Even Trump calls it a Tax Cut, not Income Tax Reform. He realizes that he & the 1% will be the primary beneficiaries and the deficit will balloon. Trickle Down economics has failed every time (3 times so far). The Middle income and low income people get crumbs if anything while the top 1-2% get tax cuts & big $.
2
The plan will fix it later?
What?
Yeah right, sure it will.
Ooh look, a flying pig.
7
Vague promises for future fixes----hahahaha!
7
This so-called tax plan is the same old trickle down economics Republicans keep trying to sell. A pig in poke is what it is. Dont let them fool us. No loopholes for the wealthy; let them pay their fare share.
6
"Plan Will Fix It Later" the front page teaser says. Sure it will. Sure it will. Shouldn't "tax reform" legislation have those kinds of things ironed out *before* passage?
2
The rich control the congress, in fact many of the congress are the rich. Sooooo...they will rewrite the tax code for their benefit but because they have been selling post toasties to the common consumer, they know how to market their defective product so that it looks like it is the best thing since sliced bread.
So it is, so it always has been--the rich get richer and the richer they get the greedier they get till they take almost all of it and then....comes the arrogant boast about the unwashed masses along the lines of "let them eat cake." Then comes the revolution of the common man and the rich run for their lives. Don't believe me==think French Revolution, Russian Revolution, Cuban Revolution...history has a tendency to repeat itself, primarily due to the never changing makeup of the human beast.
3
Americans...... want to effect REAL change to the nation's income tax laws and arcane tax code? Consider the impact of the nation - especially the Middle Class, Poor, and Upper Middle Class - not paying their taxes on time. The expression that people voting with their feet is a more powerful and louder message would finally resonate in DC.
No more special offshore tax breaks for the uber rich.
No more tax breaks such as the cap on the limit of Social Security tax, which make the middle class and poor shoulder a higher percentage.
No more cost accounting transfers to corporations who declare bulk of their value of product cost made in overseas tax havens, and then tax advantage of export credits to reduce their tax liability. (http://www.pbs.org/newshour/bb/corporations-go-overseas-avoid-u-s-taxes/)
No more special taxes which favor Equity Partnerships, Hedge Funds, and and Limited partnerships who earn profit via "Capital" vs. "Labor". (http://www.huffingtonpost.com/entry/tax-break-on-pass-through-income-ben...
And above all, whenever Donald Trump avows "this is the most dramatic and fairest tax plan ever" be assured of one certain thing - Donald Trump will profit handsomely and shift his tax burden to the rest of Americans.
2
Republicans won't be happy until every state looks like Kansas.
6
We already saw what a disaster it was to write legislation later: remember Dodd-Frank?
We also saw this with Obama-care.
" vague promises of fixes that come later", are meaningless words, with absolutely no value, nor any reason to have been uselessly claimed in the first place. The "plan", whatever it actually is, will be voted on as it exists. There can be nothing else, unless there are specifics included in the plan.
What nonsense!
2
This is all too complicated. Why not just a straight flat tax? Any other strategy inherently creates 'winners' and 'losers'.
1
The Republican lies about their plans to improve healthcare (by ending it) were well publicized, clearly refuted with real facts and the plans could not pass.
The American people deserve the same transparency, clear information and realistic evaluation of any changes in tax rates BEFORE the Republicans cram those changes down our throats.
In the 1980s Reagan cut taxes-then had to raise them about seven times because trickle down supply side economics is fantasy. The Bush tax cuts (using the same fantasy supply side theory) almost bankrupted the entire country by 2008. Now they want a third bite at that apple!
People need to start calling Republican senators and representatives now and telling them the outlined cuts are for the wealthy and should not be included. The fat cats have no trouble demanding their slice of the pie (and most other people's, too). Write a letter, sign a petition or go out and protest. This is your pocketbook-protect it, because the Republicans plan to pilfer it.
1
Decrease in taxes has NO effect on investment/payroll of Large Firms!
Well over decade as a money manager, I watched S&P500 waste over a Trillion on open-market buybacks just to inflate stock price, hit targets to trigger/cash-in their bonus options. Google "corporate share buybacks", its not a secret.
Somehow, people keep believing the "taxation-incentives" relationship lie, even when the truth is staring them in the face.
Having extra cash IS NOT THE FORMULA to success. They got plenty.
Actual Success Formula = “Slow & Steady”
-slowly raise prices in tandem with group leader
-slowly adjust the product to induce buyer fatigue (hard to compare/bargain/shop) + slowly increase prices (appl,vz,airlines)
-avoid RADICAL innovation (destroys margins). Buyout disruptive new entrants.
-Focus on psych innovation. Sell the "Empowered Consumer Experience”
-Focus on Econ/Psych "exit" barriers. Lower churn rate.
-Increase ad/information overload.
-Induce fatigue/helplessness & resignation. Turn consumer responsibility attribution inward.
-Consolidate! If rejected, try again (capture/push for limits of regulator’s scope/funding)
-Keep pumping cash (Don’t flash it - stash it! Avoid the wrath of relative deprivation)
-Keep buying back stock
-Keep the masses distracted with social issues and elections (support reps of the majority, that’s where control is needed.)
-Keep telling stories about magic of “incentives to invest”
-Rinse/Repeat
6
Why might? Based on their previous behavior starting with the President and his Wall Street economic cabinet you can bet they are going to abuse it.
1
Come on folks, lighten up, what's a few more millions for this guy or for that guy, after all, it's just a little spending money they need for that new yacht or mansion, or private jet. Hey, we rich folks in this Presidency and Cabinet have to get a little something on the side. I mean, we guys can't be flying on commercial airlines, being bothered with you folks, that's why we need to fly in private jets, see the eclipse on top of Fort Knox, or have our honeymoon flight paid by you lowly peons. We're special, we're rich, and we deserved to be pampered on our way to making millions serving ourselves...errrr, meant "serving" America. Yeah, yeah, we'll throw a few crumbs down to the middle class and they should be happy with that. This is about us, not you regular folks. Go inherit a fortune if you want something for nothing. We are deserving. Said in unionism by the President and his Cabinet.
4
Just a tax dodge for rich people. Several (red, of course) states have instituted this kind of give away, and suddenly every rich person is a business. It is just a give away to the rich, let's not call it anything else. The crying about double taxation is so ridiculous I can't even begin to discuss it with people. Okay, the company got taxed on income, and then you made money also that was probably deducted as an expense anyway. THat is the way the economy works, whoever makes money is (supposedly) taxed on it.
1
What this article fails to highlight is that Donald Trump is a big winner if pass through is taxed less. With that and the AMT gone he can probably continue to pay no taxes but without having to pay all those Tax Accountants! It will be welfare for Trumpies paid for by saddling the nation with debt.
3
"Fix later"? Oh, I get it, they mean just like "repeal and replace"? The question is with what? Trump and his cronies haven't figured that out yet and probably don't care if they ever will.
1
Simply eliminate corporate taxes (bear with me) and tax only people at the individual tax rates. Ultimately, people are the ones who pay taxes. I'm sure that's not what trump and his rich buddies want, though.
1
How about applying the rule "income is income is income" throughout the tax code? Try that for a while, see how it works. #simplify
5
I'll predict with great confidence that absolutely nothing will occur as detailed in this so-called "plan". None of it be enacted.
But good NFL coaches know that punting on 4th and Long is the best choice.
The entire GOP establishment is filled with punters. They'll punt everything so that they can start whining again and act superior when the Dems take the reins.
Like *45, they are best at taking private jets, playing golf, and lying to their constituents.
3
It might be naive. But can't they do it based on material vs. labor/contract costs? If say, 50%, of your costs come from materials then you are obviously not a law or accounting firm.
1
This brilliant tax plan finally puts Trump and the Republican Congress on the same page. The plan has two parts:
1) Cut taxes on the rich by $1.5 trillion.
2) Lie about it.
Dan Kravitz
3
Ah, the trench battles are shaping up already!
What a taxpayer characterizes as "pass-through" income of the taxpayer's entity (to be taxed at a relatively low federal rate of 25%), the IRS will insist is service-provider income of the individual taxpayer (taxed at a higher "ordinary income" rate), reducing the entity's "pass-through" income by that amount but increasing the individual taxpayer's income by the same amount.
At times in the now-distant past, the IRS often argued just the opposite. Decades ago, when the maximum federal rate on service-provider compensation was 50% but the maximum federal rate on "unearned income" was 70%, a taxpayer (for example, a shareholder/service provider in an "S corporation") often would argue that the bulk of his income was service-provider income and thus should be taxed at the lower 50% rate. The IRS would argue just the opposite, claiming that the bulk of the taxpayer's income was "unearned," and thus should be taxed at the higher 70% rate.
In other words, in those old days it would behoove a taxpayer to argue that his or her service-provider compensation was very high and that, therefore, the taxpayer's "unearned income" was very low. Just the opposite is likely now: a taxpayer will argue that his or her service-provider compensation (taxed at the higher "ordinary income" rate) was very low and that, therefore, the entity's "pass-through" income (taxed at the lower "pass through" rate – 25%) was very high.
2
I have been a practicing tax lawyer for over 20 years. I am relatively certain in saying I know a bit more than the average person when it comes to tax issues. Trump's proposal for a maximum 25% tax rate for pass-through income is a complete giveaway to the wealthy. It's incredible that people are discussing how to stop future abuses of this rule when the real question is why it's a good idea to begin with. It is not. Why should a 1-person law firm pay tax at 25% when an in-house lawyer is taxed at ordinary tax rates? Every single independent contractor (smart enough to form a personal LLC for a $100) would be able to access this 25% rate. Regular employees (i.e., majority of Americans) will not. And what exactly is the reason for creating this tax rate disparity? It'll create jobs? How exactly does it create jobs? Anyone hear a real answer to that question yet?
7
I like the article, but (hard to believe) it's even more complicated than the article makes it seem. what about service-based industries that are corporations rather than LLC or sole proprietorships? many corporations derive their value from labor. It doesn't mean they don't create jobs. And those jobs might pay more than manufacturing jobs. There's an implicit value judgement here that manufacturing jobs are better than any other kind of job, and I don't buy it.
3
Whenever different tax rates apply to different types of income, the taxpayer has an incentive to characterize income as "low rate" income, while the IRS has exactly the opposite incentive.
