The Tax Bill and Talking Points

The Senate Finance Committee wrapped up its marathon markup last night and passed their version of the bill on a party-line vote of 14 Republicans voting Aye and 12 Democrats voting Nay.  The Democrats offered an array of amendments and all were defeated by the same vote of 14-12.  So, what does this say about the bill?

The bill being offered by Chairman Hatch was a moving target all week with changes being made on the fly and when the final version was presented it included the hot-button item related to ObamaCare.  Basically, it repealed the penalty imposed on people who have not purchased health care.  The Democrats immediately pounced on this new language and called it an attempt to deny health care to 18 million people.  I think you need to look at all the facts before you buy into what is obviously a political talking point.

Under the Affordable Care Act (ACA) people were mandated to buy health insurance or face a financial penalty for failing to make the purchase.  In 2016 almost 8 million people made a personal decision not to buy health insurance and paid a fine.  For most, it became apparent that the fine was far less than what they would pay in premiums.  Another factor in this decision is what the insurance they were buying would actually get them.  Most policies being offered were raising the premiums and were also raising the deductibles. According to a story in CNBC deductible for individuals in the lowest-price ObamaCare plan will average more than $6000.  For families enrolled in a bronze plan (lowest plan) the average deductible will be just over $12,000.  So what this means that the premiums will buy health insurance only after they meet the deductible limit and so the number of people choosing to pay the penalty and opt out continues to rise.  Most experts believe this number will be close to 10 million in 2017.

In the Senate tax reform bill, the Republicans removed the individual mandate that forces people to pay a fine for not complying.  The Democrats making the claim that it would remove health insurance from 18 million people ignores one simple fact:  It will be people making that decision and not the government.  Nothing in the bill removes the subsidy they will get if they choose to purchase health care under ObamaCare.  If they choose to purchase health care and are eligible for a subsidy they will still receive the subsidy.

So, what you had in the markup was Democrats and Republicans both talking about the same thing but saying different things.  Democrats assumed that people would opt out of buying health care and somehow interpreted that as Republicans taking their health care away.  It would be like me deciding not to eat at McDonalds for breakfast despite a coupon for a reduced-price meal (I have this app on my phone) and suddenly someone says that some government entity took my breakfast away from me.

Then we move to the other major discussion that was also politically motivated.  I am not talking about the tax rates and who benefits and who does not.  I would preface this discussion with the comment that even before a bill was drafted the Democrats began describing the bill as a giveaway to the wealthy and penalizing the middle class and poor.  Let me repeat that, there was no bill but they were already making the rounds with those talking points.

Below you will see the charts from the bill that outlines what the individual tax rates will be.

If taxable income is: Then income tax equals:
Married Individuals Filing Joint Returns and Surviving Spouses
Not over $18,650 10% of the taxable income
Over $18,650 but not over $75,900 $1,865 plus 15% of the excess over $18,650
Over $75,900 but not over $153,100 $10,452.50 plus 25% of the excess over $75,900
Over $153,100 but not over $233,350 $29,752.50 plus 28% of the excess over $153,100
Over $233,350 but not over $416,700 $52,222.50 plus 33% of the excess over $233,350
Over $416,700 but not over $470,700 $112,728 plus 35% of the excess over $416,700
Over $470,700 $131,628 plus 39.6% of the excess over $470,700
Married Individuals Filing Separate Returns
Not over $9,325 10% of the taxable income
Over $9,325 but not over $37,950 $932.50 plus 15% of the excess over $9,325
Over $37,950 but not over $76,550 $5,226.25 plus 25% of the excess over $37,950
Over $76,550 but not over $116,675 $14,876.25 plus 28% of the excess over $76,550
Over $116,675 but not over $208,350 $26,111.25 plus 33% of the excess over $116,675
Over $208,350 but not over $235,350 $56,364 plus 35% of the excess over $208,350
Over $235,350 $65,814 plus 39.6% of the excess over $235,350
Estates and Trusts
Not over $2,550 15% of the taxable income
Over $2,550 but not over $6,000 $382.50 plus 25% of the excess over $2,550
Over $6,000 but not over $9,150 $1,245 plus 28% of the excess over $6,000
Over $9,150 but not over $12,500 $2,127 plus 33% of the excess over $9,150
Over $12,500 $3,232.50 plus 39.6% of the excess over $12,500

 

What should jump out at you right away is the tax rates or what is normally referred to as the brackets.  The top rate is still 39.6% for high earners.  But on the bottom of the brackets show that taxes are going down in the lower brackets by raising the thresholds when the rates kick in.  What the Democrats seem to focus on is the dollars each taxpayer will receive in tax breaks but they never mention how much they are paying.  An example was Sen. Bennett (D-CO) talking about a waitress from Rifle, CO (every example he seemed to use came from Rifle, CO).  Just for those that are interested Rifle is a town along I-70 about halfway between Denver and Grand Junction.  He pointed out that she might make about $18,000 per year and she would get a small tax break.  He then compared it to someone living in Washington DC that makes $174,000 (guess what Members of Congress make) and how they would get more dollars.  He conveniently ignores that none of her income is taxable so she is not paying any taxes. He then adds two children to each of his mythical taxpayers and says she is still not getting the same break.  Again, he is oblivious to the fact that she is not paying any taxes.  What he and other Democrats really want is to collect money from one group of people and give it to another.

The Democrats went on and on about how the tax bill in front of them favored the wealthy at the expense of the middle class.  Then we pivoted to discussing the State and Local Tax deduction (SALT).  How many of older people remember when that acronym was applied to strategic nuclear weapons.  Suddenly the Democrats were defending the wealthy.  Now you might ask why and how they are defending the wealthy.  It is simple.  The wealthy are the ones that pay this tax.  In this country, about 30% itemize deductions on their tax returns and these tend to be higher incomes.  The states with the highest state and local income taxes also tend to be ones that elect Democrats.  The Democrats also ignore the report by the Joint Tax Committee (JTC) staff that says under the new bill about 95% of taxpayers will not itemize.  So who is defending the top 10% now?  One Republican Senator made the point that taxpayers around the nation are being forced to subsidize the benefits of those that live in high tax states.

On the business side, the Democrats were in full voice objecting to a cut in the corporate tax rate.  Over and over we heard some like Sen. McCaskill ask why companies could deduct expenses when individuals could not?  They also conveniently forgot that even President Obama had called for reducing the corporate rate to 22%.  But suddenly this was a give away to companies at the expense of the middle class.

This bill will head to the floor of the Senate where it’s future is uncertain.  Even under reconciliation rules, final passage is in doubt.  Sen. Ron Johnson (R-WI) announced he could not support the bill because it is too favorable to business.  Then you have Sen. Flake (R-AZ) who has not made a decision and since he is no longer reliable as a vote for Republican policies.  His fellow Arizona Senator John McCain loves to be in the limelight and be the decider and he could go either way.  Susan Collins (R-ME) has some problems with the bill and Sen. Murkowski (R-AK) is questionable.  That could spell trouble for Republicans seeking a win.

This is not a bad bill despite the talking points being used by Democrats.  It simplifies the code and makes it easier for millions of more Americans to file their own taxes.  If 95% of Americans can take the standard deduction they will be filing a one-page return.  The bill also puts some strong incentives in place for corporate America to invest in the United States.  The need to relocate will be gone and with a tax holiday for repatriating funds held overseas, we could see a huge influx of money to rebuild our economy.  Let’s hope we can finally get a tax bill done.

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