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Let us count the ways ...

SoVaNow.com / November 29, 2017
Last week the News & Record published a front page article on the looming demise of the Federal Historic Tax Credit program, which is effectively targeted for elimination under tax reform legislation moving through Congress as we speak. The FHTC has been a major part of the story behind some of the county’s most successful building renovations — the Southern Virginia Higher Education Center and The Prizery, apartment lofts in South Boston and Halifax, and hopefully the Randolph Inn downtown — and terminating the tax credit would likely spell an end to similar such projects in the future. Community revitalization, we hardly knew ye!

The death of historic tax credits would be a truly rotten result of the scandalous tax reform debate currently playing out at the Capitol. (The U.S. House of Representatives has passed a tax reform bill; similar but separate legislation is moving through the U.S. Senate this week. If the Senate bill passes, both chambers will appoint a conference committee to reconcile the competing versions before sending a consensus bill to both the House and Senate for a revote.) Congress has been rushing forward on tax reform without properly accounting for the impact of its various provisions, and the fate of the FHTC serves as a great example of this. As it stands, Congress is poised to destroy any ability of rural America to return its most cherished but dilapidated structures to productive use.

But let’s be real. The hit on historic preservation isn’t even on the list of the top 10 things wrong with whatever the Republican Party is calling “tax reform” these days. Tax deform is more like it. Just to keep matters simple, let’s take an off-the-cuff look at the outrages, in order of obnoxiousness, that Congress and the Trump White House are seeking to foist on the American people:

1. We don’t know how much Trump will benefit personally from Congressional action because he refuses to show us his tax returns. Because our president tells bald-faced lies like the rest of us breathe air, Trump actually said this: “My accountant called me and said ‘you’re going to get killed in this bill.’” For someone who prides himself on hiring “the best people,” Trump sure does have an incompetent accountant in his employ. In fact, there are all kinds of provisions that directly enrich Trump and his heirs — elimination of the estate tax, generous treatment of pass-through corporations (more on that in a minute), repeal of the alternative minimum tax, and probably a bunch of other stuff we haven’t even heard about. The New York Times, which a year ago got ahold of a leaked version of Trump’s 2005 personal tax return, went back and looked at that document and other information and estimated that Trump and his family could save as much as $1 billion from the tax cut bills in Congress. (Most of Trump’s real estate ventures are pass-through entities.) Sorry, there oughta be a law: No tax windfalls or “wins in Congress” for presidents who refuse to share their tax returns — and by implication, their financial motives — with the American public.

2. Tax reform really is a shameless giveaway to wealthy conservative donors at the expense of everyone else. Mitch McConnell and Paul Ryan and the rest of the gang on Capitol Hill accuse their critics of waging the politics of “class warfare,” but of course it’s Congressional Republicans who are the ones lobbing heavy artillery at middle- and working-class Americans. I mean, get a load of this: under the Senate bill, by 2027 half or more of middle-class taxpayers will pay higher taxes than they would now under the current tax code. (Source: the Tax Policy Center.) Poorer Americans — those earning $30,000 annually or less — will experience an overall tax increase. Meantime, the rich mop up: the top 0.1% of taxpayers — those making $3.4 million or more — would get a $722,510 tax cut on average, according to the Tax Policy Center. This isn’t just Robin Hood in reverse. This is Robin Hood dressed in a Joker’s mask while clutching the wheel of the Brink’s truck.

3. Can we please stop pretending there’s any case at all for the Republican argument that tax reform will “supercharge the economy?” We’ve been hearing this supply-side nonsense for more than three decades now, and it’s yet to pan out. The entire point of tax reform is to shovel more money at corporations and wealthy individuals who presently are sitting on tons of cash. The theory behind giving them more money is … whut?

4. The last thing the country needs to do is repeal the estate tax. The so-called “death tax” — paid by the living, not the dead — is one of the few provisions of the tax code that serves to rein in runaway income inequality in America. In fact, the tax on inheritances ought to be higher, not lower. Of course, Trump’s children — Donald Jr., Eric, Ivanka, Tiffany and little Barron — stand to make out like bandits from this provision alone. And contrary to what you may have heard, the estate tax has next to no impact on the mythical “family farm”; the tax doesn’t kick in on inherited wealth of less than $11 million for joint filers, which excludes any farm that I can think of. Besides, anyone wealthy enough to fall under the estate tax also ought to be competent enough to hire a financial planner who can figure out the various ways to get around the levy (not that hard). Rich, idle and clueless is no way to go through life, son.

5. Republicans are going out of their way to stick it to so-called blue states and the higher education world. One of the challenges before Congress is figuring out ways to offset the cost of these enormous tax giveaways to corporations and rich people. In practice, this means ending favorable tax treatment for other purposes (such as terminating the historic preservation credit.) The primary rollback targets are the mortgage interest deduction (which will be capped) and the deduction for taxes paid to state and local governments. Both of these tax breaks mean the most to residents of high-tax, pricey housing market blue state areas. It’s because of these changes that a lot of people will see their taxes go up, not down, under Republican tax legislation.