In the old days, when the top federal rate on "earned income" (service-provider income, for example) was 50% and the top federal rate on "unearned income" was 70%, shareholders in a pass-through entity often would argue that their service-provider income was high and, therefore, their "unearned income" was low. With the proposed "pass-through" tax, just the opposite incentive will arise: shareholders in a pass-through entity will argue that their service-provider income (taxed at a higher federal rate) was low and, therefore, their entity's "pass through" income (taxed at a lower federal rate -- 25%) was high.
4
In Kansas the pass through experiment was tried. A friend, a lawyer, paid no state income tax after this went into effect. Bill Self, the well paid coach of the KU basketball team was an LLC, so he paid very little state income tax. The tax base shrunk so much that the state was on the verge of bankruptcy. Governor brownback vetoed every attempt to repeal the law until finally the veto was over ridden. It will take years for kansas to recover. Yet this is the same thing trumps tax cut will do. And guess whose business would benefit from this. His. Believe me and not him.
5
Lets review for all the readers that are having a difficult time understanding a very simple concept. Tax reform that cuts taxes benefits those individuals WHO ACTUALLY PAY TAXES. With this fact in mind immediately @ 45% of Citizens WILL NOT GET A TAX BREAK, SINCE THEY DON"T PAY ANY FEDERAL INCOME TAX. NOT A DIME. The maximum amount of income any individual should pay in total tax burden (Federal, State, Local Income Taxes,+Capital Gains) is 49%. More than that and the individual has a smaller interest in their income than the State and, at that point, the individual should walk away from their job or burn their excess money
1
Toni ignores the burden of sales taxes. The poorer are subjected to these whenever they buy anything. The really wealthy find offshore tax havens. The full import of the Mossach Panama Papers have not been discussed enough to convince the average person that many of the really wealthy are tax evaders.
5
Fine. Burn every dollar taxed over 49%. At that point, the taxpayer has less to loose than the "government" confiscating their property (income). End result: everyone gets NOTHING.
Any tax cut will benefit the rich. That's not the problem here. The problem is that the rich and our corporations are constantly complaining that they are too highly taxed while they are paying proportionally less tax than most of us. If corporations want healthy employees, well educated employees, an up to date infrastructure, clean water, clean air, and a market to sell their products the best way they can get that is to pay their taxes, all their taxes without hiring an army of lawyers and CPAs to see where they can cheat the government. Once they pay all their taxes then we can talk about tax cuts. Why? Because when the corporations that make money off of us don't pay their fair share we all suffer. And when the uber rich become an exclusive club creating foundations and think tanks that help form laws and regulations promoting the aggregation of wealth into their hands along with pouring money (that we don't know about) into elections to get their candidates in office to the detriment of the rest of us democracy is hurt.
If I can pay my taxes so can the big corporations and the uber rich.
13
It's really quite simple folks. All income, whatever its sources, should be taxed at the same rates for the same income levels. Set the rates and let everyone pay and benefit the same. No exceptions, no special provisions. Problem solved.
15
So.
A single mother, working 2 jobs because she's honestly got no in demand skills, and has to work low paying jobs. She works hard each day, 12-14 hours a day, comes home with just barely enough money to pay rent in a crime-ridden neighborhood, and get clothing from goodwill, cheapest food possible. No spare money.
You think this person should be asked to pay as much in taxes as some millionaire? You want to take money from the poor that may put them or their children homeless, so the millionaire can have a few hundred dollars more per year that they won't even notice?
There's a good reason for a progressive tax system. I agree with never, ever, taxing the rich less than the poor (and today we do this - many of the wealthy actually pay a LOWER percent of their income in taxes than the poor and middle class do - Trump's plan makes this worse), but I don't think it should be equal. Equal rates after the first 40,000 per year - maybe.
1
Why that sounds so nice and sweet, your flat tax fallacy is really just a regressive, tax the poor, help the rich scenario.
Mike makes $200,000/yr, and pays $20,000 to the IRS at . Mike still has $180,000 to play with and trickle down to the proles.
Bob makes $34,000/yr, just above the poverty line for a family of four. He pays $3,400 to the IRS in your completely fair scenario. That leaves Bob $31,600 to pay the bills and afford groceries, and maybe get health insurance. Assuming Bob needs a house and maybe a car to get to his two jobs, his monthly budget is $1,200 rent for his two bedroom flat, $300 for his car payment, $80 for insurance, $150 for family phone service, $100 for Internet, $800 for that sweet high deductible plan from the exchange, $600 for groceries, assume another $300 for utilities, and consider about any other incidental cost to living and raising a family.
That brings Bob’s total monthly take home after taxes and bills at $3,530. Oops, Bob only makes 2,633/mo. Where can he recoup some of those costs?
Mike on the other hand has a comparable set of bills, but he pays $3,400 on the mortgage of his 5,000 sq foot house. He also pays $1,600 on his sweet rides. His total monthly bills are $7,030. But Mike also takes home $15,000/mo after taxes. Mike can take that extra $7970 and save for retirement, pay for his kids’ college, and go on a vacation.
Mike and Bob both work hard and should pay their fair share. But is a flat tax really fair?
1
First, I think that the pass through rate is a horrible idea. Please don't take my comments as a defense of a horrible concept.
But why should it make any difference whether I create pass through income through a manufacturing firm or through a law firm. I in fact own a law firm and employ five employees for each lawyer. Assuming that your buy into the concept of pass through taxation getting special rates, I think I should be able to qualify for such a rate just as much as a manufacturer who has two owners and ten employees. What's the difference?
9
If corporations are people as SCOUTS has ruled, shouldn't they also pay taxes like people do, at the same high rates?
32
Sounds right to me. (Yes, I'm aware you meant to say SCOTUS.) But people don't pay taxes on profits. Profit = income minus expenses, in a very rough sense, and corporations pay profit taxes, not income taxes; they just call it income taxes.
Virtually all large real estate holdings, shopping centers, office buildings and condos for rent just to name a few are co-owned and held in Partnerships that may or may not be an LLC because of the enormous cost of acquiring or developing large structures, grounds, etc. Under the new proposal rental real estate owners (the Trumps) will have a tax rate of 25% because the business is in a flow-through entity. As it stands now, rental real estate is ordinary income and taxed at 39.6%. Don't buy into this "the middle class benefits" lies.
Have you heard about that juicy standard deduction that is being doubled? Well guess what folks, the exemptions at $4,050 for you, spouse and each child will be gone. So if you had two children you just lost $16,200 in exemptions for an increase of $12,700 for a standard deduction. If only those that know so little about tax could see what is happening to them.
27
How about getting rid of FATCA and citizenship based tax?
4
Soon expect the C-suite to be staffed with contracted employees with each offering their services through their personal LLC.
8
Trickle down economics doesn't work. Don't believe me - just ask the Republican who tried it with Reagan: https://www.washingtonpost.com/news/posteverything/wp/2017/09/28/i-helpe...
6
I don't quite agree with you, but it is true that high inflation can be defined as too much demand and not enough supply, while low inflation is too much supply and not enough demand. So yes, given the existing economic environment of low inflation, providing a big tax cut to the supply side of the equation is exactly the wrong thing to do. Economics 101.
5
Sam Brownback tried it and even the conservative Republicans of Kansas rebelled.
Yeah, sure.
Trust us, we'll raise the ultra riches' taxes.
Trust us, all that groping of women was just boy talk.
Trust us, we'll repeal and replace the ACA with something much better that costs much less.
Trust us, we're not being racist or anti-Muslim when we institute travel bans.
Trust us, we did not collude with the Russians, we are not profiting from the presidency, we are not allowing the environment to be destroyed and climate change to continue just so our friends (and donators) can benefit.
Trust that I don't trust the GOP as far as I could throw that overweight buffoon of a president.
27
We're not in Kansas. We're in Oz.
12
You sure? The government looks more like Kansas'.
Trump Care Redux. Munchkin is exposed... again! Tax reform is now a corpse and no Trump exaggerations, hyperbole and lies can revive it.
4
We must begin by taxing all income as ordinary income
Then set rates from that point and phase out deductions at various income levels.
If you don't start there then it is not tax reform but more tax breaks for the wealthy.
10
If we had tax credits instead of deductions, the phase-out would be automatic.
A tax credit of 25% of the "deduction" amount would, in effect, be phased-out at the 25% tax level.
Yes, no free cash from financial engineering.
"Hecha la ley, hecha la trampa". "La ocasio'n hace al ladro'n". Once a law is on paper, loopholes will soon follow. The occasion a thief makes. Two universal truisms in Spanish, suggesting that 'tax loopholes' will not disappear...as long as you have enough money to hire the best lawyer-prostitutes available, as it seems our current body politic is made of, guided by, morals notwithstanding. Trump and his complicit republican hypocrites ought to be ashamed of themselves, pulling dirty tricks out of a hat. Are we proud yet, of having a pluto-kleptocratic cadre of misfits in government?
7
Incentivizing lazy capital with no conditions only disincentivizes actual work.
Bankrupting our nation and stealing health care from millions to give obscene amounts of cash to the overly wealthy in exchanger for nothing. How Republican! How Trumpian!
11
Oh, there is absolutely no way that we will see hundreds of thousands of new S-corps and LLCs helping these people add to their unspendably huge piles of money, the only thing in life that makes them feel like they have any worth at all.
I'm sure we are worrying for nothing. Go on about your business.
7
Like when John Kerry tried to register his yacht in Rhode Island instead of Massachusetts to save a boatload in taxes? Get it??
5
Reaganomics Redux and Rabbit is Rich[er]...again. The only thing that trickles down in Republican tax reform plans [then and now] is that funny smelling yellow liquid that trickles down your leg that Mitch McConnell will swear to you is rain.
5
Why is this particular set of Republicans - and their president - bent on pillaging America? I don't get it. Wait-- I just answered my own question.
3
One word: gerrymandering!
It takes 1.5-3 democratic votes to outweigh one republican in many districts set up by republicans.
Who pays federal taxes?
Top 25 percent =/> 78 thousand 87 percent
Bottom 50 percent =/< 38 thousand 2.75 percent
Now provide the total tax revenue, in dollars, for those groups.
3
And add in that other 25%, while you're at it.
