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GOP on taxes: Cut rates, brackets but what about the deficit

  • ASSOCIATED PRESS

    Congressional Republicans are planning a massive overhaul of the nation’s tax system in 2017, a heavy political lift that could ultimately affect families at every income level and businesses of every size.

WASHINGTON >> Congressional Republicans are planning a massive overhaul of the nation’s tax system next year, a heavy political lift that could ultimately affect families at every income level and businesses of every size.

Their goal is to simplify a complicated tax code that rewards wealthy people with smart accountants, and corporations that can easily shift profits — and jobs — overseas. It won’t be easy. The last time it was done was 30 years ago.

Senate Majority Leader Mitch McConnell, R-Ky., and Speaker Paul Ryan, R-Wis., have vowed to pass a tax package that would not add to the budget. The Washington term is “revenue neutral.”

It means that for every tax cut there has to be a tax increase, creating winners and losers. Lawmakers would get some leeway if non-partisan congressional analysts project that a tax cut would increase economic growth, raising revenue without increasing taxes.

Nevertheless, passing a massive tax package will require some tough votes, politically.

Some key Republican senators want to share the political risk with Democrats. They argue that a tax overhaul must be bipartisan to be fully embraced by the public. They cite President Barack Obama’s health law — which passed in 2010 without any Republican votes — as a major policy initiative that remains divisive.

Congressional Democrats say they are eager to have a say in overhauling the tax code. But McConnell, who faulted Democrats for acting unilaterally on health care, is laying the groundwork to pass a purely partisan bill.

Both McConnell and Ryan said they plan to use a legislative maneuver that would prevent Senate Democrats from using the filibuster to block a tax bill.

McConnell says he wants the Senate to tackle a tax plan in the spring, after Congress repeals Obama’s health law. House Republicans are more eager to get started, but haven’t set a timeline.

Some things to know about Republican efforts to overhaul the tax code:

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THE HOUSE PLAN

House Republicans have released the outline of a tax plan that would lower the top individual income tax rate from 39.6 percent to 33 percent, and reduce the number of tax brackets from seven to three. The gist of the plan is to lower tax rates for just about everyone, and make up the lost revenue by scaling back exemptions, deductions and credits.

The plan, however, retains some of the most popular tax breaks, including those for paying a mortgage, going to college, making charitable contributions and having children.

The standard deduction would be increased, giving taxpayers less incentive to itemize their deductions.

The non-partisan Tax Policy Center says the plan would reduce revenues by $3 trillion over the first decade, with most of the savings going to the highest-income households.

That’s not revenue neutral.

Small business owners would get a special top tax rate of 25 percent.

Investment income would be taxed like wages, but investors would only have to pay taxes on half of this income.

———

SENATE PLAN

Senate Republicans have yet to coalesce around a comprehensive plan, or even an outline.

——

TRUMP’S PLAN

Trump’s plan has fewer details. He promises a tax cut for every income level, with more low-income families paying no income tax at all.

The Tax Policy Center says Trump’s plan would reduce revenues by a whopping $9.5 trillion over the first decade, with most of the tax benefits going to the wealthiest taxpayers. Trump has disputed the analysis.

Like the House plan, Trump would reduce the top income tax rate for individuals to 33 percent, and he would reduce the number of tax brackets to three. He would also increase the standard deduction.

Trump has embraced two ideas championed by Obama but repeatedly rejected by Republicans over the past eight years. Trump’s plan would cap itemized deductions for married couples making more than $200,000 a year. It would also tax carried interest, which are fees charged by investment fund managers, as regular income instead of capital gains.

———

CORPORATE TAXES

The top corporate income tax rate in the U.S. is 35 percent, the highest in the industrialized world. However, the tax is riddled with so many exemptions, deductions and credits that most corporations pay much less.

Both Trump and House Republicans want to lower the rate, and pay for it by scaling back tax breaks.

