It’s All So Taxing .. Winners & Losers … Details, Details, … A Stinker … Where’s My Chair(man) … Charged Up … 5 Books To Make You Less Stupid About The Civil War … and other news of the week.
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It’s All So Taxing
theSkimm “Yesterday, House Republican lawmakers unwrapped their plan to overhaul the US tax code. If passed, this would be the biggest rewrite in more than 30 years.
There’s a lot in the package (see below for details). What’s next? Lawmakers huddle up and take a red pen to this draft. The GOP is aiming to finalize it and put it to a vote before Christmas. They could pass it without any Dems on board. Republicans say this is a once-in-a-generation chance to clean up a really complicated tax code. Democrats say the fine print shows this is mostly a handout to corporations and wealthy Americans. TBD how much of this plan gets changed before the final vote.”
Politico “The fanfare surrounding the House GOP tax plan on Thursday masked a brewing storm in the other chamber. Senate Republicans will have to sway a host of GOP swing votes as they try to jam through their own tax overhaul with almost no margin for error. Fiscal hawks are squawking about how tax legislation could balloon the deficit. Moderates like Sen. Susan Collins of Maine are worried tax cuts will disproportionately favor the rich. Even an Obamacare-related row could bubble up and trip up passage. “While a small handful of Democrats might get on board, it’s more likely Republicans will have to go it alone – meaning they can lose just two GOP votes before their tax bill tanks. Here’s a look at the groups of Republican senators that Majority Leader Mitch McConnell and the Senate’s chief tax writers will have to satisfy to get a bill through their chamber: The deficit hawks: Bob Corker, John McCain, Jeff Flake … The moderates: Susan Collins and Lisa Murkowski … The perennial leadership headaches: Rand Paul and Ron Johnson … The demanding conservatives: Mike Lee, Tom Cotton, Ted Cruz.”
Winners and Losers
NYT’s “Veterans of previous efforts to rewrite the tax code warn that overhauling the tax code is hard because it creates winners and losers — and the losers fight harder than the winners to make sure the legislation fails.The tax plan released by House Republicans on Thursday did not disappoint, cutting taxes and erasing popular deductions in ways that would reorient big chunks of the American economy.
The bill loses revenue in some areas and raises it in others, and those are where the battle lines will be drawn in the coming weeks, as members of Congress scramble to pass a law that President Trump wants to sign by Christmas.
“[Winners]: Business (Slashing the corporate tax rate to 20% from 35% would be a boon to firms that for years have complained of being shackled by high taxes.) … Multinational corporations (The plan levies a 10% global minimum tax on overseas earnings, but that’s still far below the current 35% they need to pay on income that’s returned home. In theory, the new system will reduce the “lockout” effect that encourages firms to stash cash abroad.) …. Some middle class families (The tax plan would collapse the income tax brackets to three from seven and nearly double the standard deduction, meaning many middle class families would see smaller tax bills. However, this impact will vary depending on every taxpayer’s individual situation.) … The rich and their families (The top tax rate for millionaires holds steady at 39.6%, while the estate tax and the alternative minimum tax or A.M.T. — which hit primarily wealthy Americans — are ultimately eliminated.) … Hedge funds and other general partners (The tax plan does NOT get rid of the so-called carried interest loophole – Carried interest is essentially the profits reaped by hedge fund managers and private equity executives, and it is currently taxed at a long-term capital gains rate that is about half the roughly 40% ordinary income rate for the highest earners….
[Losers]: The real estate industry (The tax plan doubles the standard deduction and caps the mortgage interest deduction at $500,000, down from $1 million. It also caps property deductions at $10,000. This significantly weakens a tax incentive that has encouraged many Americans to buy homes rather than rent.) … The sick (The deduction for medical expenses would be eliminated.) … Charities (While charitable deductions are preserved in the plan, middle class families that take advantage of the larger standard deduction could be less likely to give to charity as a way of reducing their taxable income. This, in turn, could mean less giving.) … University endowments (Private universities are exempt from the tax that private foundations pay on their investment income. The Republican plan, would levy a 1.4% excise tax on private colleges and universities with at least 500 students and assets that are valued at $100,000 per full-time student.) … Rare disease sufferers (tax plan calls for the repeal of a tax credit that drug companies use to perform clinical testing for drugs that treat rare diseases) … The deficit (the plan adds $1.5 Trillion to the federal debt over a decade)… Tesla (and electric car owners) – the plan repeals the tax credit for tax payers who own a qualified plug-in electric drive motor vehicle).”