1
S Corporation passthrough income is already subject to abuse by avoidance of payroll taxes. There are no firm rules in place to properly allocate the labor and owner portion. There are just benchmarks.
Some Democrats would like to subject all of the net income to payroll taxes, a proposal that would be unworkable for businesses, even those owned by s single individual. Self-employed individuals need to have some profit to protect their livelihoods during slow periods, and to invest in actually expanding their businesses.
The current Trump proposal is going to create even more uncertainty and invent event more vague rules and start treating businesses differently because of value judgements that the government shouldn’t be making.
We are no longer a manufacturing economy. Many if not most good pay jobs are in service industries that employ the type of people that Mnuchin would impose the higher rate on. This just illustrates the backward nature of the Trump people. They design a tax system for coal companies and penalize software and design firms that they deem labor corporations.
These passthrough rules should be clarified and not make judgements about the nature of the business. It would help those of us with S corporations to have some certainty in the tax rules so we can easily figure out how to treat our income. The current situation leaves a lot of uncertainty and a lot of suspicion that others are abusing the system while the honest among us are just suckers.
6
If anyone thinks Trump's IRS will enforce anything, I have a bridge to sell them.
Here's how to keep things simple. Follow the first part of 26 US Code § 61- Gross Income defined:
"(a) General definition. [Except as otherwise provided in this subtitle,] gross income means all income from whatever source derived …"
Then apply it to everyone and everything equally after removing "Except as otherwise provided".
3
Mnuchin has "vague promises of fixes that come later" is the funniest thing I've heard today.
We always do that when we pitch venture capitalists. It's a guaranteed laugh.
/sarcasm
Only a GOP voter would fall for that line. Mnuchin is a lousy con man. If I were wagering I'd put my money on, "They [will] devise a law that makes tax avoidance by the wealthy easy. "
6
A "promise" from Trump and his cadre that they will positively come back later and collect those taxes from their wealthy friends. . .I mean donors.
Spit in one hand, wish in the other, and see what you have
4
Why not?
Magical thinking has worked for them so far, right?
But I must protest this latest term, "pass through".
"Trickle down" was bad enough, and you all know what image that called to mind.
But now we have this excretable term, "pass through", which makes me wonder how many Republicans are investing in laxative stocks.
Enough with the bodily functions metaphors.
We get it. The rich get richer and the poor get a 20% increase on their taxes, savage cuts to the safety net and the projected demise of Social Security and Medicare/Medicaid, and the continuing expansion of "Defense spending".
In 1913 taxes didn't hit you until you made over $3,000, and, in that year the average income was $800.
The income tax applied ONLY to the wealthy.
Now it's "trickle down" and "pass-through".
We all understand what that "vague language" amounts to.
I'm going to need a bigger fan.
2
No tax bill without seeing Trump's tax return!
5
Our Federal Tax Code (aka – the book of pay-to-play) is 74,000 pages of thousands of tax loopholes paid for by corporations, lobbyists and the rich to Elected Politicians to benefit themselves, at the expense of our country, the middle class and future generations. Elected Politicians have for decades been voting in these loopholes while lining their pockets with contributions, and prospects for future six and seven figure salary jobs after their “government service.”
If Trump wants to give a tax cut to the middle class then do so. But only to the middle class! Corporations can currently cut their taxes and pay a lower rate by spending more of their revenue in hiring new employees and reducing their taxable income. This will encourage consumer growth, not giving more to the rich for stock buy-backs, dividends and their investment accounts. Now that’s simplicity!
Until we see a reduction in our annual deficits, the wealthy and corporations who on average pay an effective tax rate of 18% (not Trump’s 39%) should not have a tax reduction.
We must find a way to hold Elected Politicians, from both parties, personally liable, responsible and accountable for their gross mismanagement of our county, our $20.2 T and growing national debt, and our $100 T in future, unfunded liabilities they forced on US jeopardizing our economic and national security, while benefiting themselves, their staffers, their party and special interest donors.
http://www.usdebtforum.com
3
But they should vote yes on it to get to a conference committee.
Yes, " pass through" worked so well here, in Kansas. As in passing thru the G.I. tract. Same result.
4
I think it's pretty simple to close these loopholes. You just cap them. Say you can pass through 500k at 25% and be done with it. The rest is regular income.
The problem is that we're not having an honest conversation. They don't really care how to close the loophole. they only care about the optics of keeping it open.
1
The biggest problem with this tax cut" is that it woud eliminate the deductibility of state and local income and property taxes. Anyone from the Northeast that voted for Trump is going to pay for it now, literally.
1
If there is a loophole to be used or abused, the wealthy will do so.
They are not patriotic people; they're only looking out for their self interests.
1
Am I the only one finding this humorous (in a dark way)?
Of course the plan will favor the wealthy (Mr. Trump included--no matter what he says), give a little to the middle class (hush money?) and leave the working poor out in the cold.
My sainted father, a union organizer at the Ford Motor Company back in the day, said that the Republicans is the party of the rich and of corporations. Only the Democrats look out for the little guy. I disagreed with him. Now I see the wisdom of his words. Thanks, Dad.
1
Of course, given the present make-up of Congress (its dominance by Republicans), it is not hard to understand why the Administration is willing to leave the details such as concerning 'pass through' taxes to the Congress.
Are we supposed to believe all these many unresolved such details are anything but part of the whole 'tax reform' scam?
1
The people that developed this proposal are either greedy, or lack the knowledge required to do the job... or both.
The plan offered has nothing to do with reform. Attaching that word to it is strictly a marketing ploy.
As the number of pass-through businesses increased, they began to generate more net business income as a group than traditional C corporations. The combined net income of sole proprietorships, partnerships, and S corporations in 1980 was $188 billion compared to total C corporate net income of $697 billion. By 1998, net pass-through income had grown by 340 percent to $829 billion, overtaking C corporate income—$773 billion in 1998—for the first time.
Pass-through business employment is more heavily distributed among smaller firms. However, it would be a mistake to completely conflate pass-through businesses with small businesses. While most pass-through employment is either self-employment (33.6 percent) or at small firms with between 1 and 100 employees (38.7 percent), a significant number of employees work at large pass-through businesses. According to 2011 Census data, a combined 27.5 percent (18.1 million) of pass-through employment was at firms with more than 100 employees, and 15.9 percent (10.3 million) of pass-through employees work at large firms with 500 or more employees.
1
How about this idea: only money retained by the pass-through business for use as capital for the business can be taxed at the lower corporate rate. That would put regular corporations and pass through businesses on a level tax playing field. If the business spends money on non-business items for the owners, then that money would be taxed at the personal income tax rate.
After saying all that, it seems to me that if the goal were to lower the cost of businesses hiring American workers, then lowering the payroll taxes, both employee and employer parts would be the most direct way of doing that while at the same time directing tax breaks only to low and moderate income employees. Since wealthy people don't pay the payroll tax on most of their income, if any, the wealthy would not benefit disproportionately. Ah, but would the Repubs still be interested? Maybe it could be sold to them that removing the payroll taxes could be a way of killing off the Social Security pension and Medicare systems.
Yes, Republicans use a lot of magic.
Noam Chomsky states the hypothesis that they are the most dangerous organization in the world. He is not joking. He means in terms of cruelty, greed and corruption. And climate change denial and no understanding of what to do with North Korea, an oncoming problem with no solutions.
It takes a lot of "magic" to be the most dangerous organization in the world.
The Democrats are not far behind them. They also get paid off by the wealthy and we saw that the group which elected Trump is a very unhappy group of people who are coming to understand what Chomsky means. The internet allows Chomsky types to spread the word about how the world works.
The entire world is coming to see "how the world works." How governments lie and the media supports their lies. A recent survey shows only 20% of Americans "trust" their government and only another 20% trust the media.
You see the same thing in Germany where Merkle won but lost a big chunk of her supporters. Same in England. The people of the world are learning about corruption and who controls the world. And they don't like it.
A few new parties are needed in the U.S.A. if we are going to get our country into a true democracy.
1
Why no reference to the actual experience of Kansas which enacted pass-through only to see it massively abused?
5
Even today- Companies with good credit can get business loans for next to nothing- some as low as .02 percent! This entire premise of lowering taxes so business can invest more is a sham. Furthermore- I want a list of all the companies who pledge to increase their employee salaries if their business tax rate drops to 20%. I seriously doubt we'd be able to find more than 5 companies willing to sign that pledge!
The entire country- even the uniformed voter- knows we need to increase taxes right now not lower them! This is the most magnificent display of smoke and mirrors I've ever seen- probably more magnificent than that piece of chocolate cake Trump served President Xi.
1
I'm SURE the rich and the corporations that profit from this will be in a BIG HURRY to give up their tax breaks when you "FIX IT LATER." I'm basing this on foolish optimism and naivete. There's absolutely nothing to support this. Nothing. But, let's not let that stop us. This is the new America
Current tax structure disincentives labor compensated based on a wage with W2. If I can peddle my labor through my own corporations I already can deduct business expenses that are not deductible to the W2 worker. Example: Mileage deduction to drive to/from work.
The 25% pass thru structure further will immediately change how say hospitals, engineering firms, law practices will pay their high earning workers; they will not employ them anymore but create contracting partnerships with the "worker".
W2 workers will only be those who are under the 25% marginal tax rate.
Cutting corporate taxes from 35% to 20% will create a huge deficit unless, as the GOP is claiming, economic growth will increase to 3% or more. It has been less than 2% for many quarters and the CBO and FED say the long term growth rate will be less than 2%. So, cutting corporate taxes to such an extent is a huge gamble for which individual taxpayers would be at risk under Trump's proposal.
Corporations track and plan their businesses quarterly and taxes are paid retrospectively, so let corporations have a 20% tax rate in the quarters when growth of GDP is 3% or greater and have them pay under current tax rates and rules when growth of GDP is less than 3%. This will give them all an incentive to invest and to increase productivity to achieve 3%+ But, individual taxpayers won't be on the hook if those growth assumptions are unrealistic.
2
I'm old enough to know that invited by Congress the wealth defense industry will write into the legislation purposefully vague language to be later exploited by themselves and their clients. This fact will almost certainly not made evident by the popular press who will be busy providing fair and balanced coverage. In this information desert, Congress and the president will lead most of the public to believe that the tax code is being made more fair and efficient. What we have here is a predatory public-private partnership to steal from the poor and give to the rich. Fortunately, there is Netflix and ESPN. Oh, and church on Sundays!
