Guest Column: What’s not being reported about the Tax Cuts and Jobs Act
January 18, 2018
The new year greets us with a tax reform bill, the "Tax Cuts and Jobs Act." But in a blizzard of misinformation, Democratic politicians and media pundits have called it a disaster, a giveaway to corporations and the rich, a tax increase on the middle class, a massive attack on middle income taxpayers and the "end of the world."
Only time (and our paychecks) will tell the truth, but in the meantime we should review some of the undeniable features of the reform. To determine taxable income, the current tax code allows adjusted gross income to be reduced by individual personal exemptions and either the applicable standard deduction or itemized deductions.
For 2017, the standard deduction for a single person was $6,350 and $12,700 for joint filers. Under the provisions of the tax reform bill, the standard deduction will nearly double in 2018 — increasing to $12,000 for individual filers and $24,000 for joint filers. Reportedly, 70 percent of those who actually pay taxes currently take the standard deduction — so doubling that deduction must, by definition, result in savings for 70 percent of taxpayers. Add to that the increase in the child tax credit from $1,000 to $2,000 per child, and young, middle-class families should see a significant decrease in the amount of taxes they pay each year.
Three nonpartisan organizations have been providing data-driven analyses throughout this debate — The Joint Committee on Taxation, which is an official Congressional scorekeeper, the right-leaning Tax Foundation, and the left-leaning Tax Policy Center. Despite the rhetoric heard in the media, all three organizations agree that the Tax Cuts and Jobs Act would, on average, reduce the tax burdens of every income group in America.
The Tax Policy Center, typically home to experts preferred by Democrats, issued an analysis of the finalized tax bill in December that states, "In 2018, 80 percent of taxpayers would receive a tax cut from the included provisions, averaging about $2,100 … and about 5 percent would face an average tax increase of about $2,800. … In the middle quintile, 91 percent would receive a tax cut and 7 percent would face a tax increase. In the top 1 percent of the income distribution, 91 percent would receive a tax cut and 9 percent would face a tax increase."
Even the GOP-hostile Tax Policy Center could not avoid the empirical conclusion that 80 percent of Americans will see their taxes reduced and the "losers" are limited to just 5 percent, who are most likely upper-income filers from high-tax states like our own California.
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A number of Democrats and media sites are reporting that "your tax cut will disappear in 2025." If Democrats truly believe this tax bill is harmful to the middle class, then wouldn't they like to see the provisions expire? But having empirically established that 80 percent of American taxpayers will benefit, we know that permanent cuts would be preferable.
What is not being reported is that the individual tax cuts could have been made permanent — by 60 Senate votes. If only eight Democrats truly wanted to give middle-class families permanent tax cuts, they could have done so by joining Republicans in voting for the Tax Cuts and Jobs Act. However, in the absence of any support from Democrats, and in order to avoid a filibuster, the bill was passed through a process known as budget reconciliation. One of the rules of that process, known as the Byrd Rule, stipulates that any bill passed through reconciliation cannot add to the federal deficit outside of 10 years, thus requiring the expiration clause.
The GOP is banking that a future Congress will not allow these tax breaks to go away in 2025, but will pass a bill to extend the cuts, and recent history would show that this is a likely scenario.
Under President George W. Bush, Republican majorities enacted temporary tax cuts in order to abide by the same Senate rules, and a decade later more than 80 percent of the Bush tax cuts were made permanent by Democrats under President Obama. In 2025, Republicans would certainly be on board to renew the tax cuts. Democrats would therefore be the only ones standing in the way of ensuring that those tax cuts do not expire. If they chose to block the renewal, then they would be responsible for the sort of tax increases on working families that they swear they oppose.
There are no perfect solutions to the complicated matter of tax reform, but as we see these changes play out in our own paychecks over the next few months, we will have a much better and truer picture of the end results.
Past policies have shown that tax cuts do help spur economic growth, and while I would have preferred to see significant cuts in government spending accompany these tax cuts, it is worth noting the conclusions of a group of nine prominent economists published as an open letter to Treasury Secretary Steven Mnuchin in a Nov. 26 Wall Street Journal editorial:
"You have consistently stressed that the objective of tax reform should be to enhance prospects for increased economic growth and household incomes … We believe that the reforms embodied in the House and Senate Finance bills would achieve this objective. The increased growth, in turn, would lead to greater taxable income and federal tax revenues, which would reduce the static cost of lost federal tax revenue from th reform."
Terry McLaughlin lives in Nevada City.