03 November 17 PM
Corporations, Super-Wealthy Win Big With New Republican Tax Plan
03 November 17
ot everyone benefits equally from the tax legislation that House Republicans unveiled Thursday.
GOP leaders toiled for weeks to decide what deductions and tax breaks should be axed to pay for the tax cuts. That means the bill creates some winners and some losers.
Republicans say their plan will simplify the code and provide tax relief to middle-class families.
Speaker Paul Ryan (R-Wis.) repeatedly touted an example on Thursday of how a family of four earning the median American household income of $59,000 would save $1,182 a year on their taxes, using the proposed doubled standard deduction, reduced tax rate and expanded child tax credits.
But Democrats argue that most of the benefits of the GOP tax proposal will flow to the ultra-wealthy and corporations.
Here’s a look at who stands to gain and who stands to lose out.
Winners
Corporations
Corporations would get a big tax cut from the GOP’s proposal. The corporate tax rate would go down from the current rate of 35 percent to 20 percent.
Republicans say it’s imperative to lower the U.S. corporate tax rate, the highest among other advanced countries, to attract more businesses.
Companies would also be allowed to deduct the full costs of buying new equipment for five years. And businesses that had been keeping profits overseas to avoid the 35 percent tax rate would be able to bring the money back, or repatriate, to the U.S., and pay only a 12 percent tax for cash assets.
The Business Roundtable, a group of CEOs, threw its support behind the tax plan.
“While the tax-reform bill released today deserves close analysis, it is significant progress toward achieving these goals,” said Jamie Dimon, chairman and CEO of JPMorgan Chase & Co. and chairman of Business Roundtable.
Major business groups
Leaders in the business community have been pushing tax reform for years, and they generally liked what they saw.
Key players, such as the U.S. Chamber of Commerce and the National Association of Manufacturers, spoke positively of the bill. They back provisions to lower rates for businesses, to move to a “territorial” tax system that exempts dividends from companies’ foreign subsidiaries, and to enhance expensing of capital investments.
“This is absolutely a positive first step,” said Caroline Harris, vice president of tax policy at the Chamber.
While most large business groups praised the bill, there was a notable exception. The National Federation of Independent Business said it couldn’t support the bill in its current form because it doesn’t help small businesses enough.
Super-wealthy individuals
Republicans kept the top tax rate in place, but the country's wealthiest individuals have a lot to gain from the bill.
First off, the income tax bracket thresholds increase, which will accrue savings at the top.
Second, the bill would double the limit on the estate tax, and then phase it out altogether. Currently, the estate tax only applies to estates of $5.5 million or more, and twice that for couples. The bill would immediately double that, giving tax shelter to anyone with an estate between $5.5 million and $11 million (or, again, double those amounts for couples). After a few years, the tax would be eliminated altogether, meaning that the very wealthiest in the country could receive their inheritances tax-free.
Third, the plan would lower the taxation rates of “pass-through” corporations, or S-corps, to 25 percent, allowing certain business owners to claim part of their income at the lower rate.
Fourth, it would eliminate the alternative minimum tax, which was intended to create a floor on tax exemptions.
Retirement savings stakeholders
A number of businesses and groups in the financial industry were nervous ahead of the bill’s release because they had heard that lawmakers were considering significantly reducing the amount of money people could put into 401(k) retirement accounts on a pre-tax basis.
However, the bill did not end up reducing the 401(k) annual contribution limits. President Trump advocated for keeping 401(k)s as they are.
“The proposal released today is good news for millions of middle-class families across the nation,” said the Save Our Savings Coalition, which includes AARP, Financial Services Roundtable and TIAA. “Under this plan, American workers, families, and retirees will continue to have the freedom to choose the savings vehicle that best suits their needs.”
Advocates of repealing the Johnson Amendment
Many conservatives have been pushing for repeal of the Johnson Amendment — a 1954 measure that prohibits houses of worship and other tax-exempt 501(c)(3) organizations from endorsing or opposing political candidates.
Opponents of the amendment believe it infringes on churches’ First Amendment rights and has a chilling effect on religious leaders who might fear retribution from the IRS.
