Tax cut bill shrouded in myths, pure politics

The tax bill to be finally adopted by Congress before the end of the year has produced of a series of myths, mainly the result of its rushed legislative process.

These myths result from ignorance of its content and its economic and political effects. They are separate from the purely partisan debate about who gets what and how much.

Myth 1. We know what the impact of the tax bill will be.

It is designed to give major cuts to the wealthy and corporations to make more job-creating investments. The middle class will supposedly gain. And it will the biggest tax cut in history.

We have no way of knowing what the recipients of the largest tax cuts will do. If they invest, reflecting the most favorable view of the bill, tax revenues from a booming economy might cover the cost of the cuts. If they keep the money, the tax cuts will boost the deficit.

It is impossible to measure tax cuts comparatively, and they vary by income. And we will never know if this really is the biggest reduction. As for the middle class, many will gain a little and some will pay more. Nobody now knows where he or she stands.

Our inability to understand the impact of the tax cuts is partly because we don’t know what all the tax cuts are. The bill is a Christmas tree, decorated with special tax gifts for limited groups.

Some of the tax cuts were added out of sight of the members of the Senate just before they voted on the bill. Looking at the bill, you will see handwritten notes adding and changing provisions. Senators had no way of knowing what they voted on.

Myth 2. The tax bill will simplify taxation.

Its advocates claimed it would simplify paying taxes. The tax code was only simplified by eliminating benefits for average taxpayers. For example, the code drops personal exemptions. And people in high income tax states, like Maine, will suffer from the deletion of a tax deduction for state taxes.

The bill is criticized for being over 400 pages, as if that is an indication of how bad it is. But that’s just another myth. When Congress changes any law, the language required to do something simple may take a lot of words. It’s the content that counts.

Myth 3. The tax bill was given careful consideration.

In fact, the bill was passed in the House and Senate in a hurry, though there was no need to rush. But the GOP wants at least one big legislative win in 2017 to show it was worth turning the entire federal government over to them.

If merely having a bill was more important than what it contained, they will have succeeded. That approach opened the way to all the special interest deals in the middle of the night.

The Republicans wanted to make sure they could pass the bill without any Democratic votes. They know that now they have just barely enough of a Senate majority to pull that off. They avoided the risk of achieving fewer cuts if they proceeded more carefully.

Myth 4. This tax bill makes permanent changes in the tax code.

Republicans eliminated the ability of a Senate minority to block action. When the Democrats regain a congressional majority, they can amend and repeal the Republican cuts and add some of their own.

The chances of laws swinging wildly back and forth with the change of parties should encourage cooperation and moderation. Not this time. Candidates may claim they can work with the other side, which is what voters want. But once they are in office, they follow the party line.

The last major tax bill in 1986 came during the administration of Ronald Reagan, the model of a conservative Republican president, and it had strong Democratic support. That was real, revenue-neutral tax reform. This year’s bill isn’t; it’s a revenue-losing tax cut.

Myth 5. This is a tax bill.

Not exactly. The Senate version would eliminate the Affordable Care Act mandate, which will mean millions lose their coverage and many will face higher insurance premiums. And it would allow oil drilling in the Alaska National Wildlife Refuge.

This bill is supposedly about cutting taxes for middle-income people. Whether it succeeds in cutting taxes or in creating jobs won’t be known for at least a year.

But the bill is really meant to score political points for its supporters in the 2018 elections. Watch for these myths in that political campaign.

New round in fight between government and private sector

When you hear the term “net neutrality,” do your eyes glaze over?

It may sound techie, but it is about the major issue of the day: the roles of government and private enterprise.

The Internet was a creation of the U.S. Defense Department, allowing almost instant communication between computers. It was soon made available for commercial use so that all computer users could access the Internet. To do so, they must normally use an Internet Service Provider (ISP).

Sharply different views have appeared over what kind of access people should get when they use the Internet. One view – net neutrality – is that the Internet is like a highway and should be open to all to reach any content on an equal basis. The alternative view is that ISPs can manage user access for their own profit.

Under President Obama, the U.S. adopted net neutrality. Now, under President Trump, federal regulators have decided to allow competitive use so that ISPs can control access.

The competitive approach means, for example, that ISPs provide service at differing speeds, direct searches to certain sites and products and away from others, and make it difficult to reach their competitors. The fastest service will cost more. If you don’t pay premium rates, your access will be slower.

By managing access, ISPs should be able to boost their profits. And they will create classes of users based on how much they pay.

Net neutrality is based on non-discriminatory access regulated by the government. The new system eliminates much of a government role and leaves the Internet to the private sector.

This is a classic case of the two competing economic views. Should the government regulate to ensure equality and wide public access or should the system be left to the private sector, protecting what are seen as the liberties of people and enterprises?

In short, however technical it may seem, the issue of net neutrality is new round in the fight between government and the private sector.

Much the same difference in views is the focus of the battle about the Affordable Care Act. The traditional system has been to leave health insurance coverage to competing private companies. That system produced coverage for many, but left millions of others without insurance, limiting their ability to get good care.

Because many people were uninsured under the competitive system, the federal government introduced Medicare for seniors, Medicaid for low-income people and, finally, the ACA, which is meant to subsidize coverage for most other people who had been left uninsured.

