Tax reform on horizon
By Melinda Harrell
Published in News on October 22, 2017 1:45 AM
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News-Argus/CASEY MOZINGO
U.S. House Rep. David Rouzer, R-N.C., discusses tax reform and other legislative goals while making a district visit to Wayne County during the legislative recess.
The Senate pushed through a $4 trillion budget proposal Friday, which, with the House likely to approve the measure, paves the way for an expansive tax reform.
Rep. David Rouzer, R-N.C., says the new tax reform proposal is rolled into a budget reconciliation bill and is a step in the right direction toward business growth and a boon for individual households.
The reform proposal, "The Unified Framework for Fixing Our Broken Tax Code," was released in late September by Congress and the White House. It proposes a dramatic cut in corporate taxes, the pass-through (taxation on personal income derived from proprietorships, partnerships and S-corporation) business tax rate would be reduced as well, and individual income brackets would collapse into three rather than the current seven.
The tax reform is a "framework" which lacks specification on what individual and business deductions would be eliminated, as well as the income structure of the three tax brackets -- House Speaker Paul Ryan, R-Wisc., has also said an additional income bracket could be added for the top echelon of income earners.
Rouzer said working out those specifications will be on his agenda and the House's, but in the meantime, he said the framework is a "simplification" and reduces rates on all levels.
The Tax Policy Center, a non-partisan think tank, released a preliminary assessment on the framework. The TPC report -- given the framework's lack of specificity -- used the proposal, the Republican's "A Better Way" blueprint and the Donald Trump administration's proposal released in April, to flesh out an initial analysis.
The TPC analysis indicates the reform would reduce revenues by $2.4 trillion over a 10-year period, which could prove problematic to the national deficit.
The analysis says that, in 2018, all income groups could expect to see a reduction in taxes under the reform, with some facing a tax increase. Those with the very highest income would receive the biggest tax cuts.
The TPC preliminary report also says that by 2027, "taxes would rise for roughly one-quarter of taxpayers, including nearly 30 percent of those with incomes between $50,000 and $150,000, and 60 percent of those making between about $150,000 and $300,000."
Rouzer said the analysis is premature.
"A good analogy for that is, it is like judging a movie based on a poster before the movie actually comes out," He said.
"I think it is important to withhold judgment on any report, or any analysis, that comes out prior to the release of the actual tax bill."
He also said he "does not see how that is going to be the case," citing the increase in the child tax credit, lowering the tax rates for individual brackets and the repeal of the estate tax, which is all included in the reform proposal.
"You add all that together, it is inconceivable to me how any middle income or lower income would be paying any more than they do today, but we will see what the final numbers show, and we will see where to go from there," he said.
The TPC report also indicates the tax reform benefits the wealthiest Americans, with 1 percent of the top earners gleaning 50 percent of the tax reform benefits, and with after-tax income for the top earners increasing by an estimated average of 8.5 percent in 2018.
The report also shows a marginal after-tax income increase of between .5 percent and 1.2 percent for the rest of nation's income earners.
Rouzer said the top 1 percent pay a majority of the tax burden.
"What you want is not a comparison of what your are doing versus what your neighbor is doing in income and taxes. What you want is a tax code that fosters economic growth and that is fair to everybody," he said.
Rouzer said the elimination of loopholes, special exemptions and deductions would also shore up the discrepancy between the highest and lowest earners' tax payment.
"Now, whether you get rid of all the loopholes and special exemptions and deductions and credits that some of your very, very wealthy and high end utilize -- they hardly pay any tax as it is now -- when you get rid of those, you ensure that they actually pay more," he said.
"So for your top two-tenths of 1 percent that are taxpayers who are billionaires and multi-multi millionaires, they use lawyers and accountants in ways that other people cannot afford to use, so when you are making this tax code simpler you are also making it a lot fairer across the board."
Politically, the passage of tax reform is a victory the Republican Party sorely needs.
With the failure of Congress to repeal and replace the Affordable Care Act, tax reform has become a more attainable triumph.
A LOOK AT INDIVIDUAL RATES
The proposed tax reform collapses the seven income tax brackets into only three -- 12, 25 and 35 percent commensurate with income.
Those income classifications are still a gray area in the framework, however.
Rouzer said the lowest income-earners would be in a 0 percent tax bracket.
The framework includes an increase in the standard deduction threshold to $24,000, and the child tax credit. It also eliminates personal exemptions and most itemized deductions, as well as the repeal of the estate tax.
"Specifically, the mortgage deduction is retained, the per-child tax credit will go from $500 to $1,500 per child," Rouzer said.
"There is wide agreement on that. The charitable deduction stays the same. All the other deductions and credits are on the table for discussion. The number that get put back, whatever that turns out to be, that means the rate won't be quite as low, is what we are currently proposing right now."
Rouzer said there are "a lot of details that still need to be filled in," but the issues that have been firmed up "have pretty strong agreement."
CORPORATE AND SMALL BUSINESS
The tax reform would affect small businesses, with a tax rate that would drop to 25 percent and an expense deduction, which also applies to small businesses investments as well as to large corporations.
The reform includes a 100 percent expense deduction on a new investment.
The corporate tax rate would drop from 35 percent to 20 percent under the proposal.
He lauded the corporate income tax cuts and the change in expense deduction as the driving factors that will see growth balloon in the United States.
"The reduction of rates, the 100 percent expensing -- and that's for any business not just small business -- those are very, very strong, pro-growth components," he said.
"And if we get those enacted into law, will really rejuvenate and propel this economy in ways that we have not seen in our lifetimes. Even the Reagan tax cuts of the 80s weren't this pro-growth."
Rouzer said the expense deduction will be a stimulus for growth for small businesses.
"That's a real game changer for the economy and will really help grow the economy at a substantial clip," he said.
Rouzer said the corporate tax drop would make the United State more competitive globally.
"The current average of the industrialized world on the corporate tax side is 22.5 percent, so you can see how out of line the 35 percent corporate income tax is for American companies versus any other industrialized nations," he said.
"A lot of nations are below the 20 percent corporate income tax. It is one of the reasons why you have so much cash that is being held overseas. It is the main reason why you have companies that are multinational, that once had their headquarters in America have moved their headquarters to other countries. It is also one of the key reasons that many jobs have been moved overseas."