Even as members of Congress have started debating the first major tax overhaul in 30 years, analysts are still trying to figure out what’s in the bill. A 40 percent reduction in the corporate income tax? Check. A reduction (and eventual elimination) of the estate tax? Check. The repeal of the Alternative Minimum Tax, rate reductions to partnerships and family-owned businesses, and special exemptions that disproportionately benefit real estate moguls and their offspring? Check, check, and check.
The $1.5 trillion bill is massive: 429 pages of fine print, not including the amendments that will be larded on in the coming days. It manages to include things like deductions for alimony payments and language that recognizes a fetus as a person. Still, some important things are missing:
Ending the carried-interest deduction. As a candidate, Donald Trump ridiculed the notorious loophole that allows the earnings of hedge fund managers and other high financiers to be taxed at a lower rate than ordinary income. “These are guys that shift paper around and they get lucky,’’ Trump told CBS in August 2106. “The hedge fund guys are getting away with murder.’’
Well, maybe it was just a misdemeanor. As recently as September, Treasury secretary Steve Mnuchin told a meeting of hedge fund executives that they would be losing the carried-interest tax break, worth about $2 billion a year. “The president has made it very clear,’’ he said. Late Monday a House committee added requirements that carried-interest income be held for three years to be eligible for the break. But the lower rate for these stratospheric earnings remains intact.
Improvements to the Earned Income Tax Credit. At the opposite end of the scale, low-income working Americans can receive an average tax credit of $2,500, depending on the number of children in their families. The EITC is hailed by economists of all ideological stripes because it rewards work, not just wealth. In 2016 it lifted 8.2 million Americans over the poverty line. But efforts to further expand the credit — by increasing the benefit to workers without children, for example — have stalled. The tax credit for families without children is only $293, and 20 percent of families eligible for the credit don’t apply for it at all.
Removing the Social Security wage cap. In 2017, income subject to the 6.2 percent Social Security tax is capped at $127,200. That’s nice for the wealthiest 6 percent of Americans who earn more than that — or the 202 highest-paid Americans who will hit the cap in their first five hours of the work year. Raising the cap or eliminating it altogether would bring in substantial new revenue, inject some fairness in the tax system, and help stabilize the perpetually endangered Social Security trust fund. And 94 percent of American workers wouldn’t pay an extra dime.
A true accounting of the costs. Supply-side zealots insist that the bill’s $1.5 trillion in tax cuts will eventually pay for themselves through economic growth. This magic trick has never worked. Even Republicans pushing this bill know that some of the cuts will have to be paid for by eliminating other deductions, like the ones for local and state taxes, college interest, and medical costs.
As rising deficits inevitably begin to bite, more federal programs will be slashed, especially for the poor. Already, efforts to renew the Children’s Health Insurance Plan, which lapsed at the end of September, are mired in arguments over how to find the $14 billion to fund it. But somehow we still have $1.5 trillion — that’s one thousand, five hundred billion — to squander on new tax cuts. The GOP plan is a spending spree for the benefit of the wealthy that the rest of the country will be paying off for a very long time.
Renée Loth’s column appears regularly in the Globe.
