With Democrats reduced to nonentities, Republicans wrapped up round 2 of their tax-cutting effort over the weekend with the Senate rushing through a 479-page bill with handwritten additions in the margins.
Public hearings? Nope. In this era of instant gratification, that’s so yesterday — or 1986 when Republicans took six months to overhaul the tax code.
The Senate bill was approved, 51-49, with Sen. Bob Corker of Tennessee, the “Last Jedi” of GOP deficit hawks, deferring. Now both chambers will attempt to reconcile differences in a conference committee in round 3 before handing President Donald Trump his Christmas present.
The Joint Committee on Taxation — the congressional analysts — estimates the Senate tax plan would boost the federal debt by $1 trillion using Republicans’ preferred “dynamic scoring” — $1.5 trillion in revenue lost defrayed by an economic boost.
The federal debt is $20 trillion and counting, after a fiscal year 2017 deficit of $666 billion.
The JCT estimates an economic gain of 0.8 percent year-over-year in the gross domestic product, while Republicans are relying on much rosier predictions from conservative economists.
Historically, tax cuts have generated an economic boost offsetting revenues lost by a third.
If Republicans’ math is wrong, dramatic cuts would be required to offset revenue losses because of the 2010 “Pay As You Go Act” — initially approved during the George W. Bush administration and revised under President Barack Obama.
A few items would be immune, notably Social Security, the postal service and mandatory programs such as unemployment benefits and food stamps. Allocations for virtually everything else — from Medicare to Farm Security to the Military Retirement Fund — could be slashed.
Republicans still must bridge significant differences.
The statutory corporate tax rate would decline from 35 percent to 20 percent in both bills. The Senate would delay implementation for a year. The House bill eliminates a number of corporate deductions.
Both houses would recapture money earned in the U.S. by American and foreign companies that have used overseas ploys to avoid payments, but each tackles it differently.
Small businesses, whose owners pay taxes at the individual rate, would benefit from a 25 percent “pass through” rate approved by the House. It attempts to close loopholes allowing wealthy individuals to convert themselves into entities entitled to the lower rate.
The Senate avoids that Pandora’s box by offering a higher deduction for investments — 23 percent from 17.4 percent.
For individual taxpayers, various factors are in play. The House bill collapses the current seven tax brackets into four. The Senate retains seven brackets, while changing the income levels.
The standard deduction used by nearly 69 percent of all households would almost double from $6,350 for single filers and $12,700 for married couples filing jointly. But the personal exemption of $4,050 would be history, as well as the $1,300 for those older than age 65, blind or disabled.
Families, though, would get a boost in the child tax credit from $1,000 to $1,600 in the House bill and $2,000 in the Senate, which lifts the income ceiling from $110,000 to $500,000.
The 30 percent of itemizers will look closely at the finished product.
The state and local tax deduction would have a $10,000 cap. Unreimbursed employee expenses, home office expenses and tax preparation expenses would be gone.
The House bill eliminates the medical deduction — a big hit for the elderly — and teachers’ classroom expenses of $250. The Senate wisely leaves both intact, doubling the teachers’ deduction.
The House halves the cap on the mortgage interest deduction at $500,000. The Senate leaves it alone.
Both double the exemption for the “estate tax” — inherited wealth — to $11 million. The House would repeal it entirely in 2024, the Senate in 2025.
In addition, the Senate repeals Obamacare’s individual mandate to buy health insurance. The House doesn’t.
The Joint Committee on Taxation concludes the 80 percent of Americans earning $50,000 to $75,000 would get a tax cut, which the nonpartisan Tax Policy Center puts at an average of $850.
The Tax Policy Center estimates the wealthiest Americans would get 62 percent of the benefits by 2027, while those earning less than $75,000 would have a tax increase by then. The Senate’s lower brackets expire in 2025.
Of course, the wealthy pay the lion’s share of taxes — the top 20 percent paid 94.8 percent, according to a 2016 Treasury Department report.
A modest corporate tax cut is in order to put the U.S. more in line with other industrialized nations. The question is whether one of this magnitude will stimulate growth and improve wages in an economy supposedly at full employment — or just increase stockholder dividends.
If an economic surge doesn’t materialize, expect budget cuts that hit the poor and many popular programs. If that’s the swamp, it could be drained.