“Tax Cuts and Jobs Act”… The bill’s release ends weeks of speculation and closed-door negotiations concerning the contents of the reform package. Some principles set forth in the unified framework for tax reform released by the “Big Six” in September were confirmed in the legislative text, while others were scaled back to appease certain lawmakers and interest groups whose strong reactions to specific provisions of the framework have made headlines in the last several weeks.
The following is a summary of the key provisions of the bill. (Click Here for the Capstone Blog and more information that may be helpful in identifying additional issues of interest that are not addressed by this summary.)
FOR BUSINESSES – small and large – the legislation aims to enhance the competitiveness of the U.S. tax code, particularly on the international stage, by providing incentives for companies to keep jobs in America rather than moving them offshore. Major reforms include:
- Corporate tax rate: The legislation would replace the current system of graduated income taxation for corporations – topping out at 35 percent – with a flat, across-the-board corporate tax rate of 20 percent.
- Pass-through tax rate: The bill would lower the tax rate on the “business income” of pass-through entities such as partnerships and S corporations to 25 percent. The proportion of an entity’s overall income eligible for the reduced rate would generally be 30 percent, unless otherwise justified by the facts and circumstances. The legislation includes new safeguards to prevent individual wage income from being taxed at the new, reduced business income rate, as well as a presumption that all income earned by certain personal services businesses is wage income subject to tax at the otherwise-applicable rates of the individual owners.
- Shift to territorial taxation: In a departure from the current approach to taxing the earnings of American corporations on a worldwide basis, the bill would shift to a dividend-exemption territorial system.
- Repatriation of foreign earnings: In connection with the transition to a territorial system, the legislation would levy a one-time tax on corporate earnings and profits currently held overseas at a rate of 12 percent for cash holdings and 5 percent for illiquid holdings.
- Base erosion and profit shifting: The bill includes measures to limit opportunities for tax avoidance through the reporting of income in low-tax jurisdictions, including by imposing a 50 percent tax on certain “high returns” of overseas subsidiaries, and by imposing an excise tax on certain foreign related-party transactions.
- Interest expense deductibility: The reform plan caps the deduction of net interest expense in excess of 30 percent of an entity’s adjusted gross income, but exempts small businesses – defined as those with average gross receipts under $25 million – from the new cap.
- Expanded business expensing: The legislation would allow businesses to fully and immediately expense the cost of certain qualified property placed in service between September 27, 2017 and January 1, 2023. In addition, the bill would increase the phase-out amount and make certain other enhancements to the small business expensing provision under section 179.
- Retains the research and development and low-income housing tax credits, among others.
INDIVIDUAL & FAMILY PROVISIONS The legislation makes a number of major changes to the current tax code aimed at simplification of the tax-filing process, reducing tax rates, and providing assistance to families. Key provisions include:
- Individual tax rates: Seven individual income tax brackets become four in the legislation, at 12 percent, 25 percent, 35 percent, and 39.6 percent. The top tax bracket will apply to married couples making over $1 million per year and individuals making over $500,000 per year. The bottom tax bracket applies to married couples making up to $90,000 per year and individuals making up to $45,000 per year.
- Standard deduction: The bill nearly doubles the standard deduction – from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples – and preserves “head of household” filing status, allowing individuals a standard deduction midway between the level for individuals and married couples.
- Child tax and related credits: The reform draft increases the child tax credit from $1,000 to $1,600, and allows a $300 credit for each parent and each non-child dependent.
- Estate tax: The plan gradually works toward complete elimination of the estate tax beginning in 2024 via an immediate doubling of the exemption – currently $5.6 million per person and $11.2 million per married couple.
- Home mortgage interest: The bill reduces the maximum allowable home mortgage interest deduction from $1 million to $500,000 for new home loans and grandfathers in existing loans.
- State and local tax deduction: The legislation partially repeals the deduction for state and local taxes by allowing taxpayers to deduct only up to $10,000 of their state and local property taxes – leaving no deduction for state and local income and sales taxes.
- Retirement savings plans: The reform leaves largely untouched retirement savings plans like 401(k)s and IRAs.
- Alternative Minimum Tax and other repeals: The bill eliminates the Alternative Minimum Tax (AMT), the itemized deduction for medical expenses, and the tax credit for adoption.
“This bill is like a dead fish. The more it’s in sunlight, the more it stinks, and that’s what’s going to happen.”