5
1981 top rate 70% mid rate 37%
2013 top rate 40% mid rate 30%
In 1982 Reagan became President and since then the top rate has dropped dramatically compared to middle income.
And now their going to lower the top rate to 35%.
And we wonder why we have such a huge deficit.
9
"The Republicans want the pass-through businesses to have a tax rate more in line with that of big, C-class corporations (which they are proposing to tax at 20 percent)."
The comparison is very misleading. C corps are taxed 2x -- first on the corp profit income and second the owners pay tax on the dividends paid out.
Also, importantly, lowering the current C corporation top tax from the current 35% to about 20% would lower it much more in effect, as on average our largest companies already pay a far lower rate -- about 22.5% which is right in line with the advanced world sector average.
This would not stimulate growth for our nation, instead increasing the wealth at the top -- to be passed on with no federal inheritance tax.
This would add much more to the deficit and subtract even more from fairness to most Americans today and to future generations. IN TRUTH FURTHER RIGGING THE SYSTEM, if you believe and understand at all as I do, that fairness means taxing relative to the ability to pay.
5
I see that the press is carrying the false meme that the middle class will get this big brake from a doubling of the standard deduction. But you cannot just count what they give with one hand and forget what they take away with the other. The will remove the $4000 exemption per dependent. So yes for a single person they get $6000 and give back $4000 and couple gets $12000 and give back $8000. So yes those people will come out ahead (although by only 1/3 of the amount being reported). However, as soon as you add just one more dependent the gains are gone - and the more dependents you add the bigger the cost of this "gift". We need honest reporting not regurgitation of GOP talking points.
8
It should also be noted that the Child tax credit which supposedly will compensate for the loss of the dependent deduction only apply until the tax year before your child turns 17. So there is no compensation for the loss of dependent deduction if your dependent is a high school senior or older.
It is not going to pass in its present form. In fact, they won't be able to pass any new tax laws in the near future. So, everybody just relax and see what is on the table and make suggestions to improve. I think it is a good starting point. The good is that those who make 50,000 or less will not pay taxes. That is good news. Another improvement they can make is treat income as income irrespective how they earned it. Therefore, all incomes should be treated in the same way and put a flat tax on it. It is not simple tax doesn't work. It is lobbyists who bribed the congress to change the laws to benefit them and thus tax code became so complex that even those who wrote them don't understand any more.
2
Seems fair to cap income from pass-thru entities at 25% -- sort of like corporations -- until you realize that corporations pay taxes on their income and their shareholders then pay taxes on dividends while pass-thru entities don't pay federal income taxes at all.
3
It's just a way to dramatically reduce taxes on high income people. That's all that matters. It makes no sense to have a C corp pay 20% then another 15% when dividends are distributed, yet the S-Corp owner pays a flat 25%.
4
I am a 'retired' person but still work as a consultant to supplement my income. I am not registered as a 'S corporation' but file schedule C. It is not clear to me whether my income as a consultant will be considered pass-through income and taxed at 25% which would be a travesty as my current overall tax rate is closer to 15%. In other words, I hope while decreasing the tax burden for those making over $400K, the changes in the tax law do not lead to an increased burden on the 25K I make as a consultant. Or is there a provision to file at personal income tax rates, capped at 25% for pass-through entities?
3
There is one category of capital gains which is already taxed at the same rate as ordinary income. Unfortunately, it happens to be the capital gains earned within tax deferred retirement accounts. Millions of Americans rely upon these accounts for a safety net in old age. When money is withdrawn during retirement, the earnings are taxed at income tax rates, not the often lower capital gains rate. If the rich pay lower rates on investment income, why not retirees?
19
You'd need a full-time accountant to keep track of the gains, however. Money is such a headache.
Thank you Lauren Burke. All monies contributed to a 401(k) for example should be taxed as ordinary income as it is deferred compensation. But the appreciation that arises from stock and other capital assets in the 401(k) should be taxed as capital gain at a 15% or 20% rate. That's a steep trade-off for deferring taxes. Executives receive stock as part of their compensation and they pay ordinary rates on the fair market value of said stock but when they sell it a year later, any appreciation is taxed as long-term capital gains.
The regular Joe in this country is carrying the load and is severely penalized relative to the tax benefits afforded the wealthier.
1
The GOP is soooo desperate to pass something -- anything! -- before the 2018 election that they will try these failed tactics again with tax cuts.
Fact is, the Republicans are bereft of governance skills and viable, practical ideas. The White House is particularly vacuous.
12
Even for those in the lower tax brackets, there is still an advantage right now to be gained by setting up a pass-through corporation and collecting part of your income as business earnings instead of wages. Business income is not subject to payroll taxes---social security and medicare. So right there is an already-existing unjustifiable tax break used by many people. Trump etc. would just make it all worse.
6
We will return to every person will become a S corporation paying the owner a salary that maximizes the social security and pay whatever the rate might be for that income and the balance at the 25%
2
So much for keeping it simple. How are you going to file this mess on a post card? On the other hand, it should be straightforward to see how this tax plan will directly benefit the President--we can just look at his tax returns...Oh. Right.
14
Let's really simplify. How 'bout 10% of what you can't hide from the IRS? And how 'bout having the local police be encouraged to demand to see tax returns? No tax sanctuary-cities. The President pays his share - so should everyone else.
Simplicity, consistency, productivity and fairness do not blend together well. We can have transparency where the tax writers explain the tradeoffs. But that makes people angry when they think others in the same shoes are getting off easy. And angry gets attention in Washington, because angry tends to vote a a lot. Dealing with Korea, the Middle East, taxes, national weather disasters like Houston, Florida and Puerto Rico--thank goodness we elected the person who is more competent, knowledgeable about government, and more capable of working with others and ironing out disagreements to be president. . . .
5
It's real simple, actually. Let the pass through entities pay a corporate tax equivalent rate on their earnings, and then let their owners pay a personal income tax on their withdrawals of earnings, just as shareholders pay on their dividends. It is egregious that pass-through entities are putting over the fraud that they should share in any corporate income tax cut, when they are subject to only one tax (at the personal level), and not the double taxation of two taxes (corporate+personal) as is asked of the owners of C corporations. Pass-through entities skip the corporate tax entirely, though they do pay the personal rate on all entity earnings, not just on the withdrawn income. the solution is to have pass-through entities pay the corporate tax on income not paid out to shareholders and then have their owners pay a personal income tax when they receive their distributions. (That they'd be better off with their current deal shows the fraud in their complaint.)
11
"and then pay taxes on personal income"
Well you've just described the passthrough fraud right there, haven't you?
Higher taxes encourage job creation by shifting revenue to investment, and hence jobs, as a business expense. Of course, this presumes zero ability to "pass through" income to tax preferred categories such as dividends, capital gains and the biggest perversion of all, "carried interest".
But all of the above exist because legislators rely on "pay to play" for their own jobs.
3
Lobbies are driving the Republican tax plan, not some populist uprising. However the numbers fall out, it will be one lobby against the other, the highest bidder wins.
Sad, but true
SInce there in no Democrat in the White House, the deficit does not matter this time around.
The AMT is going away, if deductions are cut, the AMT preferences will disappear, so this tax will not matter
Estate tax is a Republican hope chest item, it raises $26 billion annually but only from a handful of filers, so I guess its an outright gift. What about the small army of Attorneys who live off the estate tax? They must all be Democrats!
One thing for sure, the tax code is not being simplified
10
In 2016, the Federal government spent $3.85T; GDP was $18.6T. So the government spent 20.7% of GDP. Therefore, the average tax rate needed to be 20.7% for a balanced budget. If corporations only pay 20% and the rich pay 25%, by "passing through", then the rest of us will have to pay close to 20% to make the numbers work. There is not enough money in the average household budget to pay 20% Fed taxes in addition to state and sales tax.
11
"OK if other people pay 25%, but I don't want to pay 20% to make it work." Typical liberal double speak-make the other guy pay the bills. I'm tired of doing that. Tired of free loaders who vote democrat to keep getting their free stuff.
1
My brother and I own a small manufacturing company with 60 employees that we inherited when our father died. It's a closely held pass through company. Like all our employees, we draw a salary which is taxed at our personal income tax rate. Further, we pay the company's taxes through K1 income distribution, the pass-through part. To my mind, it makes sense to give our company the same tax break C corps will get. We don't use that income for ourselves -- it goes to taxes and reinvestment in the company. We cannot distribute K1 income to ourselves in lieu of our regular income. There are laws that prohibit this. I'm fine paying higher personal income tax but I think that at least in our case, the pass through rate reduction is fair and useful.
3
If you are reinvesting in your company than that money for the most part is deductible as an expense. The tax rate on that is zero since the expense offsets the income you reinvested. C corp owners pay taxes on the dividends they get after the C corp has already paid taxes on it. Under this proposal pass through entities would pay a much lower rate than C corp owners. This proposal will result in massive tax cuts for pass through owners on money they don't reinvest in the business and is neither fair or useful
"The premise of having lower rates for businesses than individuals is to encourage investment and hiring, and achieve higher economic growth."
Where is the evidence to back this up? This should be the focus of the article, because if there is no good, hard, reproducible evidence to support the premise, then what's the point in the differentiating between rates for business and individuals?
19
We are shocked, just shocked, to learn that the Republican tax plan might include provisions which could be exploited by the wealthy for their own advantage. What has this country been coming to?
34
This makes no sense to me. I have a business, an LLC that I get pass through income on. I pay at my individual rate, which is the higher number. It is income. Why on earth should the mere fact that I have a business, mean I can shave my income tax percent down by 10% or so, when the money ends up in the same pocket? This is not a loophole, it is a 4 lane highway. Hard to understand such a gift being permitted. But then again, I am rational and fair-minded.
60
Watch for the "dog that did not bark".
The capital gains tax preference is preserved. wealthy taxpayers have been willing to give up a lot of breaks, as long as the capital-gains preference remains in place. The top tax rate on ordinary income is 39.6% (reduced to 35% in the tax proposal); the top rate on capital gains is just over half that — 23.8%.