This year, the Republican Congress has tried to reduce or eliminate the ACA and cut back on Medicaid, permitting a return to the old, competitive model. They focused on private sector action over government programs and their cost. The model is more important, in this view, than covering the uninsured.

The current tax cut legislation reflects the same divergence of views. The GOP proposals would cut taxes more for the wealthy than for the middle-class and poor. The Republicans maintain that more money in the hands of the wealthy and corporations will lead to more investment in job-creating enterprises.

The Democrats would give biggest cuts to middle-income people who would spend more of their income. While the GOP approach relies on the private sector to promote personal income and growth, the Democrats favor more direct boosts to individual purchasing power.

These divergent views are repeated throughout the national political debate. Will the environment be protected through a competitive market or thanks to government regulation? If competition yields more jobs and profits in preference to better air quality, is that a fair trade-off?

What is the extent of government responsibility for assisting the poor? Should there be government income support programs or should the country rely on charitable aid, possibly encouraged by tax deductions?

As you have read this column, you may have answered these questions in the national debate. These issues are worth consideration. This debate is worth having.

But the main issues are often obscured by partisanship. It is more important for some that their party wins on an issue than the substance of the issue itself. Members of Congress line up on some bills even before they know their content.

Some political leaders try to obscure these basic issues by promoting “wedge” issues like abortion and guns. They expect voters to give them a blank check in return for their position on a single sensitive issue.

The American political system depends on compromise. But getting agreement on basic issues is impossible when partisanship and wedge issues dominate the debate.

Tax cut would bring big increase in national debt

Tax reduction is the hotly discussed issue of the day, but almost no attention is paid to its most important effect.

If any tax bill were passed, it would add about $1.5 trillion to the federal deficit. Trillion.

The added deficit would have to be financed by borrowing, and the national debt would grow beyond its current level of about $20 trillion. The instant gratification of a tax cut will bring delayed pain for future generations. Today’s grandchildren get to pay the bill.

We know this, because Congress intentionally set it up to work that way. All Senate Republicans and all but 20 House Republicans voted for a phony federal budget authorizing the new deficit spending. A deficit increase cap would allow the tax bill to pass without a single Democratic vote in the Senate.

That meant a once numerous Washington bird has almost disappeared. When Democrats proposed deficit spending, the GOP opposed and fought to prevent any more debt. They became known as “deficit hawks.” With the exception of a couple of Republican senators who won’t run again, the hawks have flown.

This deficit game has led to even worse moves. To keep the total shortfall under the cap, the Republicans would make the corporate tax cuts permanent, but the much vaunted help for middle income taxpayers would only last five years. The GOP tax cutters say the middle income tax cut could be extended later.

If they are right and Congress later makes the middle class cuts permanent, the true deficit increase will be more than $2 trillion. In the meantime, corporations get priority over people.

Candidate Donald Trump promised to eliminate “carried interest,” a complicated tax break for the wealthiest. It survives, while deductions for state and local taxes would disappear. It looks like a cosmetic change to the loophole would be made, but the give-away to hedge fund bosses would remain.

How can this preference be justified? Tax cut advocates claim that reduced taxes will leave corporations more money to invest in expansion, thus producing more business activity and jobs, which in turn would produce more tax revenues. If this theory works, the tax cuts won’t add to the deficit.

There’s no way of knowing what corporations will do with more money and if their actions will boost tax revenues. Congressional experts look at the measurable tax cost, while tax cut advocates prefer “dynamic” studies, showing the hoped-for tax growth.

Both ways of looking at the effect of tax law changes are imperfect. Experts lack the tools to forecast accurately revenue gains from tax cuts, if any. Advocates feel free to sell their proposals by relying on unproven optimistic projections. The only known fact is that on Day 1, there will be massive growth in the federal deficit.

Congressional Republicans want to pass the tax cuts quickly for two reasons. President Trump had has no major legislative victories in his first year in office, and his party wants to hand him a win.

Also, GOP congressional candidates promised to kill the Affordable Care Act and to cut taxes. After failing to do the first, they want to produce a tax cut before the 2018 elections to show they keep their promises. Interestingly, polls show that many people don’t care about tax cuts.

To find money to keep the deficit within limits, the Senate bill would end the ACA requirement to buy health insurance, whose premiums are eligible for federal subsidies. No requirement to buy means no subsidies and more money for tax cuts.

That may be an incorrect calculation. Many people buy insurance because of the federal subsidy, not because of the mandate. Eliminating the requirement might not save as much as expected, if people keep drawing on the subsidy. The ACA proposal looks unlikely to survive.

Another major impact of the tax bill that has mostly been ignored is the effect on state taxes. Many states, including Maine, base their individual tax collections on the federal form. For example, the definition of taxable income may be the same.

The Maine Legislature at its session early next year may find itself faced with making big decisions about how much to carry into Maine law of what congressional Republicans and Trump may have enacted. The state is teeming with candidates for governor, so that should make for an interesting debate.

The bottom line is tax cuts would be financed by massively adding to the federal debt. Washington has plenty of coal to put in the grandchildren’s holiday stockings this year.