a good one, and the Senate bill is clearly more in that direction.
Scott closes with:
Questions for Senate Republicans:
This is a valid question, assuming you accept the idea of taxation of any kind as a valid premise. Penalizing people further for using the government as a validation for their personal life choices is just wrong. It should be possible to get the same amount stolen, regardless of who you choose to sleep with, or what you call that union. Didn’t we learn anything from the gay marriage battle?
2. Why do you favor the AMT?
Scott seems to think this is bad idea; I tend to agree, but as long as taxation is being considered as valid, folks with financial success should probably not be able to exempt themselves from any payment at all, when those of lesser means can’t figure out how to hide it better. Again, AMT is probably a necessary evil for a while yet …
3. Why do you think equity financed investment should be taxed at a higher rate than debt financed investment? Are we trying to encourage more debt?
On this one, he hits dead-centers, assuming “equity financed investment” means there is a physical collateral involved. Debt-financing (with Congress as the example to all “consumers”) is what got us where we are now.
(to be continued)