House Tax Proposals Are A Great Start

It’s very early in the game, but a few comments about the tax proposals by the House are in order. The opposition to reform is twisted and unproductive as usual. And the selfish perspectives of lobbyists for their constituencies is disappointing. My overall observation is that there is something for every American in this controversial bill. We all need to be patient and see how negotiations proceed in Washington .

It comes as no surprise that some lobbies are bitching about an unfair distribution of benefits. They always act this way and care little about the overall good of the country. As everyone expected, Democrats started bad-mouthing the bill even before they saw the actual proposal. They would do anything to stop the bill for political reasons regardless of its benefit to the country .

To be clear tax benefits are capped at $1.5 trillion to avoid a filibuster by Democrats. House Republicans did a masterful job navigating through all of the opposing voices. In fact just about every interested party is being required to give a little.

The tax benefits are divided 2/3 for businesses and 1/3 for middle class taxpayers, or $1 trillion and $500 billion respectively. The business tax cut will make the US more competitive globally and will help stem the tide of corporate relocations overseas. This will have a far reaching impact on all Americans that is difficult to quantify. Suffice it to say, US businesses will be more profitable, as their tax rate shrinks from 35% to 20%.

With higher profits at home, fewer companies will transfer manufacturing to cheaper places abroad, so job opportunities will increase at home. Corporations will be under pressure to share higher profits with employees if the tax plan is effective, so workers should see their paychecks increase over time.

Stockholders in major companies will see higher prices for their holdings. This will benefit wealthy investors, and small investors through their 401Ks and pension plans.

Several trillion dollars that is invested overseas will return to the US as the repatriation rate is reduced. This flow of cash will be invested in American enterprises and/or distributed to shareholders (see previous paragraph).

No longer will corporations be able to transfer earnings to their overseas subsidiaries to avoid taxes. The new law will impose a global tax on corporations so that their profits worldwide are subject to taxation in the US.

There is an array of tax benefits to the middle class including lower tax brackets and assorted tax credits. The simplification of the tax return will please taxpayers and have a supplemental benefit that few have discussed to this point. It will dramatically decrease the ability of taxpayers to cheat. It is estimated that the US lost $305 billion of revenue in 2010 from tax evaders.

As far as the affluent are concerned, there will be no reduction their tax rate. Yet the bill provides other benefits to them. One is something mentioned earlier, stocks will rise as corporations earn more because they pay less taxes. But also, a multi-year decrease in the estate tax will reduce and eliminate the unfair double tax jeopardy than Americans face when they die. These alone will more than compensate the affluent for other increases in their tax liabilities.

Lobbyists for continued deduction of state an local taxes and mortgage expenses are screaming bloody murder. They say housing prices are going to come crashing down. If the country’s fortunes increase as expected the loss of these benefits will be offset by lower personal taxes and improvements mentioned earlier.

There is a lot to like in the new bill, and it will change for the better over the next few weeks. Our country needs this reform and all American in one way or another will benefit. We should not allow greedy lobbyists political ideology to distort the impact of any specific proposal. The tax bill needs to be considered as one gigantic package.

 

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