Trump wants to lower the corporate tax rate to 15 percent. Ryan says 20 percent is more realistic, to avoid increasing the budget deficit.

———

BORDER ADJUSTMENT TAX

This is one of the most controversial parts of the House Republicans’ tax plan. It is also key to making it work.

Under current law, the United States taxes the profits of U.S.-based companies, even if the money is made overseas. However, taxes on foreign income are deferred until a company either reinvests the profits in the U.S. or distributes them to shareholders.

Critics say the system encourages U.S.-based corporations to invest profits overseas or, more dramatically, to shift operations and jobs abroad to avoid U.S. taxes.

House Republicans want to scrap America’s worldwide tax system and replace it with a tax that is based on where a firm’s products are consumed, rather than where they are produced.

Under the system, American companies that produce and sell their products in the U.S. would pay the new 20 percent corporate tax rate on profits from these sales. However, if a company exports a product abroad, the profits from that sale would not be taxed by the U.S.

There’s more: Foreign companies that import goods to the U.S. would have to pay the tax, increasing the cost of imports.

Exporters love the idea. But importers, including big retailers and consumer electronics firms, say it could lead to steep price increases on consumer goods. The lobbying has already begun.

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  • It’s time for a flat tax, 1 rate across the population, higher incomes will pay more, lower income less. Then all those IRS employees can move on to new careers that help the nation.

    • Actually the increase of online filing has reduced the number of IRS employees who used to manually process tax filings. Will continue to decline as online filing continues to grow.

      However the IRS does shift some people to auditing to ensure everyone pays their fair share of taxes.

      You fail to understand the only way the nation gets money to spend is through the IRS. They are doing just fine helping the nation pay its bills.

    • Trump stole the idea of massive infrastructure spending from Obama who tried to do it over Republican opposition. They wanted to stop him from doing anything and hence stalled the economic recovery. Now, trump wants massive tax cuts for the rich and little for the middle class or working poor. Voters got taken to the cleaners as they now are finding out.

      • Allie,
        Nothing is in place at this time.
        We have found out nothing to this point.
        Here’s an idea: let’s wait for something to happen before we venture out. Let’s test the water before we jump.

        • Let’s not.

          Mr. Trump has made it clear what he intends to do. That’s enough warning for the opposition to act.

        • Nah, Allie, don’t wait, jump now. And, take Klastri with you. You guys hook up yet? I think he said he’s married. Maybe his wife divorced him for voting for Trump.

      • allie, your comments are getting more and more baseless. Nearly all Presidents, Democrat and Republican, talk about infrastructure spending. Trump did not steal that.

        At the beginning of his Presidency, Obama passed some of the most gargantuan spending bills ever, in response to the 2008 recession, and all he accomplished was the longest, slowest recovery from a recession ever, that lasted his whole term.

        • No hon. The stimulus was not nearly big enough given the severity of the financial melt down and steep Bush recession. Republicans forced Obama to back off an adequate stimulus.

        • Despite the low amounts of stimulus that Obama has got through Congress, Obama got enough that we suffered a deep recession. It could have been a lot worse.

      • Approximately 20% of Hawaii’s revenue comes from income taxes. The remainder (80%) is comes from sources that have nothing to do with tiered income brackets. The social progressive’s argument regarding income brackets, pitting the “rich’ against the “poor” is a red herring that distracts from meaningful and constructive discourse regarding the courses of action needed to ensure long term economic health of both the state and the federal government, both of which spend more than they make and continue to increase their unsustainable debt loads.

        • Trump has pointed out the problem of income inequality in this country– he wants to distribute the tax burden so it falls on the rich the same as the middle class and he says, the poor should pay no tax.. And he has said, like many economists have said, never mind the deficit and debt– we need to spend and run a deficit to grow the economy– spend in dollars and in tax cuts to get growth especially when interest rates are low. This is Trump’s major econmic point and it has a lot of support. Grow the economy now and repay the debt later– and it is not just Trump saying this– so our liberal economists. It is common sense.

