…the national debt. It will be such a pressing issue that we’ll have to make huge cuts in social security and stop paying greedy teachers their lavish salaries.
4 winners and 3 losers in the Senate tax bill
Winner: corporations. Loser: charities.
Updated by Dylan Matthews@dylanmattdylan@vox.com Dec 2, 2017, 1:55am EST
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The tax bill the Senate passed Friday is a sweeping piece of legislation, transforming the US health care sector, higher education, philanthropy, and, of course, the federal tax code. It’s a major policy change that creates big winners and big losers across the country, and even internationally — and fulfills a goal for Republicans who have struggled to pass their legislative agenda all year.Here’s who winds up ahead, and who winds up behind.
Winner: Corporations of every shape and size
The cornerstone of the tax bill, the change that’s permanent and enduring and that even a future Democratic administration is unlikely to fully reverse, is its reduction of the corporate income tax rate from 35 percent to 20 percent.This fulfills a longstanding demand of corporate executives and lobbyists, who complain that the statutory corporate tax rate charged in the US is higher than in peer countries; indeed, it’s the highest in the OECD grouping of rich developed nations. Our high rate, however, is offset by copious tax breaks and the ease with which the US allows companies to move profits to tax havens overseas, which means that the effective rate US corporations pay isn’t much different from that companies in other rich countries pay. The effective tax rate paid on profits from new investments in the US was about 24 percent in 2014.
A longstanding goal of both Democratic and Republican politicians has been to bring the statutory rate down from 35 percent by closing tax breaks in the corporate code. In theory, it should be possible to get the statutory rate closer to the 24 percent effective rate that way. The Obama administration had a plan for revenue-raising corporate tax reform with a tax rate of 28 percent, though it didn’t specify many tax breaks it wanted to close to pay for that.
Republicans in Congress and the Trump administration, by contrast, have opted for a 20 percent rate, lower than the effective rate, all but ensuring that overall taxes on corporations will be lowered. They also haven’t closed many tax breaks; they continue to let businesses deduct some of the interest they pay on loans, and don’t touch the large research and development tax credit, or the credit for low-income housing developers.
They make it easier for companies to move profits overseas by adopting a territorial system where profits earned abroad are taxed at a lower rate, and sometimes not taxed at all. They also offer a much lower rate for companies that decide to bring back profits currently parked overseas; this corporate tax “holiday” encourages future tax evasion by setting a precedent that evasion will be rewarded with special breaks to bring the money back.
And Republicans add a big new tax deduction for corporations by, for five years, letting companies deduct the full value of their investments. A lot of economists like this provision and think it’s good for growth. But it costs a substantial amount of money.
How do Republicans pay for all this? In the short-run, they don’t, and just add $1 trillion or more to the federal debt. In the long-run, they raise taxes on individuals and limit health care aid through ending Obamacare’s individual mandate. After ten years, the bill is basically a tax hike on individuals, particularly poorer individuals getting Medicaid or insurance subsidies, to pay for corporate cuts.
