The hidden features of the Republican tax bill that make it much worse than advertised

0
159
DOWNLOAD THE APP


Everyone knows the Republican tax-cut bill would shower the rich with hundreds of billions of dollars without giving the economy any noticeable boost.

But the plan is actually a lot worse than you think, because the estimates you’ve read don’t take into account the tax games, tax planning and tax cheating that the poorly and hastily written bill would encourage.

If it’s enacted in anything like its current form, the bill would cost the Treasury much more than $1 trillion over 10 years, and most of that extra money would go to the richest Americans and to the largest and most successful multinational corporations.


Instead of unleashing the productive side of capitalism, it would unleash the parasitical side, where business planning revolves around mining favors from the tax code, rather than in creating economic value.


“The final legislation could deliver much larger benefits to some of the best off (and their advisers) than even current estimates might suggest,” according to a quick study — “The Games They Will Play“ — by more than a dozen tax experts, analysts and practitioners who have combed through the legislation passed by the Senate and the House to uncover the loopholes and glitches that would allow tax games and aggressive tax planning.


“The final legislation could deliver much larger benefits to some of the best off (and their advisers) than even current estimates might suggest,” according to a quick study — “The Games They Will Play“ — by more than a dozen tax experts, analysts and practitioners who have combed through the legislation passed by the Senate and the House to uncover the loopholes and glitches that would allow tax games and aggressive tax planning.

Which means that, after the richest 1% of Americans got their lawyers and accountants busy mining the bill for every possible benefit, they would receive a much bigger windfall than the $48,000 average annual tax cut that the Tax Policy Center says they’d get.

And the U.S. Treasury would receive hundreds of billions less in revenue, ratcheting up the self-imposed pressure on Congress to slash federal spending on everything from Social Security and Medicare to infrastructure and education.

While the crowdsourced paper published last week wouldn’t put a dollar estimate on the actual cost of the bill, the experts said the potential tax games they’ve uncovered would cost the federal government a “quite significant” amount of revenue.

The report was primarily written by Ari Glowgower of the Moritz College of Law at Ohio State, David Kamin of the NYU School of Law, Rebecca Kaysar of the Brooklyn School of Law, and Darien Shanske of the University of California Davis School of Law.

Although some of the tax games they found are possible under current law, they aren’t worth it. The new law would create lower tax rates for corporations and pass-through businesses such as partnerships and sole proprietorships, giving individuals a large incentive to shift as much income as possible into a business, where they would pay much less in tax.

READ  Dollar breaks 5-day losing run, but analysts remain downbeat

“We also expect that the proliferation of avoidance opportunities will lead to a further diversion of resources away from productive activity and towards tax planning,” the group of tax experts wrote in their joint report

In other words, instead of unleashing the productive side of capitalism, it would unleash the parasitical side, where business planning revolves around mining favors from the tax code, rather than in creating economic value.

Also read: The tax cut’s fatal flaw: Companies already have all the cheap capital they want

Here are some of the tax games uncovered:

Using corporations as tax shelters. Individuals could create personal corporations to shelter labor income, investment income and even retirement income from the highest individual tax rates.

Pass-through eligibility games. Workers could shelter their labor income by forming pass-through businesses that provide services to their current employer.

Restructuring state and local taxes (SALT) to maintain deductibility. State and local governments easily change their income tax system into forms that would allow a SALT deduction. Those changes could offset the biggest revenue-raising provisions of the GOP bills, adding hundreds of billions of dollars to the cost.

International business tax games. The tax-cut plans would create a partial territorial tax system for businesses, but provisions designed to reduce the incentive to shift profits would have the perverse effect of increasing those incentives. It would encourage U.S. businesses to locate real assets (and jobs) overseas, or to set up phony round-trip exchanges with their foreign subsidiaries. It might even make sense to sell unfinished goods to foreign manufacturers who would then complete the work and import those goods into the United States. It would “tax the item we want to favor (exports) more onerously than the item we want to disfavor (foreign intangible income),” the study concluded.

Tax arbitrage. The variety of tax rates, delays and sunsets would encourage a number of tax-arbitrage games. One provision would actually encourage companies to borrow heavily to purchase equipment in 2018 and sell that same equipment in 2019.

Conclusion

It’s obvious that the tax bill is deeply flawed and riddled with errors. But we shouldn’t assume that this result is totally unintentional. The bill does further the ultimate aims of the Republican leadership in Congress. It rewards the rich and “starves the beast” — the twin goals of Republican fiscal policy for decades.

The tax bill would also weaken the economy, increase the trade deficit, and encourage individuals and companies alike to spend more (not less) on complying with the tax code.

Almost everything Republican leaders tell us about the tax bill is a lie: It’s not for the middle class, it does not “pay for itself” with higher growth, it does not encourage companies to invest in America, and it does not simplify the tax code.





Source link

GET ACCESS TO FREE TRAINING NOW

LEAVE A REPLY

Please enter your comment!
Please enter your name here