With the word Friday that Sen. Marco Rubio, R-Florida, was on board after winning a concession ― expanded access to the child tax credit for low- and middle-income households ― the Republican plan to cut taxes by $1.5 trillion over the next 10 years seems certain to be passed by Congress and signed by President Donald Trump in coming days.
It's a mixed bag. The compromise reached by a conference committee leaves out several of the worst ideas in the measures that passed the House and Senate, starting with taxing tuition waivers for graduate students and ending the deductibility of interest on student loans.
And, to minimize the hit on high-tax states such as California, tax filers will be allowed to deduct up to $10,000 in any combination of local and state income, property and sales taxes. Since that's only a little more than half the present average deduction by Golden State taxpayers, many Californians are going to take a hit.
But with the standard individual deduction doubled and federal income tax rates lowered, many Californians are likely to see their taxes go down ― at least for a few years, given that some of the tax cuts are temporary. And corporations in California and across the nation will benefit from a cut in their tax rate from 35 percent to 21 percent, one of several changes meant to encourage economic growth.
The fact that the bill will end the estate tax and the alternative minimum income tax and cut corporate taxes at a time of record profits ― all done in an era of intense anxiety about income inequality ― has led the San Diego Union-Tribune Editorial Board and many others to rip Republicans for seeking a reverse-Robin Hood measure.
But it's worth noting that some prominent economists, including George Mason University professor and Bloomberg View columnist Tyler Cowen, say the core idea driving the tax overhaul ― the need for a much simpler tax code ― has the promise to do exactly what Republicans say and trigger sharp economic growth. The Tax Foundation, a credible nonpartisan source of analysis, thinks the Joint Committee on Taxation's estimate that the tax plan would generate $458 billion in revenue over the next decade because of economic growth is too low and that rapid growth fueled by foreign investment in newly attractive American opportunities is quite possible.
That's an appealing thesis. Nonetheless, given the chaos that ensued in public schools and state government in Kansas after Gov. Sam Brownback's bold tax-cut plan won approval in 2012 ― and given the lack of evidence to back up decades of Republican claims that lower tax rates lead to higher revenue ― we find it difficult to view the Republican plan as "reform." Instead, it is an enormous gamble at a precarious moment in U.S. fiscal history.
A June 2017 report by the Congressional Budget Office should be required reading for every American. Even though the economy is growing, the CBO calculated a deficit of nearly $700 billion in fiscal 2017 and forecast a 10-year increase of more than $10 trillion in the national debt, pushing it to more than $30 trillion. Driving this debt explosion: the surge in Medicare and Social Security spending because of the retirements of aging baby boomers, and the likelihood that higher interest rates will sharply increase the cost of servicing our massive national debt. The result could well be a Venezuela-style economic death spiral: higher debt slows growth, which will lead to even higher debt, which leads to even worse growth, and on and on.
Let's pray the Tax Foundation is right. Because if it is wrong, Congress and the president are about to make a gigantic problem even worse.
The above editorial appeared in the San Diego Union-Tribune. It was distributed by Tribune Content Agency, LLC.
It's a mixed bag. The compromise reached by a conference committee leaves out several of the worst ideas in the measures that passed the House and Senate, starting with taxing tuition waivers for graduate students and ending the deductibility of interest on student loans.
And, to minimize the hit on high-tax states such as California, tax filers will be allowed to deduct up to $10,000 in any combination of local and state income, property and sales taxes. Since that's only a little more than half the present average deduction by Golden State taxpayers, many Californians are going to take a hit.
But with the standard individual deduction doubled and federal income tax rates lowered, many Californians are likely to see their taxes go down ― at least for a few years, given that some of the tax cuts are temporary. And corporations in California and across the nation will benefit from a cut in their tax rate from 35 percent to 21 percent, one of several changes meant to encourage economic growth.
The fact that the bill will end the estate tax and the alternative minimum income tax and cut corporate taxes at a time of record profits ― all done in an era of intense anxiety about income inequality ― has led the San Diego Union-Tribune Editorial Board and many others to rip Republicans for seeking a reverse-Robin Hood measure.
But it's worth noting that some prominent economists, including George Mason University professor and Bloomberg View columnist Tyler Cowen, say the core idea driving the tax overhaul ― the need for a much simpler tax code ― has the promise to do exactly what Republicans say and trigger sharp economic growth. The Tax Foundation, a credible nonpartisan source of analysis, thinks the Joint Committee on Taxation's estimate that the tax plan would generate $458 billion in revenue over the next decade because of economic growth is too low and that rapid growth fueled by foreign investment in newly attractive American opportunities is quite possible.
That's an appealing thesis. Nonetheless, given the chaos that ensued in public schools and state government in Kansas after Gov. Sam Brownback's bold tax-cut plan won approval in 2012 ― and given the lack of evidence to back up decades of Republican claims that lower tax rates lead to higher revenue ― we find it difficult to view the Republican plan as "reform." Instead, it is an enormous gamble at a precarious moment in U.S. fiscal history.
A June 2017 report by the Congressional Budget Office should be required reading for every American. Even though the economy is growing, the CBO calculated a deficit of nearly $700 billion in fiscal 2017 and forecast a 10-year increase of more than $10 trillion in the national debt, pushing it to more than $30 trillion. Driving this debt explosion: the surge in Medicare and Social Security spending because of the retirements of aging baby boomers, and the likelihood that higher interest rates will sharply increase the cost of servicing our massive national debt. The result could well be a Venezuela-style economic death spiral: higher debt slows growth, which will lead to even higher debt, which leads to even worse growth, and on and on.
Let's pray the Tax Foundation is right. Because if it is wrong, Congress and the president are about to make a gigantic problem even worse.
The above editorial appeared in the San Diego Union-Tribune. It was distributed by Tribune Content Agency, LLC.
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