GOP passes tax reform
WASHINGTON—Last week, President Donald Trump signed the Republican-backed Tax Cuts and Jobs Act into law before heading to his private Mar-a-Lago golf resort in Palm Beach, Fla., for Christmas break. Congress approved the plan earlier last week, giving the president his first major Legislative victory after nearly one year in office.
The final version of the GOP tax plan was passed first by the House of Representatives, before heading to the Senate, where it ultimately passed as well. But, despite the tax plan being a hallmark of the Republican Party, it wasn’t a unanimous ‘yes’ for House Republicans, with 12 voting no. Among them were Long Island Reps. Peter King and Lee Zeldin.
“My goal in this tax reform mission has always been to ensure that the hardworking men and women of Long Island keep more of their paycheck, reduce their cost of living, and be able to save more for retirement,” Zeldin wrote in a statement. “While I like many aspects of this tax reform plan, too many of my constituents would not see tax relief under this plan as it is currently drafted. Adding back in the property tax deduction up to $10,000 was progress, but not enough progress. This fight is not over. I look forward to continuing negotiations to improve this proposal for my constituents. If I’m not fighting for my home state and my home district, I cannot expect another member of Congress from some other state to do that for me.”
Zeldin drew some criticism last month when he permitted Steve Bannon, the former White House chief strategist, to headline his re-election fundraiser in Manhattan. Bannon is best known for his involvement with “Breitbart News,” a far-right news website that has been accused of supporting white nationalism.
The other 10 Republicans who voted no were all based in California, New Jersey, New York and North Carolina. Not one House Democrat voted yes.
There was little time for analysis and debate before the Senate voted on the bill, which runs 479 pages and was arguably written in haste. Not only does the bill alter state and local taxes, it also allows oil drilling in Alaska and makes drastic changes to health care. The Affordable Care Act individual mandate ends on Jan. 1, 2019, meaning the fine for those who don’t have health insurance goes away. An additional 13,000,000 Americans are expected to lose health care from their insurance provider, according to a recent report by the Congressional Budget Office.
The bill is a big win for corporations and most of the rich in general. The corporate tax rate drops from 35 percent to 20 percent in 2019. It also allows businesses to bring back money they have stored in overseas accounts at a tax rate of 14.5 percent and write off the majority of their expenses for new buildings and other investments for the next five years. At the present time, U.S. businesses are taxed according to what they make all over the world. The new tax transitions to a new system where the same businesses will be taxed mainly on what they make inside the U.S. alone. The tax rate for millionaires also falls from 39.6 percent to 38.5 percent.
Only the wealthiest 1,800 Americans will have to pay the estate tax as well. At the moment, someone can leave up to $5.5 million in property and other assets after they pass away without heirs paying taxes on their estate. Inheritances above this amount are charged at a 40 percent tax rate. The Senate plan, though, increases the limit to $11 million for individuals and $22 million for married couples.
Perhaps to stay in line with the populist message the Trump team gave during the campaign, there is a “Harvard tax” that targets the nation’s elite private colleges, like Harvard, Princeton and Yale. While there is an understandable lack of sympathy amongst the working public for such universities, the tax bill mandates these colleges pay a 1.4 percent tax on earnings from their endowments, which come largely as donations from successful alumni and investors.
Less than one-third of Americans approve of the GOP tax plan, according to a Quinnipiac poll that was conducted from Nov. 29 to Dec. 4. The same poll put President Trump’s approval rating at 35 percent. Gallup’s daily tracking poll drew the same results. The same Quinnipiac poll found almost two-thirds of Americans (64 percent) believed the bill would mostly benefit the wealthy, while 24 percent believed it would mostly benefit the middle class.
President Trump has stated that Americans’ views on the plan will improve over time. “I view it more than anything else as it’s a tremendous bill for jobs and for the middle class,” he told reporters at the White House earlier this month. “And I think people see that and they’re seeing it more and more, and the more they learn about it, the more popular it becomes. And I think the end result will be even better.”
The bill keeps seven tax brackets, but it also cuts them at every level and raises many of the income thresholds, thus qualifying taxpayers for a higher bracket. The new top rate (38.5 percent) will apply to married couples making over $1 million, where the current top rate applied to married couples making $470,700. Most Americans (62 percent) will still see a tax cut in the coming years. But, the provision expires by 2026 and does away with many popular tax credits and savings in the long term.
These include the elimination of most of the state and local tax deductions and raising the alternative minimum tax threshold. There will also be larger standard deduction and child tax credit, but the personal exemption, which allows people to deduct just over $4,000 for themselves, their spouse, and each dependent, goes away. In order to compensate for the change, the bill makes sure the first $24,000 income for a married couple, and $12,000 for an individual, doesn’t get taxed. It also increases the child tax credit from the current $1,000 to $2,000.
Deductions for moving expenses and those who ride their bike to work are also going away, as is the ability to deduct losses from fires, shipwrecks, storms and theft. Airplane owners are in luck, however, as payments for management services will be taxed exempt. Other individuals who could expect a slight tax cut are brewers, vintners, distillers, parents of K-12 private school students, and those with large medical bills.
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