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THE REPUBLICAN TAX REFORM BILL, MORE SOS

THE REPUBLICAN TAX REFORM BILL, MORE SOS

Nearly six decades ago, the kitchen in my Boy Scout camp served a sausage puree that we called SOS. I won’t burden you, the reader, with the translation of that tri-letter acronym, but much of the Republican Tax Cuts and Jobs Act, HR1, reminds one of that puree.

Among the infirmities, the bill gives non-corporate business owners a 25% rate for proprietors’ business-related income (why not match the rate to the 20% tax rate for corporations?). But then the bill takes money back with a complex set of rules to assure that the business owners will not disguise personal income as business income. There was a similar give and take-back in Germany when the Army funded cheap booze to the troops through its Class VI stores and then funded an alcohol abuse program.

The highest tax bracket in the act remains 39.6%. This concession to the tax-the-rich troupe will gain the Republicans no credit. The macro-economic effects of keeping this bracket could be undesirable.

The bill features a Medicare D-style “donut hole” for higher incomes. There is a phase-out of the initial 12% rate for higher-income taxpayers, making the rate for that income effectively a recent historic high of 45.6% (48.6% if we add in the Obamacare surtax). Without making a social justice argument either way, this result is just plain goofy.

And marriage penalties abound. While the first bracket honors the institution, the upper brackets discourage it.

Awaiting dynamic scoring, we think the plan still may stimulate the present economy but add to deficit, debt, and unfunded liability over time. And most importantly, the plan remains an income tax. As such, income taxation will spawn evasion in the order of $9 Trillion over ten years according to economist Richard Cebula of Jacksonville University. And as an income tax, the plan will morph right back into today’s leviathan of a code as it already has, starting with the 25% business rate.

How should a member of the House vote? A member must vote on the bill as written and does not have the luxury of voting on an ideal bill. For sure, a “yes” vote on this bill has some justification. A bill that reduces seven tax brackets to four is a positive step. Lowering tax rates and curbing personal exemptions make sense. And the features of the bill that enable businesses to raise wages to employees, reduce prices to consumers, and compete more effectively at home deserve consideration.

But the House could vote “yes” only to have the bill run aground on the shoals of the Senate, as happened with the repeal and replace of the Affordable Care Act. Then what happens? In short, an ideal bill then gains a seat at the table.

The FAIRtax, HR25, S18, is the ideal bill. The FAIRtax replaces Subtitles A, B, and C of the Internal Revenue Code with a national tax on all services and new tangible goods sold at retail in the United States. A monthly refund in advance from the Social Security Administration for tax on essentials assures that this tax plan is fair, and even mildly progressive. There is no more tax form for individuals to submit by April 15. The bill has no marriage penalties or distortions.

The FAIRtax is rocket fuel for the economy because it ends the tax on the two ingredients needed to grow the economy, labor and capital, and does not add to debt, deficit, or unfunded liability. The House bill does not address any of these features. For more information, go to www.fairtax.org. Contact your Senator and Representative and tell him or her that you are tired of SOS. Demand that he or she co-sponsor HR25 or S18.

 

James M. Bennett

Summit, N.J.

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