– Sen Chuck Schumer (D-NY) said in an interview with Washington Post reporters hours after House Republicans released a draft tax bill.
Goldman Sachs Speaks
Lloyd Blankfein, Goldman’s CEO tells Bloomberg that he “can’t say this is the moment where you want the most fiscal stimulus in the market, when we’re mostly at full employment, when GDP last registered at 3%. I don’t know that this is the moment that you provide the biggest stimulus.” Instead, he advocates encouraging growth through deregulation.”
NYTs “Economists are still parsing the details, but even some ardent supporters of the plan say expectations about heady growth and job gains are exaggerated. Interest rates are already at bargain-basement levels, plenty of potential investment capital is sloshing around, and the official jobless rate is at lows not seen in many years. Moreover, the cost of the tax package will inevitably deepen the deficit and lead to spending cuts that are likely to hit low- and middle-income workers.”
Where’s My Chair?
Yesterday, President Trump nominated Jerome Powell as the next Federal Reserve chairman. The Fed is in charge of keeping unemployment low and deciding how much it costs to borrow money. This is the first time in decades that a new president hasn’t reappointed the current Fed chair. Now if Powell’s confirmed, Fed Chair Janet Yellen will pass the torch when her term’s up early next year.
A GAMBLE WSJ “Trump’s selection of Federal Reserve governor Jerome Powell … is something of a gamble. Unemployment is at a 16-year low, economic growth is picking up, the stock market is setting records, and yet he’s changing leaders at the institution most responsible for all of that. As gambles go, it looks like a safe one. Of all the candidates Mr. Trump considered after deciding not to keep on Ms. Yellen, Mr. Powell’s temperament and views come closest to hers. He believes the Fed should use all available tools—bond buying, interest rates and verbal guidance—to get unemployment down and keep inflation at its target of 2%. He backs the regulatory framework put in place under President Barack Obama, albeit with less strict implementation. Mr. Powell’s job will be turning those beliefs into effective policy.”
WHO IS JAY POWELL? The 64-year-old Mr. Powell has been a serving Fed governor since 2012. A centrist on monetary policy, he is known as a pragmatic and down-to-earth official with private sector and government experience. A trained lawyer and former partner at private equity firm Carlyle, he also served in the Treasury under former president George H W Bush in the 1990s. Underlining the sense of stability he is expected to bring to the role, Mr. Powell said he would continue to work with colleagues ‘to ensure that the Federal Reserve remains vigilant and prepared to respond to changes in markets and evolving risks’.”
Rep. Lamar Smith (R-TX) announced he is not running for re-election in his San Antonio-and-Austin area seat. Rep. Jeb Hensarling (R-Texas) also announced this week he wouldn’t run again for his Dallas-area seat. Twenty-six Republicans have either resigned, are resigning, retiring or not seeking re-election to their seat this congress.
Stop Right There
theSkimm “Monday, a federal judge put President Trump’s transgender troop ban on hold. Earlier this year, Trump unexpectedly reversed the Obama-era policy of allowing transgender troops to openly serve, saying it was too expensive to cover their medical costs. Transgender troops and LGBTQ groups sued, saying this is discrimination. Now this judge says they have a pretty solid case, and is pausing the ban while it makes its way through the courts.”
Empty Seats At DOD
MorningD “As of Monday, only 16 of the top 59 civilian jobs in the Defense Department have been filled by the Trump administration. Yesterday, McCain’s SASC ]held] a nomination hearing for four critical posts: secretary of the Army; under secretary of defense for personnel and readiness; under secretary of defense for intelligence; and assistant secretary of defense for nuclear, chemical and biological programs. The nominee for Army secretary was pressed Thursday on his role as Raytheon’s top lobbyist as SASC Chairman John McCain renewed his warning to President Donald Trump not to tap any more executives from the defense industry for top Pentagon posts. Mark Esper and three other top Pentagon nominees largely cruised through their Senate Armed Services confirmation hearings. But Esper also fended off questions from Sen. Elizabeth Warren (D-Mass.) over his involvement in lobbying on Army programs for Raytheon, one of the so-called Big Five defense contractors….
Joseph Kernan, Trump’s nominee for undersecretary of Defense for intelligence, frustrated senators for his inability to identify one official responsible for leading the nation’s cyberdefenses. Last week, the Senate also approved David Trachtenberg as the new principal deputy undersecretary of defense for policy. … Twenty-three nominees are still waiting for their Senate hearings, while the Trump administration has failed (refused?) to nominate anyone for 18 other positions.”
