The Tax Bill 11/12/17

Well, there isn’t a tax bill at this time.  There are two: one in the Senate and the other in the House.  It isn’t a binary choice yet and there will be changes.  Although there could be some improvements it seems unlikely that there will be major changes.  We think that the crucial area for improvement at this time is in business taxes and both the proposals deliver that.  We are in agreement with Laurence Kotlikoff at WSJ:

But the new tax plan, while far from what I and other tax specialists would design, will boost the economy, generate more revenue, maintain fairness, and raise Americans’ living standards. It’s imperfect but worth passing.

Let’s find some other conservative opinions.  Edward Lazear at the WSJ likes the basic frame work but doesn’t like that the full expensing is temporary and has a solution to make it permanent:

One way to offset that would be to use a more targeted approach to reducing the taxes paid by small and midsize businesses.

We care about rates and not full expensing because most businesses are not manufacturing.  We don’t want targeted solutions.  We want lower rates for businesses.  We will count Edward are leaning towards passage.  The Editors at the WSJ have a different ruse, eliminating the Obamacare tax, in mind:

While the penalty raised $3 billion in revenue in 2015, Arkansas Senator Tom Cotton points out that abolishing the mandate would actually be a revenue gusher under the Congressional Budget Office’s scoring rules. Last December CBO projected that repealing the mandate would save $416 billion over 10 years because fewer people would sign up for Medicaid or receive subsidies on the exchanges. Fewer workers might also enroll in employer-sponsored plans, which could result in more taxable compensation.

Being who they are we are pretty sure they will have a hard time supporting tax reform without reductions in individual rates.  We will count them as undecided.  George Will has an entirely different idea.  He is concerned that less people will pay income taxes.  He finds that payroll taxes are different from income taxes.  We are not sure why he thinks that.  He wants to repeal and replace the Internal Revenue Code (IRC) starting with repeal:

This year’s best tax bill, which Representative Bob Goodlatte (R., Va.) has introduced six times since 2006, is four pages long and contains fewer words (411) than the new Republican bill has pages. It could be titled “The ‘What You Wished For, Mitch Daniels’ Act.” It is titled, with almost unprecedented accuracy, the “Tax Code Termination Act.” It would nullify the existing 4 million-word code as of Dec. 31, 2021, and require that by July 4 of that year it must be replaced by a new one, which would necessarily be one designed on purpose.

We are 100% with George but we don’t see why we can’t improve it now.  Kevin Williamson at NRO is taking aim at Catherine Rampell’s analysis of the Republican tax proposal in the Washington Post.  Kevin has been distracted by The Donald but he has great fun in this article although he really ought to pick on an equal.  You should read it all.  He starts off:

The Republican tax plan may be kind of dumb, but if it were three times as dumb as it is, it would only be half as dumb as the Washington Post’s analysis of it.

So Kevin, like us, supports a zero corporate tax rate and seems to support eliminating the death tax.  We would like a different tax reform but we are willing to vote for this one.  Kevin and George don’t seem to be getting enough reform.  It seems likely that they will get the status quo.

Our take is that we think the bill is a big improvement on the status quo on business taxation and that is the crucial area for reform.  We think that because many conservative pundits have a low option of The Donald they will argue for great solutions and that means it is less likely that we will get a good solution.  At some point it will become a binary choice.  We hope that everyone makes the right choice when it does.


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