The Trump plan: Every bad tax idea, in one place
The preferential rate delivers an estimated $120 billion a year to taxpayers who are overwhelmingly members not merely of the 1%, but the 0.1% — they’re the recipients of almost 76% of the capital gains tax benefit. That’s because capital gains comprise much larger shares of the income of the wealthy than everyone else. Those with annual incomes of $1 million or more receive more than half their income from capital gains; working-class people earning $75,000 to $100,000 receive on average 75% of their income from wages.
21
“The framework contemplates that the committees will adopt measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate,” says the tax reform blueprint presented on Wednesday by congressional Republicans and the Trump administration.
That recharacterization of income from labor to income from investment, that latter taxed at a lower rate, is what the change wants. It's not a bug, it's not a problem to be addressed, it's a feature. It's the raison d'etre.
The real money in tax avoidance is how one characterizes income; money made from labor is taxed at a much higher rate than money made from buying or selling or investments. There is no point to this "reform" aside from inviting people like doctors and lawyers and financial advisors to form LLCs and declare all their take home pay to be investment income instead of compensation for labor.
And they will: look at Coach Self, of Kansas University, who formed an LLC and worked for the LLC, avoiding state taxes on millions of dollars just by filling out some paperwork.
http://sports.usatoday.com/2016/05/17/kansas-coach-self-other-llcs-avoid...
8
The idea that tax cuts create jobs is a GOP delusion from the get-go — an ideology rationalized by an old anecdote long-since countered by the overwhelming weight of statistics, driven by a rapacious narcissism. We don't need to solve the problem implied by "pass-through" business taxation if we simply avoid causing it to come into existence. One doesn't swallow poison in order to enable a search for the antidote.
13
The real issue is why labor is taxed at a greater rate than profit derived from that same labor?
67
There are reasons but...the US system is skewed to abuse them outrageously.
There's a very simple solution to this: Shift all tax burdens to individuals.
Tax all Corporations at 0%.
Tax everything else as income.
That would include: Wages, Dividends, and Capital Gains.
Capital Gains Taxes would rise significantly. Taxes on wages would stay the same.
The perverse stock-buyback incentive would disappear.
And you would eliminate every sort of corporate accounting trick under the sun.
13
Well, then the individual incomes would plummet and the corporations would pick up every expense an individual can have and write it off as business expense.
5
I have a professional services firm with a few employees. There is NO simple way, contrary to what the author suggests, to separate revenue (let alone profit) that stems from my own labor from that of my employees. Any rules to try and allocate revenue to between manufacturing (tax advantaged) and services (disadvantaged) would be very complex; and this separation would ignore the close coupling between manufacturing and services that we see in the 21st century.
I have the feeling that Mr Irwin wastes his time treating this as a serious proposal to promote employment when it only makes sense as a way to reduce the taxes that Trump, Mnuchin, and wealthy donors.
11
I think Mr. Irwin knows that "simplification" is a ruse to hide something.
For what it's worth, it's not the author who is floating the ridiculous idea but rather Steve Mnuchin. You're right that it's a farce.
Taxing capital income at a higher rate than labor income is morally offensive. I understand the economic argument about fueling growth by encouraging capital investment, but giving preferential tax treatment to those who have accumulated wealth is not sound policy. The wealthy are no more virtuous than those who have to work for a living.
10
The wealthy are not only no more virtuous, but are dependent (as are all of us) on the goods, services, and other fruits of labor that those that work for a living provide. That said, it is a shame that labor income is taxed unfairly.
1
Whoops, I meant "at a lower rate than labor income"
This tax plan is nice and tidy and looking like a rabbit, but by the time it's finished it will be messy and restrictive and be as ugly as a moose, and will constipate the free flow of tax money.
7
Hmmm...I wonder if the tax plan language was written by any rich guys?
12
The Trump administration should provide the public with a list of all the administration's, U.S. congress's, and corporate and individual political donors (to politicians or any federally registered PACs) whose estimated incomes would change under the new tax plan. Also include the potential change in estate taxes owed. Use their declared incomes and wealth used for last year's taxes. Take a year if necessary to get us those calculations, prior to any final passage of the plan.
2
Yesterday, Paul Ryan was on TV speciously stating that our new income tax form would be the size of a postcard. A bald-faced untruth, of course, as this article quickly confirms.
By the way, sometime back in the '50's a satirical 3-line, postcard-sized 1040 form was passed around the nation the old-fashined snail-mail way. It went like this:
1) How much did you make last year?
2) How much do you have left?
3) Send it in.
20
the majority of Americans already qualify for form 1040-EZ whic is practically a postcard.
The one I saw a few decades later, "Form 1040 EZZZZZ", was even simpler:
1) How much did you make last year?
2) Send it in.
Just in!
Trump has revived and old-fashioned tax plan and applied it to all Americans:
1) How much did you earn?
2) Send it to us!
4
No. The rich would be exempt.
Mnuchin's manufacturing jobs argument is false. I witnessed first hand one company that in-sourced manufacturing jobs in exchange for a tax break. They signed a 5-year incentive deal in exchange for a certain amount of jobs. What they failed to mention, and had been privately known from the start, was they only in-sourced the product lines they were planning to phase out anyway. The jobs were disappearing entirely so the company shuffled short term operations in exchange for a tax break. The employees payed to get downsized.
15
Really nice, lucid and insightful article.
2
"The premise of having lower rates for businesses than individuals is to encourage investment and hiring, and achieve higher economic growth. The problem arises because there is often a fuzzy line between what constitutes “business income” and “labor income.”"
"Business income" versus "labor income" is just a joke foisted off on America by some tax writing people in congress. It is just a ploy to get a lower tax rate that is undeserved.
The business man / woman gets all of the advantages in the tax code for operating their business before the net profit income is determined that is then "passed through" to that business persons Individual Income Tax return. The "encourage investment and hiring" is all taken care of in the business accounting before the net income is passed through.
This special tax rate is just ripping off all of Americas wage earners. Trump just loves this provision to keep his Millions of dollars profit from each of his businesses from being taxed as it should be taxed, just like the wages you and I earned each year.
6
Dump the pass through concept altogether. It's just a way to scam the system. If Congress is really interested in increasing capital and labor investment, why don't they offer credits for that. Businesses would have to show actual investment to get a break.
7
Welcome to Kansas but at a national level. A few years from now our govt wont be able to respond to mega-storms or fund research into disease because of lack of funds. Every rich person has called their accountant this week and is setting up their LLC(s) to achieve this reduction.
14
How about eliminating income tax altogether and substituting a progressive consumption tax that protects low-income families and individuals when purchasing life's essentials like food and shelter? We can then virtually eliminate the IRS and the onerous and very expensive burden of tax preparation and stop the federal government from intruding into our private affairs. Plus, no one will care where one's legally obtained income came from so long as fairly administered consumption taxes are duly paid.
We've endured the income tax for more than a century and it has morphed into a multi-headed hydra that is quite literally devouring our rights as a free people. Slay the dragon!
3
Of course, true value added taxes are in theory the best financing method and the best for business activity.
But as soon as it's in place, the tax credits offered to offset what are regressive* consumption taxes will be the source of unending attempts to reduce or eliminate them. Then the poorest pay higher rates in taxes in fact compared to income than anyone.
*regressive taxation is a technical economic term describing an inherently unfair system where those with the least ability to pay taxes carry the highest burden.
Somehow the Scandinavian countries seem to have managed this quite well, resulting in high standards of living and less of the huge disparity levels of wealth. Admittedly, it does not maximize their potential of greed fulfillment, but they live as long as we do and do not report high levels of unhappiness and social unrest within their system.
Do it right first time. If it's not fixed before it will never be fixed, and if by a miracle it is, those who qualified to reap the benefit will already have done so and I doubt any changes would be retroactive. The damage will have been done.
It's hard to impossible to take something back, once given.
2
Obamacare is proof of that. Not that it was done right the first time but instead of tweaking it to improve it for the benefit of millions, Repubs wanted to erase Obama's name from the history books and, so far, have failed miserably.
Tax policy is not healthcare policy and we should not trust an incompetent Congress to get it right the first time, second time or third time without bipartisanship, hearings, townhall meetings and debate (all missing from our elected branches of fed gov't).
This "reform" of our tax policy is a 6 lane highway of loopholes for the wealthy who've already proven to be terrible at "job-creating" when given the breaks being comtemplated here. If they can't do it with the increasing income inequality over the past 30 years what proof do you need that it is a con job writ large?
I ran the numbers. A business owner who makes $100k/year will see a 3% decrease in their take-home pay. A business owner who makes $700k/year will see an 8% increase in their take-home pay. Not sure how this helps small businesses.
19
This is a windfall for large Republican donors" To wit:
— As Citizens for Tax Justice pointed out, Bechtel Corp., the largest engineering firm in the country, is an S corporation, and thus its owners file their income from the company on their personal tax returns. It is the fifth-largest privately owned company in the U.S. and had gross revenue in 2008 of $31.4 billion.
6
As an employed physician at a nonprofit in the income group that most docs are in (average MD pay something like 200k who under this proposal would actually see top tax rate increase from 32 to 35%), this policy creates huge incentive to open a cash-based private practice with revenue taxed at the 25% rate. Could work a lot less to make same take home pay I make now --- imagine a lot of docs would do this and this would then have terrible consequences for the vast majority of individuals who need to use insurance to pay for healthcare. It is just such bad policy.
11
Actually, there is no "32",....... but you may have meant to type "33%". But, the reason I am replying is to point out just how much the 1% benefit from this. They need to soak up money from you as well. Amazing isn't it?
Since when have lower tax rates on dividends and capital gains actually led to economic growth? This is just another ploy to favor capital income over labor income. It does not need to be crafted. It should be eliminated.
15
Never, never, never it's one of those enduring myths perpetrated to protect a few.
6
There’s a reason the U.S. tax code isn’t simple; it didn’t just get that way.
5
There are many jobs performed within corporations by employees that are also performed by outside vendors. Accounting, legal, advertising, marketing, you name it. This provision taxes the earnings of those who perform the exact same work in-house at a significantly higher rate than those who do it outside. The one with the lower rate ends up with greater disposable income for investment and development of personal wealth while the other pays taxes.