If these changes were being contemplated as merely a way to simplify and level the tax code, then fine: go right ahead. Unfortunately, that’s not the purpose at all. As mentioned, the entire point of this exercise is to redistribute wealth even further upward on the income scale.

Even worse than the middle finger being extended to semi-wealthy, moderate suburbanites is the burden placed on college students who are seeking to further their education, especially at the graduate school level. Tax reform does away with a number of tax breaks that promote job retraining and undergraduate college enrollment, but it really hammers the research-driven world of graduate studies. Granted, Ph.Ds are not a big Republican constituency nowadays, but they are leading the charge to find cures for cancer, unravel the mysteries of science and overall make the world a better place. You would think Republicans in Congress would have something better to do than dump on them.

6. Easily the cruelest aspect of tax reform is the elimination of the medical expenses deduction. This tax break applies to relatively few people, but it’s a lifeline for families that are dealing with financial hardships that arise from complex disease, injuries and illness. But hey, Charles and David Koch gotta have their tax cuts, dontcha know.

7. The tax treatment of businesses under Republican reform is an utter mess. This point deserves its own five-part volume, but suffice it to say that tassled loafer lawyer set, accountants and other toilers in the tax-avoidance industry are salivating over Congress’ handiwork thus far. One prominent example: the treatment of pass-through corporations under GOP legislation. I happen to be among those with ownership in a pass-through corporation — South Boston News, Inc. is what tax geeks like to call a S-Corp, or Subchapter S back in the day — and S-Corps, together with limited partnerships and LLCs, comprise the most widely used form of business incorporation in America. (C-Corps, the other major type, are taxed on their retained earnings, unlike S-Corps, where the earnings are passed on to company stockholders, who are then taxed at their individual rates. Hence the term “pass-through corporations.”)

Republican tax reform does nothing for me, nor for most small business owners in America who reside in the middle brackets of the tax code. The only people who really stand to benefit from the proposed changes are those in the 35 and 39.6 percent tax brackets — the marginal rates that kick in at incomes of $416,701 or more. (Which isn’t me!) The tax rate on pass-through earnings is set to drop to 25 percent, with a bunch of provisos that supposedly act as “guardrails” to prevent hedge fund billionaires from taking advantage of this new tax break. Yeah, right. Washington is full of such entertaining bedtime stories.

8. The long-winded passage above illustrates a key point: doing the math with taxes isn’t complicated, figuring out differences in income is. It’s no harder to multiply a number by 25 percent than by 39.6 percent (as long as you’re using a calculator, that is). Taxes are hard because some forms of income receive preferential treatment. There’s a box on the 1040 form for artists, reservists and “fee-basis government officials,” and there’s a whole storehouse of IRS forms for dividend, capital gains and passive investment income. Blech. And that’s just for starters. If you want to simplify taxes, simplify the treatment of all forms of income. The Republican bills achieve the exact opposite.

9. We’re almost at the end of the list, and haven’t even gotten to the deficit-busting impact of the House and Senate bills. Tax reform will add about $1 trillion to the national debt over the next decade, according to Congress's non-partisan Joint Committee on Taxation. There once was a time when Republicans cried “nevermore!” to rising deficits, but I guess that was only operative when President Obama was in the White House. Now the GOP can’t wait to give away the store. I wondered what happened to change their minds?

10. By the same token, you can count on Republicans using this premeditated explosion of the national debt to argue for future cuts in Medicare, Medicaid and Social Security. It’s already happening: Paul Ryan, Speaker of the House, has been agitating for benefit cuts for years. Having him in charge of the federal government along with Mitch McConnell and Donald Trump is definitely a departure from business as usual. How’s it working out so far?

There are dozens of other heinous effects of tax reform that one could obsess over, but let’s go back to where we started: the termination of historic tax credits. Fifth District Rep. Tom Garrett, a Republican member of the House Freedom Caucus, argues the program is a good thing: “The Federal Historic Tax Credit is vital in allowing communities to preserve the historic buildings and landmarks that define the character of their past, and allowing these same buildings to become the foundation for economic vitality now and in the future. In addition, this is one of the few government programs that have returned more to the Federal government than it has cost,” according to a letter circulating in Congress that Garrett co-signed. What happened when it came time to vote on getting rid of the FHTC? Garrett went along with the House Republican majority and voted “yes,” as he usually does.

And therein lies the problem: the Republican Party’s argument for tax reform is shot through with so much misleading information, bad faith and outright lies that taking all the bad parts in isolation is akin to digging deeper into the rabbit hole. The whole thing needs to be taken around to the back of the barn where bad things go to meet their proper end. Even for a bunch as incompetent and venal as Washington Republicans, tax reform has marked a new low.

Until next week, one supposes ….





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