Tax cut for wealthy is bad, tax cut nixing HTC worse
Sunday, November 12, 2017
President Donald Trump and congressional Republicans are vigorously trying to sell tax reform as both a job-creator and gift to the middle class. It’s hard-sell, however, when most of the reform efforts’ tax benefits — three-quarters by some estimates — go to the wealthiest Americans.
Indeed, the centerpiece of both House and Senate tax plans is a reduction in the corporate tax rate from 35 percent to 20 percent — a move that would cost the U.S. Treasury $2 trillion over 10 years. Notably, the Senate plan delays the rate cut for a year as a way to shave about $100 billion off that cost. Even so, both tax reform plans are expected to add $1.5 trillion to the nation’s debt over the next decade.
The mammoth tax giveaway to corporations isn’t the plans’ only gift to the rich. The plans also raise the tax exemption on inherited estates. Under the plans, the amount of inherited income that would be protected from taxation would rise from $5.5 million to $11 million for individuals and from $11 million to $22 million for couples. What’s more, the House plan eliminates the estate tax entirely after 2023. Both plans also eliminate the alternative minimum tax — a tax that currently only affects those with incomes above $200,000, ensuring they pay at least some tax.
So what tax benefits are in the plans for the less well-heeled? Well, besides increasing the amount of income not subject to taxation to $24,000, both plans nearly double the standard deduction, from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for couples. They also increase the per-child tax credit by at least $600 and raise the income threshold for families eligible to claim it.
While those tax code changes would help middle-class taxpayers, both plans also eliminate a number of popular tax credits that would likely offset most of the benefits. The House plan, for example, ends the deduction for state and local income and sales taxes, and only allows up to $10,000 in property taxes to be exempt. The Senate plan, meanwhile, eliminates the deduction for all of those taxes. The House plan also reduces charitable deductions and gets rid of deductions for both medical expenses and student loan debt. Notably, the Senate plan keeps those deductions intact.
The House plan’s net effect of eliminating these and other deductions will actually increase taxes for a third of middle-class taxpayers by 2027, the nonpartisan Tax Policy Center has concluded. The center has since retracted its study because of an error calculating the impact of the child tax credit increase, but one assumes its new conclusion won’t change that much.
One tax deduction that’s eliminated in the House plan and cut in half in the Senate plan would have a profoundly negative effect on small towns like Elizabeth City.
For the past 41 years, people who rehabilitate historic structures have been able to deduct 20 percent of their rehabilitation costs from their taxes. Use of this credit, says Wayne Harris, director of the Elizabeth City-Pasquotank Economic Development Commission, has had tremendous economic benefits nationally, creating more than 2.4 million good-paying jobs, attracting $131.8 billion in private investment and saving 42,293 historic buildings. Most of this economic activity through the HTC has happened in small towns where, without the credit, there likely would be no investment.
Here in Elizabeth City, the HTC funded $3.6 million in rehabilitation projects between 2002 and 2006, including the Norfolk Southern Passenger Station, the Grice-Fearing House and Arts of the Albemarle. Developers of the Southern Hotel project currently are counting on using the HTC to finance their building-rehabilitation costs, currently projected at between $13 million and $15 million. The developer eyeing the the former Mattress Outlet building for rehabilitation is also counting on using the HTC to make that project affordable.
Harris notes the HTC has cost the federal government $25.2 billion but generated more than $29.8 billion in federal tax revenue. In other words, it’s a net revenue producer. It’s being sacrificed, however, for the same reason other popular deductions are: to pay for Republicans’ massive tax cut for corporations and the wealthy.
The way GOP lawmakers see it, if all goes according to plan no one will miss tax deductions like the HTC. That’s because corporations — once they’re able to keep more of what they earn — will reinvest their profits in new business ventures, hire more workers and pay their current workers higher wages. President Trump’s economic team in fact has even gone so far as to claim the average U.S. household will get a “$4,000 raise” if tax reform passes.
This of course is the famous “trickle down” theory of economics that Republicans continue to tout despite decades of it being proven not to work the way its advocates claim. Sure, there’s reinvestment when corporations’ taxes are cut. But it’s not in new plants or new workers. The money instead mostly goes into corporate officers’ salaries and shareholders’ dividends. Anyone claiming the majority of the income saved from this proposed tax cut will go anywhere other than where it always goes is selling a fantasy.
It’s also a fantasy to believe that investment will continue to flow into small downtowns like Elizabeth City’s without incentives like the Historic Tax Credit. If a developer can’t write off part of his renovation expenses from his taxes, he’ll have little to no reason to invest in places where the return on his money is going to be less. That means most of Elizabeth City’s aging vacant buildings will likely stay vacant.
Because it’s an unaffordable giveaway to the wealthy, the Republicans’ tax reform proposal, if it’s passed, will have long-term negative consequences for our country. The negative effects will be immediate for small-town America, however, if it passes and includes elimination of the Historic Tax Credit.