Perhaps Mr. Mnuchin and Mr. Trump can explain why that should be. Believing the person with the lower rate will magically become a job creator is fantasy. Its the same fantasy that Republicans have sold for years, that lower taxes on corporations equates to more jobs, rather than higher executive compensation and shareholder dividends.
15
Of course, one reason NOT to exchange employee status for LLC owner/contractor status is that non-employees will have to rely on ACA for health insurance. And of course we have no idea where that will end up. And even very high-earners can be sunk if a health crisis occurs without sufficient coverage.
2
With sufficient income, each person can form their own S-corp and get around this. In fact, it also allows them to shelter much with deferred comp. on which only FICA is paid.
2
"It’s a three-way tension for the tax-writers. They can devise a law that makes tax avoidance by the wealthy easy. They can come up with one that unfairly penalizes certain industries over others. Or they can create one that involves complexity for taxpayers and a big enforcement responsibility for the government."
How about a fourth way? Do away with this unfair provision and get back to treating this income that way it should be treated: As just ordinary income, which it is. It does not differ one little bit from the income that you or I get earning wages.
25
"The premise of having lower rates for businesses than individuals is to encourage investment and hiring, and achieve higher economic growth."
Maybe they should condition tax breaks upon creating and filling new jobs instead of just reducing taxes on businesses and hoping they do something nice for workers in America instead of investing in worker replacement technology and offshore opportunities. You know, impose a little accountability if the goal is to reward certain behaviors. That is just common sense.
As proposed, the most pernicious pass through is borrowing by the federal government to hand the money to businesses in the form of tax cuts while the millions of people not targeted for tax breaks pay back the increased national debt with interest.
23
This is very sensible. Here in Ohio, the exemption of up to $250,000 fro ps throughs backfired. No new jobs,.... except business for CPA's that filed many S-corp applications.
5
All income should be taxes as ordinary income.
There is no valid argument to justify that some work should be taxed at rates lower than other work
Why should an accountant who has their own business pay a lower rate than a salaried accountant at a corporation?
This rule will increase inequality and create another class of tax payer that simply doesn't pay their fair share
41
As Republican, I am dismayed by the Republican tax plan, especially because of this attempt to put a low tax rate on pass through entities.
Yes, lower the corporate income tax rate. Businesses now operated in pass through entities can always change their tax status to be taxed as a corporation.
Until tax reform under Reagan, the corporate tax rate was always higher than the top income tax rate on individuals. There is a whole body of statutory and case law governing the use of the corporate form for tax purposes and the double taxation which is an inherent part of this system. (Income being taxed once at the corporate level and again when distributed or deemed distributed to shareholders). Perhaps those rules might be tightened for those like Warren Buffet who have the benefit of a corporate tax shelter denied to most under the personal holding company rules. But the rules are there.
Those who elect a pass through entity avoid the double taxation imposed on shareholders of C Corporations. The long understood trade off historically was that they face a higher individual tax rate.
The proposal lets these entities "have their cake and eat it too" by giving them a super low tax rate and no double taxation. There is simply no policy justification for this. And rather than simplifying the tax code, any attempts to curtail abuse of this loophole will add much complexity and uncertainly until the statutes, regulations and court decisions are all in place.
12
Look, if corporations want to be treated as individuals (see Citizens United) for some purposes, then let them be treated as individuals for ALL purposes.
68
Bingo! You hit the proverbial nail on the head. Especially now that, in general, the corporate relationship with its employees increasingly is becoming more and more tenuous/minimalized in the pursuit of ever increasing investor financial return demands. The corporation cannot justify any kind of human type role. It is a financial maximization device, first and foremost, in a cut throat world of international competition.
4
Essentially, the plan includes a step labelled "Magic happens here." Great. Just great.
20
We have actual track record (in Kansas, which gave a tax break to pass-through income) of the rate at which people do form pass-through businesses to dodge income tax. Presumably this rate would be higher when motivated by a larger US tax bill.
12
The article is correct to highlight how much of a mess it will be to try to prevent the recharacterization of personal income as business income. We've seen this game before - people trying to recharacterize ordinary income as capital gains has been going on for years.
Of course, there is much else seriously wrong with this proposal, including the elimination of the estate tax and the cutting of top marginal rates.
12
How about a "present" fix?
I'm changing the topic to make a point about how our government no longer protects average citizens in any particular area to include policing.
Since we have a government "by the people" why hasn't it acted to freeze everyone's credit at all three credit reporting corporations in the wake of the Equifax hacking?
At the bare minimum this should be done ASAP for everyone and the freeze should remain in effect until a solution for how to protect all those exposed for life and safer standards for collecting and selling such data are set. It may turn out we cannot make it safe and must disband these corporations.
BTW what are the "heightened" things done to issue new credit once one has frozen ones credit? Shouldn't those be the normal steps we take during the process that uses my credit report? Why would anyone want less security in such matters? Oh yea the Credit Reporting Corporations make money regardless of whether or not the purchasers of their services are doing so for honest or fraudulent reasons.
5
So, bills that increase spending for job training, for health care (healthy people stay employed thus adding to the economy), for birth control (minimizes government support for unwed mothers), for climate change (planning and implementing preventative measures will reduce the potential future costs of remediation of rising oceans) , these are unacceptable because they would increase the deficit, which would be a burden to our children.
Tax cuts, however, are ok even though these will increase the national deficit, but hey, that is ok. All the wealthy people that benefit from these tax cuts will have plenty of money to give their children, so that their children can pay off the deficit created to make rich people richer. Except, those children will also be paying a lesser tax rate, so I suppose in order to reduce the deficit, we will need to cut the spending that would have gone to programs to support the middle class and poor people. Let them eat cake.
47
I don't understand why Joe and Susie Republican, with their combined annual income of $37,000, continue to demand to subsidize billionaires.
What's the return on that investment? Obviously, it isn't jobs, or a college degree, or livable wages, or gold-plated health care, or a robust infrastructure - so what is it?
50
CMS....Joe and Susan Republican get an unlimited supply of free delicious, nutritious White Spite with all the billionaire welfare they consistently and blindly support.
55
It is simple: one day Joe and Susie Republican will with the lottery. On that day they'll be rich and able to partake of Trump's largesse.
7
These voters are more concerned with “cultural”issues, many of which involve not liking it when non-white or non-Christian folks benefit from government policy.
They will get a small handout from the current proposal, and will complain about their taxes even though they are heavily subsidized by those coastal elites they despise.
I’m all for self-reliance. We should rearrange the federal tax code to stop subsidizing rural Republican states whose residents are stuck in the past and refuse to invest in a modern economy. This Trump tax plan is rewarding bad behavior at the expense of the successful.
1
This would result in a tax increase for me. The whole point of structuring a business as an S-corp or LLC is provide insulation from lawsuits. The company gets sued, not the owner. My little business is an S-corp for that reason.
Income is derived in two ways. One is salary or wages which are paid at the personal rate. The second way is called a distribution where the owner receives a cash payment. This payment is again taxed at the personal rate. If the company posts a profit that is not distributed or paid in salary, but stays inside as cash or inventory, the owners pay tax on that, again at the personal rate. The pass through business never pays taxes directly. All taxes are paid by the owners.
Most of us, and I'm talking about many millions of us, take all the profits as salary because be don't make enough to get past the FICA limit. Some pay themselves a low salary and to avoid FICA but they are greatly reducing their social security benefit when they retire.
In my case, as with many millions, we are in the 15% bracket. This is paid on top of the FICA tax. Trump wants to get of that bracket and go to 25%. My taxes would then nearly double. Increasing the personal deduction and then eliminating itemized deductions will balance out if lucky and may result in a further increase.
The author is focusing on those that make over $150,000. Most of us are nowhere near that income level (40K to 70K) and will get hammered by Trump's tax plan.
49
Changing the pass-through tax rate would double my taxes, too. I manage a small LLC that owns farmland, which we rent out on crop-share leases. I recently retired from the health care industry, so now my family's only income is Social Security and the farm income. Even when I worked full time, I was in the 15% marginal tax bracket. Now the farm income will be taxed at 25%. Sounds like a tax increase to me. Our farmers, who have LLCs of their own, will find their taxes ballooning, too. In fact, I'll bet this increase will hit many, many small businesses hard. What were they thinking?
7
The challenge for Republicans is finding a way to significantly reduce taxes on the wealthy, allow corporations to keep all of their special deals and shift the tax burden to the Middle Class and the poor. I expect it will a combination of borrowing, cuts in education and infrastructure spending along with cuts in services to ordinary Americans.
The whoppers they've got to tell to accomplish this will be astonishing. Kansas on the Potomac sounds about right. Though with far worse consequences.
27
Kansas was a single state that had to handle its on problems. This proposal creates a mess and leaves the cuts in services to the state legislatures. The consequences of this plan will be with us for many years.
There's no need to complicate this Republican Reverse Robin Hood Tax Cut Plan.
Whatever is passed will be yet another in a series of right-wing national train robberies of the United States Treasury.
This plan, like virtually every other modern Republican plan, is about psychopathic Greed Over People.
"Take two cuts and call me from the morgue"
The Republican doctor is in.
65
"If an accountant or lawyer operates a partnership, for example, that may be business income, yet it’s fundamentally a reward for the hours of labor each accountant or lawyer puts in."
This "pass-through issue is a complete farce.
The income derived from operating a business is no different from the wages a person earns working for someone else. It is all just INCOME. It should not be given any special tax treatment. The individual operating his business has had the benefit of all of the deductions and expenses operating that business before the pass-through to that individuals Form 1040. Why should he then get an extra benefit of having a special, lower tax rate? This is just cheating all of us wage earners out of equal treatment in the income tax laws.
76
...and an interesting caveat to consider in this example: i've never known any successful business owners, my late parents included, that didn't report at least some personal expense as business expense.
dad often visited a grocery or two and spoke w/ someone about the "business" during many vacations, which he then wrote off as a business expense.
3
These are currently not "taxable" entities, income "flows" through to shareholders and partners and is taxed at their effective tax rates
The technical definition of income from a Sub S corporation is that its a dividend and not subject to self employment tax (up to the limit). You still have to pay a "fair" salary to shareholders who are actively running the business, but the rest can be distributed free of the SE tax. The earnings are subject to whatever the effective tax rate of the shareholder is, in some cases, the maximum 39.5%.
