GOP leaders in advanced talks to change tax plan in bid to win over holdouts

The lawmakers attracting the most concern from leadership and the White House are Sen. Ron Johnson (R-Wis.) and Steve Daines (R-Mont.), who say the current version of the bill favors corporations over other businesses.

.. Currently, in the Senate bill, these companies are allowed to deduct 17.4 percent of their income from their tax liability. Negotiators are looking at expanding that credit up to about 20 percent

.. their tax plan does not allow individuals, families, and pass-through companies to deduct their state and local taxes from their taxable income. The tax plan does allow firms that pay corporate income taxes to deduct their state and local taxes.

.. To create more parity, negotiators are considering putting new curbs on the ability of corporations to deduct state and local taxes from their income.

.. a change requested by Sen. Susan Collins (R-Maine), which would allow Americans to deduct $10,000 in local property taxes from their taxable income.

.. Making this change could cost more than $100 billion over 10 years

.. But Johnson is on the budget panel, and he could demand changes by Tuesday in order to win his vote. If he blocks the tax bill in the Budget Committee and is joined by Sen. Bob Corker (R-Tenn.), who has raised separate concerns, the package could quickly die.

The GOP Tax Plan: Tough Choices With Limited Room to Maneuver

Republicans will likely struggle to squeeze all their priorities into a deal that allows for $1.5 trillion in tax cuts

The plan will call for driving down the corporate tax rate into the low 20% range, from 35%, according to a person familiar with the discussions. It will also likely include a doubling of the standard deduction that would benefit many individual filers, lower individual rates, fewer tax brackets and sharply reduced rates for “pass-through” business owners who pay tax on business income through their individual returns.

.. Republicans also have said they want to eliminate the estate tax, repeal the alternative minimum tax, expand write-offs for business investments and reduce taxes on U.S. corporate foreign profits.

.. the Republicans’ wish list will likely add up to more than $5 trillion worth of tax cuts over a decade

Four Rules for the Coming Tax Reform Debate

True reform will require a bipartisan consensus around closing loopholes to pay for the lowering of statutory tax rates paid by businesses, and reducing burdens on working families. Changing tax law must be done in a fiscally responsible way, without cutting taxes for the very wealthy.

First, changes in the tax rates for individuals must at least maintain the current levels of progressivity

  1. Cutting tax rates for the very wealthy would deepen the income inequality that underlies the anxiety and anger among American voters. If Congress doesn’t preserve or increase progressivity, we won’t have the resources to pay for investments like infrastructure and child care.
    • .. Congress must also maintain the estate tax, which is levied only on estates worth more than $5.49 million ($10.98 million for a couple), affects only the wealthiest 0.2 percent and protects small businesses, including family farmers.
    • .. Many of the estates that are taxed have assets that have increased in value but have never been subject to capital gains tax, and never will be. The idea that the estate tax imposes double taxation is largely a myth.
  2. Second, tax cuts must be offset by revenue-raising measures. With the country in the ninth year of an economic recovery, the case for pure stimulus is weak, and digging a deep hole of debt by cutting taxes will make it harder to pay for other priorities.
    • Tax cuts need to be revenue neutral, paid for by reducing tax subsidies, ending loopholes or generating new revenue.
  3. Third, Congress should rely on its Joint Committee on Taxation and the Congressional Budget Office to estimate what a tax bill will cost.
    1. Claims that tax cuts pay for themselves must be treated with great skepticism.
    2. Such a reckless move would almost surely produce an explosion of debt. In 1981, 2001 and 2003, tax cuts based on projections that they would largely pay for themselves did not, and when deficits soared, future presidents had to make hard choices to restore fiscal stability.
  4. Fourth, business tax reform must not open up new loopholes for top earners to evade taxes. Proposals to lower the tax rate on “pass-through” income (income that partnerships, sole proprietorships, S corporations and limited-liability companies “pass through” to owners) would create a costly, unpoliceable loophole. Wealthy individuals and businesses could easily reorganize on paper to take advantage of low pass-through rates.
    1. most pass-through income goes to wealthy individuals and big businesses like hedge funds and large oil and gas pipeline companies organized as limited partnerships.
    2. Kansas instituted a similar policy in 2012 and repealed it this year after 100,000 new pass-throughs emerged — among them the coach of the University of Kansas basketball team, who had his salary paid to a pass-through entity to escape state income tax. Yet job and economic growth in Kansas lagged that of most neighboring states, evidence that the policy did not produce the growth that supporters promised

Trump has a plan to change the tax code to make himself much, much richer

The plan creates a massive loophole with which ordinary people can evade taxes. Instead of just working for Vox.com, I could form DylanCorp LLC, contract with Vox to provide writing services, and pay a 15 percent rate on DylanCorp’s earnings rather than my current 25 percent rate. For rich people paying a top rate of 39.6 percent (or the top individual rate of 33 percent that Trump proposed during the campaign)

.. A new study finds that when Kansas exempted pass-through income, the result wasn’t more investment or growth but a surge in this kind of tax avoidance.

.. the Trump Organization, and the entire Trump family. The Trump Organization isn’t a “C corporation.” It doesn’t pay corporate income tax. Instead, it’s structured as a collection of pass-through enterprises, so the vast majority of income accruing to Trump and his family is taxed through this system. Trump almost certainly pays the 39.6 percent rate on his earnings, so he’s cutting his own top tax rate by more than half. It’s the most transparently self-interested policy he’s proposed since taking office, and it will likely save him tens of millions of dollars.

.. That return also implied that without the alternative minimum tax, which Trump wants to repeal, he would have paid less than 3.5 percent of his income in federal income taxes. Cutting the pass-through rate while repealing the AMT would probably reduce his tax burden to roughly half that level. Instead of paying $38 million, he could’ve paid less than $3 million.

.. A paper by Berkeley economist Stefano DellaVigna and co-authors found that Italian Prime Minister Silvio Berlusconi’s TV network, Mediaset, saw profits grow by at least €1 billion during his time as premier, not necessarily due to graft but because businesses shifted advertising to Mediaset as a way to lobby Berlusconi.

Tax Revenge in Kansas

Republicans and unions raise rates higher than in Massachusetts.

 The press accounts gleefully talk of how “moderate Republicans” joined with Democrats to raise taxes to address exploding state deficits. But substitute “Republicans backed by teachers unions” for moderate Republicans, and the real picture comes into focus.
At bottom the Kansas tax vote was as much about unions getting even with the Governor over his education reforms, which included making it easier to fire bad teachers.
.. the 2012 tax cuts that reduced the top rate on personal income taxes to 4.9% from 6.45% and eliminated income tax for small businesses filing as individuals.
.. Mr. Brownback was unlucky in his timing, given the hits to the agricultural and energy industries that count for much of the state economy.
.. Mr. Brownback’s reform mistake was that in eliminating taxes on “pass-through” small businesses, the Governor created a loophole that allowed law firms, accounting agencies, consultants and many others to declare wage income to be business profit and pay little or nothing. This caused lower tax revenues than Mr. Brownback predicted
.. public unions support the state GOP’s liberal wing.
.. The one relevant Kansas lesson is that Republicans in Washington need to be careful how they write any tax reform for “pass-through” businesses. One way to do that is to avoid letting pass-through tax rates get too much lower than rates on wage and salary income