Bloomberg’s Sahil Kapur writes that, even as President Trump prepares to push tax reform thus week, basic questions about the plan have no answers: “Will the changes be permanent or temporary? How will individual tax brackets be set? What rate will corporations and small businesses pay?”
“They’re nowhere. They’re just nowhere,” Henrietta Treyz, a tax analyst with Veda Partners and former Senate tax staffer, tells Kapur. “I see them putting these ideas out as though they’re making progress, but they are the same regurgitated ideas we’ve been talking about for 20 years that have never gotten past the white-paper stage.”
President Trump repeated his call Monday to repeal the Affordable Care Act’s individual mandate as part of the tax bill. In a tweet — geotagged from Pennsylvania, not the Philippines , where Trump currently is — Trump added that the billions in savings from ending the mandate should be used to cut the top marginal rate to 35 percent and the rest on cuts for the middle class.
The Congressional Budget Office said last week that eliminating the mandate would save $338 billion over the next decade.
The current version of the House tax bill keeps the top individual income tax rate at 39.6 percent, while the Senate bill lowers it to 38.5 percent. However, mandate repeal is not currently part of either tax bill, and, as The New York Times notes, “repeal of the individual mandate was not on the list of 355 amendments that the [Senate Finance Committee] released on Sunday night.”
The Tax Policy Center’s William G. Gale writes that the GOP’s approach to the tax bill combines a $5.8 trillion tax cut with a $4.3 trillion tax increase to offset the costs. There may have been an easier way. “What if the House GOP simply tried to cut business and individual taxes by $1.5 trillion. No offsets needed. They could have distributed small tax cuts to middle-income individuals by, say, modestly expanding the earned income tax credit and raising the standard deduction. And they could have trimmed the top corporate tax rate by a few percentage points. It would not have been base-broadening tax reform, but neither is the current bill. ... Tax reform is never easy, but crafting the bill this way has vastly increased the challenge of passing it.”
Former Federal Reserve Chairman Alan Greenspan is warning that sharply cutting taxes right now would be an economic “mistake.”
In an interview with Maria Bartiromo on the Fox Business Network Thursday, the 91-year-old Greenspan said it’s more important for President Trump and Congress to put the nation on a sustainable fiscal path by addressing rising entitlement spending driven by the aging of the U.S. population.
“Frankly, I think what we ought to be concerned about is the fact the federal debt is rising at a very rapid pace, and there’s nothing in this bill that will essentially stop that from happening," Greenspan said. "So my view is that we’re premature on fiscal stimulus, whether it’s tax cuts or expenditure increases. We’ve got to get the debt stabilized before we can even think in those terms.”
It’s no surprise that the House Republicans’ tax bill includes the eventual repeal of the estate tax, a long-held GOP goal. But The Washington Post’s Glenn Kessler highlights an unexpectedly generous aspect of the current bill: It “allows the beneficiaries of estates to not pay capital gains taxes on the increase in value of assets held by the estates. That has not been a feature of most previous estate-tax bills.”
Currently, estates face a federal tax if they’re valued at more than $5.49 million for individuals or almost $11 million for couples. But, for tax purposes, the value of assets passed on to heirs gets “stepped-up” or reset to their value at the time of death. Kessler’s example: “Imagine a home that had been purchased for $250,000 but was now worth $1 million. The ‘stepped-up basis’ would be $1 million. If the heirs sold the house for $1.1 million, they would only owe capital-gains tax on the $100,000 difference, not the $850,000 difference from the original purchase price.”
The GOP bill repeals the estate tax, but also keeps the stepped-up basis — a seemingly small detail that creates a huge tax shelter. It means that heirs of large estates would save tens of billions of dollars a year when they sell assets that have appreciated in value over time — or, as Kessler puts it, that the bill will allow “tens of billions of untapped capital gains to remain beyond the reach of the U.S. government.”