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America Divided

What does the contentious battle over tax reform demonstrate about the state of U.S. politics, economy and, indeed, the culture of the nation?

The deeply worrisome split in the country was clearly reflected in the December 1st Senate vote on tax reform  Not a single Democrat voted for the bill; every Republican, save one (Bob Corker (R-Tenn.) voted in favor of it. There was more than just partisan politics at play. The two parties have sharply contrasting views on what is best for the citizenry.

Conservatives, who hold more influence in the GOP, viscerally believe that individuals and businesses are the backbone of America. They govern on the fundamental principle, originating with the founding fathers, that “the government that governs least, governs best.”  They point out that the greater involvement Washington has in the economy, the worse things get, and the poorer both citizens and enterprises become. Conservatives emphasize that starting with the Carter Administration and accelerating during the Clinton presidency, federal mandates about lending to those without the standard demonstrated capability to repay eventually caused the Great Recession.  They point out that President Obama’s policies devastated the middle class, and prevented America’s GDP from emerging from unprecedented poor growth.  They note that restrictions on businesses and high taxes (the United States has the highest corporate taxes of any developed nation) devastate middle class jobs, and encouraged large businesses to leave the country, taking their revenue stream with them.

The GOP tax plan recalls the results of cutting taxes by both Democrat President John Kennedy and Republican Ronald Reagan.  Both instances resulted in significantly greater growth in both federal revenue and jobs, and an improved business climate.  It is that experience they seek to repeat in the current tax bill.

Republicans argue that by creating greater numbers of jobs, and better opportunities for middle-class owned businesses (who, as “pass through” corporations receive better tax cuts) the middle-class benefits from the measure.  The standard deduction and personal exemptions are nearly doubled for individual filers, a very significant saving, and the child care credit is increased.  Many individuals tax rates are slightly reduced, but some deductions, most notably for state and local income taxes, would be lost.  Those, of course, are specifics; the general concept that government should not place unnecessary expenses on families or restrictions on businesses is their central point.

Missed measurement:At the point when missing a measurement stick to your ordinary plan of treatment and http://deeprootsmag.org/?feedsort=rand order cheap viagra just stay with. You no longer need to take lots of efforts to solve this deeprootsmag.org brand viagra from canada purpose. Gynecomastia is the benign expansion of the glandular tissues of the male breast and results buy viagra generic http://deeprootsmag.org/tag/ecstasy-and-me/?feedsort=rand from a disproportion involving androgen and estrogen actions. Here, we discuss the key psychological issues behind go right here cheapest levitra it. Democrats chafe at the notion that corporations could receive a large tax break under an approach that seeks to increase jobs, at the expense of revenue to fund social benefits. They believe that there is revenue-related danger in this approach (despite the experiences of Presidents Kennedy and Reagan) and that Washington will not be able to gather the dollars needed to fund social spending programs, which, except for Social Security and Medicare, expanded during the Obama Administration.

In a statement, Senator Bernie Sanders noted: “I am disappointed but not surprised that the Republicans voted unanimously to proceed with a disastrous tax bill. This bill will provide 62 percent of the benefits to the top 1 percent.” Senator Elizabeth Warren tweeted: “Tonight the Senate GOP gave a giant tax break to the rich & left everyone else holding the bag. This is about more than economics – it’s about our values.” The general approach favored by Democrats has been that a Washington-directed economy would produce a more equitable result, and that the overall health of the economy is only a secondary consideration.

Encapsulated in the debate over the tax bill are two very different visions for the United States, with Republicans adhering to a more traditional view of an economy centered around jobs and enterprise, and Democrats preferring a path trending towards a more government-directed environment.

In the past, significantly different views were eventually compromised. But in the all-or-nothing votes, with almost all Republicans voting one way and every Democrat senator voting the other, the nation is revealed to be more sharply divided than at any time since the Civil War.