The lower rate is exactly that, a lower rate
Partnerships are technically not corporations, simple arrangements that can be very complex, income is not taxed at entity level currently, the 25% tax would be less if partners currently pay the maximum rate of 39.5%
How does this hit the small business owner in roofing, plumbing, gardening, antique shops, or housekeeping? In small towns and rural areas much of the economy is driven by these small holders. These folks make enough money to live but aren’t usually in the higher income brackets. There are web based businesses that function on platforms like eBay or Amazon. How does that affect them? How will Mary the book trader be taxed? Will she pay a higher percentage than Bezos? Are there provisions to tax the BIG web players?
I think if you are going to convince Joe the Plumber that this is a bad bill you are going to have to break it down into easily explained units. That helped drive opposition to the Republican Health Care scams. This is an excellent article. I read it three times to get it. Many voters don’t have the patience to really understand these issues in big chunks. Neither does the President nor some members of Congress.
23
Why does all the analysis on pass-throughs focus on how the rich may pay less and not on how the poor may pay more?
What is the total impact of the change by income class? How much more will lower-income sole proprietors pay, and will this offset any savings because of, for example, the increase in the standard deduction or changes in the tax brackets and rates?
If all the effort to refine this goes into avoiding abuse at the top, aren't we ignoring what will happen at the bottom?
Why do this at all? How do we quantify the public-policy benefit?
5
Quantify the public policy benefit? Because there is no public policy or benefit? This is a tax reduction hidden under another layer of tax code complexity, and only a select few will benefit
1
1) Repealing the estate tax should end the new cost basis for appreciated stock as those gains will become untaxed. Of course, I do not agree that the estate tax should be repealed as it only affects very few wealthy people.
2) Increasing the lowest rate by 2% and decreasing the highest rate by 4.6% does not seem fair.
3) Denying the expense of climate change while cutting revenue seems short-sighted
4) Effective corporate tax rates are quite reasonable especially if you reinvest into the business and hire more employees.
5) Government spending can be more stimulative to growth than giving everybody back some money and also be used for the common good (a concept lost on conservatives)
6) Please end carried interest for all those hedge fund managers right now
7) Whatever happened to the deficit and revenue neutral tax reform?
23
This tax plan disguised as reform is simply MORE giveaways to the top $% & corporations that the GOP really work for .There will probably be some minimal middle /working class bait to put some lipstick on the pig & to mislead & distract the public as usual ! What this will be will be a HUGE increase in the deficit from the hypocrites that whined about it for years . It will be like runnning up a charge card bill & enjoying the money that future Americans will be on the hook to pay for!
9
"My goal is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub." — Grover Nosetwist
Everything this administration does is infanticide. Bankrupt the government until the only thing left is the Pentagon and the police state guarding the very wealthy.
53
"My goal is to cut government in half in twenty-five years"
He means funnel tax-payers money into privatizing everything to enrich the rich as well as making sure they pay nothing. so there will be no need of most of the departments in government it will be USA, inc. The government as Angel Investor to the powerful using tax-payers money, and those earning above a certain amount will not even have to pay into the piggy bank, it's not far from that now.
It's welfare for the rich – whichever way you look at it.
If this passes, it will be the greatest tax scam for the wealthy in the history of the world. The GOP are in such disarray and so worried about their reelections that they will probably vote for it. The only hope is that all of these Trump/GOP attacks on Americans who are not 1%ers will lead to a massive revolt in the near future. Maybe, something like a 60% tax rate for them with only the standard deduction.
7
My question is where are all those "Fair Tax" fiscal conservatives who were elected to implement it? Many got in on the premise that everyone pays 15% period. It later went up to 20% and then to 25%.
Then there was the plan to get rid of all deductions, write offs, etc, which would set the rate at a fixed 9% or 10%. Then came the lobbyists and special interests, which started to push it to over 20%.
in 1984, we started with one simple rate, but both parties came up with what we use now. Democrats blame Reagan, but the Democrats dominated both houses of Congress when it was passed. Congress has been building on the mess ever since.
So, now we have the ultimate boondoggle. But, unlike other tax plans, this one would free the wealthy, and many companies, from the tax pushing most of the burden on single, middle, upper middle class taxpayers. The problem is there is no more blood in teh stone to exact from this group.
4
If not carefully designed and monitored this will further reduce the concept of full-time employment. For most Fortune 500, VP and above will establish consulting companies and get rehired by their companies to get into the lower tax bracket. At the very least if complex rules are developed, it will be a big boon to tax prep and accounting sector. I am not sure how that simplifies the overall tax plans. This will hit high end wage earners hard relatively as they will be the only ones ending up paying the 35%+ tax brackets.
5
I pulled out last year's federal taxes to do a quick check on how this might impact me. Doubling the standard deduction and eliminating the personal exemption would leave me "excluding" about the same amount of money from my taxes as before. Maybe a little bit less. It would be easier to do since I wouldn't have to add up my state and local taxes and charitable donations, that saves about 20 to 40 minutes. Then we get to the hard part. My taxes climb up the rate ladder so the money currently taxed at 10% would jump up to 12%. They didn't release anything about where the next levels would kick in so no idea where the 25% rate would show up, but my conclusion really has to be that my taxes will go up under this plan. Maybe a few hundred dollars. Maybe more than a thousand. And that doesn't take into account deciding to eliminate my Flexible Spending Account, taxing my pretty darn good health insurance, or messing with the exclusions I get for saving for retirement.
So, a middle aged, single, no kids, renter, with decent but not extravagant income could lose a little or a lot with this plan depending on the details. My friends (married, qualify for Medicaid and the earned income tax credit, two kids, independent contractor income) could be crushed by it. Hedge Fund billionaires seem to make out like bandits. Benefiting the wealthy. Penalizing the middle class. Killing the poor. This is a non-starter.
102
Agreed. I am in the same boat, single no dependents. We could get crushed by the jump from 12 to 25%.
1
Same here but even worse. I'm unemployed right now, still looking but no luck. The other problem is age. I'm nearly 59. Employers consider me too old, too expensive, and too stupid but I still can't retire.
Reagan economics destroyed this country for the working American whether he/she is single, married, renting a home or owns a home, has kids or not. What all of this claptrap comes down to is one thing: if you aren't rich you aren't worth anything to a politician.
1
No deduction for state and local taxes is huge in the states that have a large social net and an outsized impact on the economy including California (state tax is up to 13%, New York and New Jersey. States like Florida and Texas will make out like the bandits they are - maybe they should forgo their hurricane aid from the federal government.
43
Just look at what happened in Kansas, I'm setting up my own LLC as we speak. If the 1% can do so to avoid taxes, well why not me.
10
It wouldn't sting as badly if there was a big, fat luxury tax instituted.
No more tax write offs on G5s, second homes, vacations, yachts and vehicles.
So tired of the wealthy being capable of writing off everything and I mean EVERYTHING.
9
"I will gladly pay you Tuesday for a hamburger today." -- Wimpy.
22
Trump and the GOP are in the thrall of their wealthy donors, who demand that their campaign contributions be repaid. Thanks to "Citizens United", this may happen if the Trump Tax Cuts are enacted. All the Trump voters can do is whine, provided, of course, that they notice this.
7
Sure, they'll fix the loophole benefiting the wealthy at an unknown time and in some unspecified way in the future.
And that check to the middle class is "in the mail."
15
How long will it take the public to recognize that tax revenues are decreasing if Congress actually approves this? Why is it that Republicans repeatedly claim decreased taxes will bring in more revenue when it has never been true?
14
It's almost as if Republicans, instead of simplifying taxes so your return will "fit on a postcard" or whatever trite framing is used, are simply trying to vastly lower the tax burden of the wealthy with little regard for the rest of us. If they truly wanted to simplify the tax code, why have so much effort to distinguish from labor income and "capital income" in the first place?
It is, however, deliciously ironic that the solution to the problem is "measures to prevent the recharacterization of personal income into business income", i.e. government regulation.
I do have a legitimate question regarding the proposal: is pass-through income to be taxed ONLY at 25%? Or is that just the top rate, and income below a certain threshold(s) will be taxed at a lower rate? If it is a single bracket, that means a tax increase for freelancers making below about $40K, a group of people which is growing at a tremendous rate right now given how the economy is changing.
5
The current proposal is flat 25% for all pass through income for businesses. But if one is a freelance and making below $40k they can still classify that as personal income and get to the lower tax bracket.
2
An excellent explanation of something I hadn't understood well at all, though I will say that the likeliest thing to happen is that Congress will simply, nudge-nudge wink-wink, skip the whole issue of doing this fairly.
5
- witSimplification of the tax laws is the main motto. For pass-through income, a simple (Democratic?) amendment could solve the problem of anomaly. Taking the author's example of 1 million$ income from a 'real estate partnership', if we fix 50% as the limit - beyond which no one could claim any benefit of lower rate of 25% - then for lower (than 50%) 'labor income' the treatment may not appear fairer, but to satisfy the GOPs, the pass through income will still be 0.5 million$ to be taxed at the rate 25%, and the balance at normal rate of 35%. Here is a win-win situation for all concerned hout going into the rigmarole of proving the manufacturing component, etc.
3
"Namely, how do you reduce the rate on these pass-through businesses without also creating a wide-open lane for wealthy Americans to drastically reduce what they owe the government?"
Um, the point of all of this is to create a "wide-open lane for wealthy Americans to drastically reduce what they owe the government." To believe otherwise is akin to believing in the tooth fairy. Or Bigfoot. Or alien abductions. Or that professional wrestling is real and unscripted. Or that tax cuts create jobs. Or that "we'll cover everybody at lower cost and it will be beautiful." Or that Fox News is "fair and balanced." Or that Republicans have the best interest of average Americans at heart.
In other words, vast numbers of the American public will believe it.
21
"Wealthier Americans might find tempting to abuse"?
That is like saying putting the wolf in charge of the sheep pen might cause problems.
The demagogue Trump knows exactly what he is doing. He took advantage of the unrest in the country both legit and not legit to enrich himself, his family and his rich buddies.
As Yogi taught us, it's deja vu all over again....ie a redo of the policies that led up to the second greatest eco disaster in modern times in 2008.