The bill would allow religious institutions to engage in political activity as long as the speech is in the entity’s ordinary course of business and the expenses are minimal.
Blue states
Americans in urban — and typically Democratic-leaning — areas would end up helping foot the bill for the GOP’s proposed tax cuts.
The GOP plan would eliminate the state and local tax deduction, which is taken by many people in high-tax, populous states to avoid double taxation. The bill would allow people to still deduct up to $10,000 on local property taxes, but Republicans from states like New York and New Jersey say that’s not enough to win their votes.
Then there’s the bill’s proposal to cap the mortgage home interest deduction for loans up to $500,000, down from the current limit of $1 million. The new rule would only apply to new mortgages taken out after the bill’s enactment.
While $500,000 might seem high, it won’t get taxpayers very far in expensive cities like New York, San Francisco or Washington, D.C., and their surrounding suburbs.
The median home value in Washington, for example, is $538,700, according to real estate tracker Zillow. In San Francisco, it’s $1.2 million.
“When you get into states like New Jersey and New York, it doesn’t take that much to get into a home of that cost,” said Rep. Tom MacArthur (R-N.J.), who wants the cap to be higher than $500,000.
The bill would also eliminate the ability to issue several types of tax-advantaged bonds, including some types of bonds that help finance low-income housing and infrastructure.
Budget deficit
Debt watchdogs were not happy with the proposal, which can add up to $1.5 trillion to the debt over a decade.
"Passing a bill to our kids is not the right way to pass a bill. This legislation is an example of fiscal irresponsibility,” said Peterson Foundation President Michael A. Peterson. The bill, he argued, included arbitrary phase-ins and expirations designed to mask the bill’s true costs.
The Committee for a Responsible Federal Budget’s President Maya MacGuineas noted that the additional debt amounted to almost $12,000 per household.
“Given the huge unpaid-for gap remaining, this plan does not constitute true comprehensive, revenue-neutral and pro-growth reform,” she said.
Homeowners
Homebuilders and real estate agents said the tax reform plan would probably lead to a drop in home values and a tax increase on middle-class homeowners.
The proposed legislation would cap the deduction at $500,000 for new home purchases, a drop from $1 million in current law.
The tax deduction is viewed as a key incentive to encourage home buying.
“The bill eviscerates existing housing tax benefits by drastically reducing the number of homeowners who can take advantage of mortgage interest and property tax incentives,” said Granger MacDonald, chairman of the National Association of Home Builders.
Homes sold before implementation of any new tax law will keep the higher deduction.
Homebuilder stock took a hit after the release of the bill Thursday. And realtors said they would oppose the plan because of the provisions.
“Tax hikes and falling home prices are a one-two punch that homeowners simply can’t afford,” said William E. Brown, president of the National Association of Realtors.
Nonprofits
The bill maintains the deduction for charitable contributions. However, the number of people who would claim the deduction would be reduced, since the measure also nearly doubles the standard deduction.
Many nonprofits also oppose scaling back the Johnson Amendment, arguing that doing so would politicize charitable organizations.
“The tax reform bill unveiled today by the House Ways and Means Committee would tragically undermine the ability of certain charitable nonprofits to serve our country’s people and communities,” said Tim Delaney, president and CEO of the National Council of Nonprofits.
Universities
The tax bill would add a new tax on universities with big endowments.
Colleges and universities that have endowments equivalent to $100,000 per student or more will have to pay a new 1.4 percent tax on endowment income.
Universities build their endowments from donations that are tax deductible. The plan would also put limitations on certain donations, such as those attached to sporting events.
“Imposing an excise tax on nonprofit private university endowments is a short-sighted move that will only harm students and their families,” said Association of American Universities President Mary Sue Coleman.
The bill would also eliminate the interest deduction on student loans, which affects about a third of Americans with student debt.
“Eliminating employer-provided educational assistance, the student loan interest deduction, and other critical higher education tax provisions is counterproductive as it undermines the very workforce Congress seeks to support,” Coleman said.
http://readersupportednews.org/news-section2/318-66/46654-corporations-super-wealthy-win-big-with-new-republican-tax-plan
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