Occam's Razor

Based on polls, only 25% of Americans want Congress to enact the Republicans’ tax “reform” plan. A look at the proposed plan (which will likely change substantially before getting a vote) makes it easy to see why: despite all the hoopla, there is nothing in it for most of us, since most of us are not wealthy.

If you are wealthy, well, it looks pretty good. Less than 1% of us will owe an estate tax when we pass on, but Republicans want to get rid of that altogether. By creating fewer tax brackets, more of us will pay at the 25% tax rate meaning the 28% tax rate goes away. So if you make over $156K, you will pay less tax than you did before, but probably not if you make less than this. To be taxed at the 35% level you would have to make more than $260K, which means the 33% rate disappears for those whose income is between $156K and $238K, effectively a tax cut for them. As for that top tax rate of 39.6% which applies now if you make over $480K, if this bill becomes law, you will have to earn more than $1M to pay this rate. That’s a lot of savings for those in the $480K to $1M bracket.

A lot of these tax rates though become just theoretical for the rich. Since many of the rich own LLCs (Limited Liability Corporations) they can pass income to themselves at a “pass-through” rate. It is now 20%, which meant most of these people saved money on their taxes because if this money were considered as ordinary wages they’d pay at a higher tax rate. This rate goes to 25% in the plan, but it’s still less of a tax rate than anyone making over $260K would pay if this income were counted as wages.

Meanwhile, for the rest of us this attempt to “simplify” the tax code means we’ll probably be paying more. There was a somewhat theoretical tax rate of 10% for those earning up to $19K. The rate changes to 12% so in principle the poor pay more than they do now. Those taxed at the 15% rate, which is most of us, will be taxed at 12% for income up to $77K. That sounds good but look what they are taking away: no deductions for state and local income taxes (which affects mostly blue states), no deductions for student loans (claimed by 25% of filers) and limitations on home interest deductions. The standard deduction goes up meaning fewer of us will itemize, which could have ripple effects like fewer of us giving to charities.

The bottom line is that at best most of us ordinary wage earners will be coming out even, but are more likely to be paying more taxes through a lot of smoke and mirrors, while the rich will generally pay a lot less. Oh, and that corporate tax rate falls, good if you are a corporation. However a lot of the old loopholes that keep many corporations from paying taxes remain in place. And to finance all of this there will be increased deficit spending.

So it’s unsurprising there’s little support for the plan as it’s pretty obvious who the winners and losers will be. And the winners will be those who financed the campaigns of these Republicans, i.e. the oligarchy. As Jimmy Carter noted, we no longer have a democracy, but an oligarchy. This stinky, duplicitous tax bill pretty much proves it.

How else would a bill that has 25% support make it through Congress? Most representatives are gerrymandered into safe districts. It’s all by design so incumbents can keep their jobs, so of course they are going to do the bidding of those who funded their campaigns instead, at least if they think they can get away with it. They need special interests to fund their next one. Which is why they have to do this now somehow. It has to be done before the year is up so there is plenty of time for the smoke to clear before next year’s midterm election.

While it all looks pretty bleak, it’s not. This bill and any subsequent amendments to it are more likely to fail than not. And this is because (blessedly) the oligarchy does not vote as a bloc. They each have their own interests at heart, which often conflicts with someone else’s interests. For example, the bill writers have proposed limiting the mortgage interest deduction. This has the National Association of Home Builders up in arms. They have vowed to defeat the bill unless this proposal is removed from the bill. Remove it though (like the proposal to end deductions for 401K savings, since rescinded) and something else has to replace it.

And this is because Republicans are trying to do this on their own using the Senate’s budget reconciliation rule, which allows bills to pass in the Senate with a simple majority. The other way would be to make it a matter of regular order, and that would mean that Democrats would have input into the legislation. Such legislation would likely pass and get broad support, but it wouldn’t resemble what the oligarchy wants. Can’t have that!

Yes, our tax code is a mess but it’s a result of lots of compromises along the way. It has its own inertia because reconciling all these conflicting interests happened long ago and has slowly evolved along the way. Our tax code is already a huge gift to corporations, LLCs and the wealthy. This bill is just trying to make it more so and is doing so using the unorthodox procedure of violating the normal committee process. I hope that like getting rid of Obamacare before it, it too fails. As bad as our tax code is, this makes it worse and increases our deficit, the one thing Republicans supposedly care most about, at least when Democrats are in charge.

Americans aren’t buying it. But don’t take it for granted that this will fail too. Call your representative and senators to let them know you know it’s a con, and you will hold them accountable at reelection.