During the 2016 presidential primary season, Hillary Clinton was asked whom she considered to be “the enemy.”  Rather than citing an external source, such as terrorists, or a challenging issue, such as poverty, Ms. Clinton simply replied, “Republicans.” She later doubled down on that concept, claiming that half of those supporting her Republican opponent were a “basket of deplorables…racist, sexist, homophobic, xenophobic, Islamophobic – you name it.”

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Should the State and Local Tax Deduction be Eliminated?

The continued existence of a deduction for state and local taxes is shaping up to be the most contentious issue in the drive to enact tax reform and reduction.

According to the Tax Policy Center “Taxpayers who itemize deductions on their federal income tax returns can deduct state and local real estate and personal property taxes as well as either income taxes or general sales taxes…State and local income and real estate taxes make up the bulk of total state and local taxes deducted (about 60 percent and 35 percent, respectively), while sales taxes and personal property taxes account for the remainder. The state and local tax (SALT) deduction is one of the largest federal tax expenditures, with an estimated revenue cost of $96 billion in 2017 and $1.3 trillion over the 10-year period from 2017 to 2026. (Tax expenditures are defined as “those revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption, or deduction from gross income, or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.”)… about one-third of tax filers opt to itemize deductions on their federal income tax returns (figure 1), and virtually all who do itemize claim a deduction for state and local taxes paid. High-income households are more likely than low- or moderate-income households to benefit from the SALT deduction. The amount of state and local taxes paid, the probability that taxpayers itemize their deductions, and the reduction in federal income taxes for each dollar of state and local taxes deducted all increase with income. About 10 percent of tax filers with incomes less than $50,000 claimed the SALT deduction in 2014, compared with about 81 percent of tax filers with incomes exceeding $100,000. The latter group, which made up about 16 percent of tax filers, accounted for about 75 percent of the total dollar amount of SALT deductions claimed. The average claim in this affluent group was of about $12,300.”

There are widely diverse views on the wisdom of eliminating the deduction.

The American Legislative Exchange Council (ALEC)  notes that “more than 100 American Legislative Exchange Council (ALEC) state legislators signed a letter to Congress urging the elimination of state and local tax (SALT) deduction… Eliminating the state and local tax (SALT) deduction would provide upwards of $1.5 trillion over the next decade to implement broad-based tax cuts nationally. This overhaul would spur the growth in economic output needed to jolt business investment, personal income growth, and job growth.”

The Tax Foundation notes that “The state and local tax deduction disproportionately benefits high-income taxpayers, with more than 88 percent of the benefit flowing to those with incomes in excess of $100,000. The deduction favors high-income, high-tax states like California and New York, which together receive nearly one-third of the deduction’s total value nationwide. Six states—California, New York, New Jersey, Illinois, Texas, and Pennsylvania—claim more than half of the value of the deduction. The state and local tax deduction in New York and California represents 9.1 and 7.9 percent of adjusted gross income respectively, compared to a median of 4.5 percent. The deduction reduces the cost of state and local government expenditures, particularly in high-income areas, with lower-income states and regions subsidizing higher-income, higher-tax jurisdictions.”

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Those favoring the move ask why frugal states should subsidize high-spending states that show lesser fiscal prudence. They note that the overall reduced federal tax rate made possible in part by eliminating the deduction would more than make up for any burden placed on those in high state and local tax states.  those opposing removing the deduction point to the burden that would be placed on residents in high-tax states who would, in essence, pay double taxation.

While finance plays the central role in the debate, differences in philosophy about what government should do, and the relationship between the states both amongst themselves and Washington is also a key to understanding both points of view. Interestingly enough, the lines blur sharply and don’t necessarily follow typical liberal vs. conservative or Democrat vs. Republican lines. Some conservative GOP leaders might believe that the federal government shouldn’t have a deduction that, in essence, forces his or her constituent to pay for the expenses of another state government that their constituent has no voice in electing, and for programs in those other states that they object to. One example comes from New York City, where, as noted for the New York Post, Mayor de Blasio is spending $3.5 million a year to spare thousands of repeat offenders a trip to [jail] instead sending them to group counseling and job-readiness workshops…The program — quietly launched this month in Manhattan, Brooklyn and The Bronx — lets recidivists avoid jail time by spending as little as one day undergoing ‘motivational interviewing’ and psychological ‘interventions.”