The Dems slogan should be:
1-Remember the Alamo.
2-Remember the Maine.
3-Remember 2008.
9
This is the GOP's Donor's Delight Tax Plan not a Middle Class Miracle.
Eliminating the estate tax
Allowing corporations and richie-rich to move trillions parked in tax havens
back to the US does not create jobs, it just increases CEO pay
Allowing hedge-fund guys to pay a 15%
Not allowing state and local taxes as a deduction
I'm in the Middle-class. My taxes will go up under this plan and the revenue for the country will decrease. If revenue decreases the government puts Social Security and Medicare and Medicaid in fiscal peril. Trump's budget already plans to reduce benefits for SSDI (Social Security Disability Insurance). The GOP wants to reduce the insurance (GOP likes the term entitlements) pay-outs I have been investing in since 1964.
I don't dislike the rich except when they try to hurt my family, this plan hurts.
71
But, hey, it worked great in Kansas, right?
86
Isn't what happened in Kansas - lots of businesses restructured so they could take advantage of tax cuts for pass-through income, leading to huge drops in tax income to the state, leading to draconian cuts to schools and infrastructure budgets, and still leaving the state in debt. Plus, the new business investment and economic growth was pretty much nonexistent. Can't we actually learn from states that have been the laboratories of democracy, and not repeat their spectacularly failed experiments on a larger scale?
207
Yes, that's what happened in Kansas:
http://sports.usatoday.com/2016/05/17/kansas-coach-self-other-llcs-avoid...
1
Republicans are constitutionally incapable of owning and maintaining a golden goose. As soon as their goose lays a couple of golden eggs for them, they just HAVE to cut it open so they can get all those golden eggs at once.
Case in point: With much bipartisan effort under Democratic President Clinton's leadership, Congress finally achieved a balanced budget in 1999 that lasted through 2001. We were actually paying DOWN the national debt for a few years. Once Republican President Bush was in office, he just had to push for a major tax cut on the false premise that somehow major increases in tax revenues would magically appear. But surprise, surprise, surprise! The magic didn't work, and massive budget deficits appeared, instead.
And now Republican President Trump and his Republican Congress think they can pull this same trick off again. Americans would be foolish to let them even try.
The Republican tax plan is being driven by their donors' desires. There is no grass root demand for corporate tax reduction, getting rid of the estate tax on estates over -- what is it now? -- five or six million dollars, or even lowering the highest marginal tax rate.
Recall they tried to get the money for this from the poor's health care. Three times. Having failed that, they'll settle for debt, a transfer to the rich today for everyone else's children and grandchildren.
95
Yes, we will be borrowing money from China to pay for the richest peoples tax breaks.
2
This begs the questions: why should corporations pay less than individuals? Why should gains on capital be taxed less than compensation for labor? The answer, I think, is because the rich, with their army of lobbyists, and their brethren in office, want it that way. Time to stop this.
234
...And I thought our Supreme Court said that corporations are people...
I agree Matt, why is money earned by sweat taxed higher than money earned by money?? We need to get the money out of politics to get equal treatment for taxation.
Corporations are just collections of people. Everything corporations own is ultimately owned by individuals, and ultimately, money has utility only for individuals. So, only individuals can bear the economic burden of taxes. The incidence of the corporate tax falls on one of or some combination of the following: the shareholders, the employees, or the customers of the corporation. From that perspective, it makes little sense to talk about individuals versus corporations. But even if we accept the individuals versus corporations premise, if a corporation earns $100 of income and pays tax at 20%, $80 is left after tax to be distributed to shareholders. The current tax proposal leaves the qualified dividend income rates the same (20%). So, a dividend distribution of the $80 to corporate shareholders would be subject to a minimum of $16 of tax. After both levels of tax, only $64 of the original $100 would be left over. With the top individual rate of 35%, there would be $65 left after an individual earns $100 of ordinary income. So, in fact, the proposal results in corporate earnings being subject to a higher tax burden than individual earnings. It appears that Trump has granted your wish and "stopped this."
This"plan" is just another shell game to benefit the wealthy. Whether it's a low capital gains tax or, in effect, a reduction in the rate for pass-through income, there is a presumption that favoring the rich with better tax rates than the rest of us will trickle down to the middle class. Oh, and while we're at it, let's eliminate the inheritance tax, another gift to the 0.1%. The net effect of this tax scheme will be to create such huge deficits as to make Washington "Kansas on the Potomac." Trump, as he has always been, is a con man.
110
I have total confidence in the plan cutting taxes for the rich, businesses, corporations, Trump and his heirs. But for those of us workers who don't now pay a rate of 25%, I have great faith that is were they will make up some of the lost revenue, by moving us up into that rate. Exclude some income, double deductions, when I run the numbers on what I read, an use that 25% rate it comes out to a tax increase that wipes out any chance of saving anything annually.
30
The unasked question here is why have a lower pass-through rate at all? Yes, the public line is that it would allow unincorporated businesses to invest and create more jobs, but if that was truly the intention, and need, of those businesses, they would have done it already (and reduced their taxable income in so doing). My wife and I have a LLC that is considered a disregarded entity by the IRS (such a dismissive term), so we pay individual rates as taxpayers. What the federal government does on taxes does not, in any way, influence our decisions about whether to expand or contract our business. We respond to our needs for income and whether an investment decision will make sense for our future. This discussion is a smoke screen for reducing the tax burden on those who probably need it least. I hope it gets dropped in any final version. It is not needed.
142
Trickle-down and pass-through tax strategies are not supported by past history; they are tools of ideologues. Men of conscience should be striving for fair taxation.
The ideal should be that (1) an individual’s marginal tax rate - sum of income tax rate and payroll tax rate - be the same as another individual with the same total income, which includes earned income, interest, dividends and most capital gains. And (2) the above marginal tax rate should not go down as one’s income goes up. These 2 principles should be the foundation of all tax rules.
With dividends, most (including stock) capital gains and interest now being tax the same as earned income, we can now lower the corporate tax rate to a level that is competitive in the global market.
Presently, in our flawed tax system, if one individual makes $100,000, all in dividends, and another individual makes $100,000, all in earned income, we get desperate results. The dividend man has a marginal rate of 15%, the earned income man has a marginal rate of at least 43.4% (28% income tax and 15.4% payroll tax). A fair society should not allow this disparity, it should apply the two basic rules above.
Also, estate taxes should be raised, not lowered, to put our nation on a more just path. First, an estate should pay a capital gains tax on assets with increased valuation. Then, the money distributed to heirs should be taxed as regular income (with income averaging available).
Fairness, I guess, is yesterdays ideal! To bad!
Congress wants to tax some income and ignore the wealth and consumption tax bases. People like Warren Buffett and Donald Trump don’t really care if the income tax rate is very high because most of their wealth grows through capital gains that will never be realized and taxed.
Workers need an end to the double taxation of payroll taxes and income taxes. A 4% VAT could replace the business portion of the payroll tax and give both U.S. workers and pass through businesses that are labor intensive, a real boost. Another way to help investors while taxing the rich is to lower the C corporation tax to 8% so business can pay more dividends. Tax dividends at ordinary rates so high earners pay more on more dividends.
A flat income tax rate could eliminate $1.3 trillion in tax expenditures. It would be fair if it optionally taxed wealth inversely - giving the poor and middle class the option of paying a net worth or wealth tax in exchange for a reduced income tax rate. The inverse taxation would result in wealthy individuals not paying a wealth tax but paying the top income tax rate. A wealth tax may sound far-fetched but Donald Trump supported one in his book “The America We Deserve”.
The biblical good steward multiplied his talents (a measure of assets) and should be rewarded more than the person who buries his money in the ground or parks it in a savings account. It is the ratio of an individual’s total wealth to total return that matters; and that congress must consider.
3
Beyond noting that American businesses have around two trillion dollars buried in a hole in the ground, and that yes indeedy, Warren Buffett cares about tax fairness, it may be worth nothing that as always, the proliferation of vague adjectives provides an excellent warning of the hocus-pocus that is Trump's nine-page "tax plan."
4
A VAT, like sales taxes, hits poor people much harder than rich people because rich people spend only a small part of their income on things subject to the VAT/sales tax. Rich people spend most of their income on investments that are not subject to VAT/sales tax.
The only money poor people have to spend on investments is their payroll taxes; and, even ordinary people spend less on investments (payroll taxes and 401Ks) than rich people.
1
@Doug - a tiny 4% VAT is the lowest VAT rate in the developed world and is much better for workers than the 7.65% business portion of the payroll tax.
@Robert - the $2 trillion in deferral of foreign business profits would be unnecessary with an 8% C corporation rate. In fact, foreign businesses would want to become American businesses.
1
Mr. Irwin - please write about an important aspect of this "asterisk" not mentioned in this article. You write about the plan to tax pass-through businesses at a rate of "only 25%". Yet many, many pass-through businesses, like my own family farm (through which my husband and I earn our sole income) pay significantly less than 25%. This plan, as I understand it so far, would result in nearly a 100% increase in my family's federal taxes. We are certainly not the only hardworking small business owners who would find themselves in a similar position. Outrageous.
45
Considering what has happened with the latest Healthcare Plan.... does anyone need to take a look at this seriously thinking it will be "ok". I think the well-educated people should present a Tax Plan, and then the media can report on the difference. How did people who did not do well in School, end-up in these Government Positions? If the public employee qualifications do not rise, then the USA will be vulnerable. Who needs Russia to destroy the Elections, when people who are poorly qualified are allowed to run as candidates.
8
Public employee qualifications do indeed require a good education. It is politicians and political appointees who do not have to have a good education--though most of them are well educated, luckily.
1
This was an issue in dodging Medicare tax. Guys with businesses tried to characterize their income as dividends rather than payments for services, and the IRS used to go after them and say no, that is really personal-service income.
Of course, that ended in 2013, when they extended the Medicare tax to investment income, but in the meantime the IRS built up some definite rules and definitions that they could pull out of the file cabinet and reinstituted.
These issues are pretty well understood.
8
I think so. But hard to police, especially if you strip funding from the IRS.
I never understood under-funding the IRS when their job is to make sure the tax situation is a level playing field, unless people in a certain party prefer the IRS to fail to keep the playing field level.
32