After several failures to repeal the Affordable Care Act, President Trump has turned his attention to another goal close to his heart, ensuring that rich people can keep as much of their money as possible. I’m sorry, I meant to say tax reform.

As with everything in the Trump administration, finding clear details on the plan has been a challenge. Tax law is complicated and President Trump’s four-page plan doesn’t cover the intricacies of the tax code. What it does cover spells trouble for many Americans.

The basics of Tax Reform

Tax Reform: The Basics

Republicans are hailing the proposed tax reform as a win for the middle class, but it doesn’t take an economist to see that the biggest beneficiaries are the wealthiest Americans. To start, the top tax bracket would drop from a 39.6% tax rate to a 35% tax rate. His plan would eliminate the Alternative Minimum Tax (AMT), which requires rich people to pay taxes.

Remember that time Trump didn’t pay taxes for ten years because he took a deduction of close to a billion dollars? That type of maneuver isn’t possible with AMT. With AMT, even our President has to pay some taxes. And so of course, he wants to get rid of AMT. Removing the AMT completely would result in a loss of $38 billion a year, or 2.5% of our federal revenue.

This isn’t the only benefit the wealthy get in Trump’s tax plan. His tax reform would also eliminate the estate tax, which raises $19.3 billion each year. People pay the estate tax when they inherit money, and the more you inherit, the more you pay. Eliminating this tax doesn’t do anything to help middle-class people, who don’t stand to inherit much, but gives a huge break to wealthy people, who could inherit millions (or billions) of dollars.

But if you’re one of those corporation-people I hear so much about, you’re in luck! Trump plans to drop the corporate tax rate from 35% to 20%. Between this, and tax cuts for the wealthy, the plan would add over $2 trillion to the deficit over the next ten years. Cutting corporate tax rates and taxes for the wealthy ensures the plan will be unpopular with Democrats. Raising the deficit means that fiscally conservative Republicans will not like the tax reform either.

Will Tax Reform Look like this?

Reconciliation

You would think that a bill that Democrats and fiscally conservative Republicans oppose would be dead in the water, but you would be wrong. Because of a procedure called “reconciliation,” unpopular bills like this tax reform require far fewer Senate votes to pass.

Reconciliation allows bills that relate to the federal budget to have limited debate and no filibusters. In the Senate, this means that instead of noted turtle-face, Senator Mitch McConnell (R-KY) needing 60 votes to overcome a “silent filibuster” (a subject for another post), he only needs a simple majority of 51.

The vote on Thursday in the Senate attached “reconciliation instructions” to the tax proposal. The passage of these instructions (51-49, with Senator Rand Paul of Kentucky joining the Democrats against the bill) means that the budget cannot be filibustered by Democrats. And that means that only 51 (or 50 if they want to call in Vice President Pence) Senators need to vote in favor of these tax reforms for them to become law.

What does all this mean for you, the brave soul who made it to the end of the post? It means that your Senators could slip tax reform by us when we’re not paying attention. And it’s very easy to not pay attention because tax law is very boring. Personally, I would rather spend my time watching old episodes of Brooklyn 99. But the Senate passed reconciliation instructions without any of us being the wiser, and they could do the same with the President’s tax plan. Stay sharp in the coming months! Tax reform, like true love, happens when you least expect it.

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One Comment

  1. DLR

    October 26, 2017 at 6:59 pm

    I am not rich. I am middle to upper middle class registered Democrat, unabashed social liberal, and certainly far from a Trump supporter. I am all for the rich paying their fair share of taxes, which is why the AMT was created several decades ago. With that said, since it’s inception in 1969, the income level when the AMT kicks in, has literally NEVER been adjusted for inflation. This means every year more and more middle class people are pulled into this alternate tax structure. For those poor middle class souls pulled into it, unlike for the ultra rich, there’s no way out of it, other than literally making less money. I’ve been paying it for 7+ years @ $10-15k extra come April. Please don’t lump on repealing the AMT with the more nefarious and blatant attempts to continue to widen the gap between the 1/99%… there are a lot of hard working middle and upper middle class families, who would benefit from its repeal.

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