Another conservative perspective, however, could be that Washington shouldn’t usurp the financial abilities of states to tax their own citizens by also taxing the same income already taxed. Similarly, many liberals, who believe that Washington should have a more direct role in governance, might believe that eliminating the deduction gives the federal government more revenue for nationwide programs.  Others on the left note that the higher spending states generally spend more on their favored social welfare programs, and should not be hampered by eliminating the deduction.

While proponents of either perspective have voiced passionate arguments, the potential of compromise is high.  There could be a maximum amount of taxes that could be deducted, so the highest-spending states would not be able to have a massive advantage over lesser spending states. Another alternative in discussion concerns ending or limiting the deduction for higher earners.

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GOP Tax Plan Details

President Trump unveiled the GOP Tax Reform plan at a speech in Indianapolis on Wednesday.  The following outline.directly from the GOP proposal, entitled “THE UNIFIED TAX REFORM FRAMEWORK,” provides a summary.

The Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance have developed a unified framework to achieve pro-American, fiscally-responsible tax reform. This framework will deliver a 21st century tax code that is built for growth, supports middle-class families, defends our workers, protects our jobs, and puts America first. It will deliver fiscally responsible tax reform by broadening the tax base, closing loopholes and growing the economy. It includes: Tax relief for middle-class families. The simplicity of “postcard” tax filing for the vast majority of Americans. Tax relief for businesses, especially small businesses. Ending incentives to ship jobs, capital, and tax revenue overseas. Broadening the tax base and providing greater fairness for all Americans by closing This unified framework serves as a template for the tax-writing committees that will develop legislation through a transparent and inclusive committee process. The committees will also develop additional reforms to improve the efficiency and effectiveness of tax laws and to effectuate the goals of the framework. The Chairmen welcome and encourage bipartisan support and participation in the process.

Over the last decade too many hard-working Americans have struggled to find good-paying jobs, make ends meet, provide for their families and plan for their retirement. They are the focus of this framework. Strengthening and growing the middle class, and keeping more money in their pockets, is how we build a stronger America. By lowering the tax burden on the middle class, and creating a healthier economy, we can give American families greater confidence and help them get ahead. At the same time, taxpayers deserve a system that is simpler and fairer. America’s tax code should be working for, not against, middleclass families.

Small businesses drive our economy and our communities, and they deserve a significant tax cut. This framework creates a new tax structure for small businesses so they can better compete. Furthermore, America’s outdated tax code has fallen behind the rest of the world – costing U.S. workers both jobs and higher wages. In response, the framework puts America’s corporate tax rate below the average of other industrialized countries and promotes greater investment in American manufacturing.

The framework puts America on a level international playing field and puts an end to the incentives for shipping jobs overseas.

HIGHLIGHTS

Lowers Rates for Individuals and Families

The framework shrinks the current seven tax brackets into three – 12%, 25% and 35% – with the potential for an additional top rate for the highest-income taxpayers to ensure that the wealthy do not contribute a lower share of taxes paid than they do today.

Doubles the Standard Deduction and Enhances the Child Tax Credit

The framework roughly doubles the standard deduction so that typical middle-class families will keep more of their paycheck. It also significantly increases the Child Tax Credit.

Eliminates Loopholes for the Wealthy, Protects Bedrock Provisions for Middle Class

To provide simplicity and fairness the framework eliminates many itemized deductions that are primarily used by the wealthy, but retains tax incentives for home mortgage interest and charitable contributions, as well as tax incentives for work, higher education, and retirement security.