        • Why should the rich pay the same as the middle class? The rich get the major benefits society has to offer so they should be paying more.

        • Boots, you are an asinine. Why would a person working 3 jobs have to pay more taxes than a bum on entitlements?

  • That is one of the dumbest suggestions ever, it is so dumb that no country has ever implemented a flat rate across all income levels. You also can’t figure out that the IRS would still be needed to make sure the guy paying 10% on his $1,000,000 income pays his $100,000 taxes and they guy paying 10% on his $10,000 income pays his $1,000 tax.

    • Luna, you’re still assuming a tax filing at the end of the year. If the rate is flat, it can be implemented through your payroll. There would be no deductions and credits, so a return doesn’t need to be filed.

      • You’re wrong of course. Fewer and fewer people are getting paid from old-time payroll. There is no withholding tax on lots of workers. And not all deductions can or should be eliminated.

        Returns will definitely need to be filed.

        • A flat tax would only work if it covered payroll taxes as well and it also included EITC for the lower incomes as well and included corporate flat tax as well on ALL income in this country – everything they sell, similar to our GET tax.

          Politically it’s impossible because to be realistic we need to do away with popular deductions and credits such as mortgage interest and educational expenses.

          It might work if the govt can replace those deductions – such as a free college tuition for state colleges and maintain a good supply of residential housing and mass transit for working families.

  • Right now, the deficit and the national debt do not matter– what matters is spending in the form of tax cuts and government expenditures to stimulate the economy. And Trump realizes this (although liberal economists have realzed this before Trump). Trump’s massive spending on infrastructure and rebuilding our inner cities and abandoned industrial towns plus his tax cuts will grow a huge deficit in the trillions of dollars, but that is like borrowing cheap and job growth will increase our ability to pay off the debt.

  • Trump’s tax plan is a way for wealthy individuals to raid the U.S. Treasury of 9.5 billion dollars for themselves in the first decade. Republicans always claim that giving more money to the rich will benefit all people. This is a total con job. It’s shocking that average Americans are so ignorant that they keep falling for this same scam.

    • Nope… most of the really wealthy inherit their money. That’s what a recent study on income inequality says.

      And almost all of the heads of corporations are caretakers. They are figureheads and do very little to improve the bottom line. Look to their middle management for their real strengths.

      If you want to reward the real moneymakers in this country, then reward those who earn $80,000 to $300,000. Raise the taxes on those greater than $300,000 to 80% tax rate and do away with all the tax loopholes. In fairness, we should then do away with the corporate tax. Too many companies play the tax deduction loopholes like Trump.

      The only reason we lowered the tax rate to 35% percent was that the wealthy has been spending an inordinate amount on tax accountants and lawyers and, also, tax shelters for their incomes. They saved their money and didn’t invest it on GDP like entrepreneurs do. It has been felt that the very rich would waste less money to shelter their income if they were paying at a lower rate. They never have and never will be important for a bigger GDP.

  • Millionaires and billionaires are going to solve problems created by millionaires and billionaires to benefit millionaires and billionaires.
    Right. I’m sure they’ll put a whole lot of effort into that.

  • More Republican voodoo economics. I would prefer that the poor not have to pay payroll taxes. They get no benefits to deductions that go to the middle class.

    The wealthy already have the means to avoid taxes even if deductions are taken away. The middle class has no resort to that.

    I don’t like efforts to undo deductions. Someone always loses. A flat tax just doesn’t work out in practice. There’s too much political temptation to reinstate deductions and credits as soon as they’re taken away.

  • Trump’s treasury secretary indicated that tax rates on the rich will drop drastically (to add to the cuts we made going back to Bush and Reagan), BUT the difference is that Trump’s plan will remove deductions from the rich, so while their rates are cut, loss of deductions means they will pay more tax under Trump.

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