Two Lethal Landmines in Tax Reform Bill

Posted: Nov 03, 2017 10:49 AM
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Two Lethal Landmines in Tax Reform Bill

There are two big landmines, and some smaller ones, in the Republican “Tax Cuts and Jobs Act” that may kill it. Considering how important this bill is for Republicans to pass, Republicans better fix the problems – and quickly.

Rep. Kevin Brady (R-TX), Chairman of the House Ways and Means Committee, has done a great job getting a tax bill released to start the process of getting a tax reform bill to the president’s desk by the end of the year.  Now Rep. Brady must navigate into a position where the bill does not raise taxes on any class or category of Americans. 

Remember, when this process began with candidate Donald J. Trump proposing a radical, and I use the term “radical” in a positive manner, tax cut plan that scored (according to the Tax Foundation) between $4.4 trillion and $5.9 trillion to the federal government using static scoring and between $2.6 trillion and $3.9 trillion using dynamic scoring that factors in economic growth.  The large nature of the tax cut should have been a marketing asset, not a liability.

One core principle to remember is that America does not have a problem with not enough tax money being extorted from the American people – America has a problem of too much federal spending.  The government should raise just enough money to run the federal government and nothing more. Our nation needs to get away from spending money it doesn't have.

The biggest problem with this tax plan is that Congress seems way too worried by the idea that the plan should not “add too much to the national debt.”  Rep. Brady has said that he will not allow this bill to score more than a $1.5 trillion over 10 years. This is the poisonous outcome of the idea of “revenue neutral” tax cuts.  Republicans have been so worried about adding to the debt that they are unwilling to cut spending as a means to reduce the national debt, therefore we are paying for it with smaller tax cuts and provisions that will hike taxes on certain classes of Americans to pay for tax cuts for other Americans. 

There are three major groups who are rightly very upset with the draft of the House tax reform plan – National Association of Home Builders (NAHB), National Association of Realtors (NAR) and the National Federation of Independent Businesses (NFIB).  Those three groups have legitimate concerns about the tax bill, because they have been targeted as “Pay-For” tax hike provisions to pay for tax cuts for other segments of society.

The NAHB and NAR argue that a provision in the bill that cuts the mortgage interest deduction in half to $500,000 will cause a massive housing recession.  Jerry Howard of the NAHB argues “There are seven million homes on the market right now that are more than $500,000. Those houses are automatically going to be devalued.” Any provision in the tax bill that would cause a disruption to an important sector of the economy should be avoided.  If this provision stays in the final bill and causes many Americans to pay higher taxes, it is reasonable for Members of Congress to oppose this bill to make sure they are not voting for a middle-class tax hike.

Another provision that seems to result in economic trouble, not expansion, is the provision being opposed by the NFIB that will hike taxes on some small business owners.  Juanita Duggan of the NFIB argues, “This bill leaves too many small businesses behind. We are concerned that the pass-through provision does not help most small businesses. Small business is the engine of the economy. We believe that tax reform should provide substantial relief to all small businesses, so they can reinvest their money, grow, and create jobs.”  Targeting small business owners to pay for tax cuts for other interest groups makes no sense considering the fact that small businesses are so important to economic growth.

Speaker of the House Paul Ryan (R-WI) and Rep. Brady have crafted a bill that may hike taxes on middle-class Americans who purchase a home worth more than a half million dollars and hammer small business owners with higher taxes.  Targeting the middle-class home owners and small business owners to pay for tax cuts for others is a political mistake that may cause this bill to fail.  It seems that the House leadership bent over backwards to make this closer to deficit neutral in a way that may end up killing the bill.

If Congress can fix these two provisions and stick to the idea of “tax cuts for all,” then they can pass this bill.  If Congress tries to target certain sectors of the economy for tax hikes in a way that will result in some Americans paying higher taxes – when they were promised a massive tax cut – expect this bill to go the way of “Repeal and Replace Obamacare” into the embarrassing ash heap of a Republican agenda.