Politico “Special Counsel Robert Mueller’s first charges in his sprawling Russia investigation were a one-two blow. … While the White House had been girding for a Manafort indictment, senior officials were caught off guard by a more unsettling development – a plea deal with George Papadopoulos, a former campaign adviser who said he lied to the FBI about conversations with Russia-linked officials, in which he was promised ‘dirt’ and ‘thousands of emails’ regarding Hillary Clinton.”
NYTs “The guilty plea of a 30-year-old campaign aide — so green that he listed Model United Nations in his qualifications — shifted the narrative on Monday of the Trump campaign’s interactions with Russia: Court documents revealed that Russian officials alerted the campaign, through an intermediary in April 2016, that they possessed thousands of Democratic emails and other ‘dirt’ on Hillary Clinton. That was two months before the Russian hacking of the [DNC] was publicly revealed and the stolen emails began to appear online. “The new court filings provided the first clear evidence that Trump campaign aides had early knowledge that Russia had stolen confidential documents on Mrs. Clinton and the committee, a tempting trove in a close presidential contest. … The disclosures added to the evidence pointing to attempts at collaboration between the Trump campaign and the Russian government, but they appeared to fall short of proof that they conspired in the hacking or other illegal acts.”
WHO IS GEORGE PAPADOPOULOS? Politico “He seemed to emerge out of nowhere: George Papadopoulos was a low-level foreign policy adviser to Donald Trump virtually unknown even within Washington national security circles. But on Monday, news that the young energy consultant struck a plea agreement with special counsel Robert Mueller made Papadopoulos’s opaque background and murky role within Trump’s campaign one of the most important mysteries in American politics. … A court transcript released Monday night referred to Papadopoulos’s ‘ongoing efforts to cooperate’ with Mueller’s probe-raising the question of whether he could incriminate other Trump associates.”
WHERE IS BOB MUELLER HEADED NEXT? Politico Magazine
Five Books To Make You Less Stupid About The Civil War
The Atlantic’s Ta-Nehisi Coates “On Monday, the retired four-star general and White House Chief of Staff John Kelly asserted that “the lack of an ability to compromise lead to the Civil War.” This was an incredibly stupid thing to say. Worse, it built on a long tradition of endorsing stupidity in hopes of making Americans stupid about their own history. [Still] … one can choose to not hear stupid things and quietly nod along.
For the past 50 years, some of this country’s most celebrated historians have taken up the task of making Americans less stupid about the Civil War. These historians have been more effective than generally realized. It’s worth remembering that General Kelly’s remarks, which were greeted with mass howls of protests, reflected the way much of this country’s … intellectual class once understood the Civil War.
One quick note: In making this list I’ve tried to think very hard about readability, and to offer books you might actually complete. There are a number of books that I dearly love and have found indispensable that are not on this list. But this is about being less stupid. We’ll get to those other ones when we talk about how to be smart.
Battle Cry of Freedom: Arguably among the greatest single-volume histories in all of American historiography, James McPherson’s synthesis of the Civil War is a stunning achievement. y James McPherson
Grant: Another classic in the Ron Chernow oeuvre. Again, eminently readable but thick with import. It does not shy away from Grant’s personal flaws, but shows him to be a man constantly struggling to live up to his own standard of personal and moral courage. It corrects nearly a half-century of stupidity inflicted upon America by the Dunning school of historians, which preferred a portrait of Grant as a bumbling, corrupt butcher of men. Finally, it reframes the Civil War away from the overrated Virginia campaigns and shows us that when the West was won, so was the war. Grant hits like a Mack truck of knowledge. Stupid doesn’t stand a chance.
Reading the Man: A Portrait of Robert E. Lee: Elizabeth Pryor’s biography of Lee, through Lee’s own words, helps part with a lot of stupid out there about Lee—chiefly that he was, somehow, “anti-slavery.” It dispenses with the boatload of stupid out there which hails the military genius of Lee while ignoring the world that all of that genius was actually trying to build.
Out of the House of Bondage: A slim volume that dispenses with the notion that there was a such thing as “good,” “domestic,” or “matronly” slavery. The historian Thavolia Glymph focuses on the relationships between black enslaved women and the white women who took them as property. She picks apart the stupid idea that white mistresses were somehow less violent and less exploitative than their male peers.
The Life and Times of Frederick Douglass: The final of three autobiographies written by the famed abolitionist, and my personal favorite. Epic and sweeping in scope.”