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The framework repeals the unfair Death Tax and substantially simplifies the tax code by repealing the existing individual AMT, which requires taxpayers to do their taxes twice.

Creates a New Lower Tax Rate and Structure for Small Businesses

The framework limits the maximum tax rate for small and family-owned businesses to 25% – significantly lower than the top rate that these businesses pay today.

To Create Jobs and Promote Competitiveness, Lowers the Corporate Tax Rate

So that America can compete on level playing field, the framework reduces the corporate tax rate to 20% – below the 22.5% average of the industrialized world.

To Boost the Economy, Allows “Expensing” of Capital Investments

The framework allows, for at least five years, businesses to immediately write off (or “expense”) the cost of new investments, giving a much-needed lift to the economy

Moves to an American Model for Competitiveness

The framework ends the perverse incentive to offshore jobs and keep foreign profits overseas. It levels the playing field for American companies and workers.

Brings Profits Back Home

The framework brings home profits by imposing a one-time, low tax rate on wealth that has already accumulated overseas so there is no tax incentive to keeping the money offshore.

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Tax Reform, Part 2

The New York Analysis of Policy and Government concludes its two-part examination of the tax reform debate. 

President Trump’s tax reform proposals may include elements of the Republican tax proposal issued in June 2016. An Americans for Tax Reform analysis of the GOP tax reform concept, proposed last June, provides this summary:

  • According to the Tax Foundation’s Taxes and Growth Model, the plan would significantly reduce marginal tax rates and the cost of capital, which would lead to 9.1 percent higher GDP over the long term, 7.7 percent higher wages, and an additional 1.7 million full-time equivalent jobs.
  • The plan would reduce federal revenue by $2.4 trillion over the first decade on a static basis. However, due to the larger economy and the broader tax base, the plan would reduce revenue by $191 billion over the first decade.
  • Although the plan would reduce federal revenue by $2.4 trillion on a static basis in the first decade, much of the revenue loss is one-time. As a result, the plan will cost much less in subsequent decades.
  • On a static basis, the plan would lead to 0.7 percent higher after-tax income for all taxpayers and 5.3 percent higher after-tax income for the top 1 percent. When accounting for the increased GDP, after-tax incomes of all taxpayers would increase by at least 8.4 percent.”

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  • Increases the standard deduction from $6,300 to $12,000 for singles, from $12,600 to $24,000 for married couples filing jointly, and from $9,300 to $18,000 for heads of household.
  • Eliminates the personal exemption and creates a $500 non-refundable credit for dependents who are not children.
  • Increases the Child Tax Credit to $1,500 per child, limits the refundability of the credit to $1,000, and raises the phaseout threshold for the Child Tax Credit for married households from $110,000 to $150,000.
  • Eliminates all itemized deductions besides the mortgage interest deduction and the charitable contribution deduction.
  • Eliminates the individual alternative minimum tax.
  • Eliminates federal estate and gift taxes.

Changes to Business Income Taxes

  • Reduces the corporate income tax rate from 35 percent to 20 percent.
  • Eliminates the corporate alternative minimum tax.
  • Taxes income derived from pass-through businesses at a maximum rate of 25 percent.
  • Allows the cost of capital investment to be fully and immediately deductible.
  • Eliminates the deductibility of net interest expenses on future loans.
  • Restricts the deduction for net operating losses to 90 percent of net taxable income and allows net operating losses to be carried forward indefinitely, and increased by a factor reflecting inflation and the real return to capital. Does not allow net operating losses to be carried back.
  • Eliminates the domestic production activities deduction (section 199) and all other business credits, except for the research and development credit.
  • Creates a fully territorial tax system, exempting from U.S. tax 100 percent of dividends from foreign subsidiaries.
  • Enacts a deemed repatriation of currently deferred foreign profits, at a tax rate of 8.75 percent for cash and cash-equivalent profits and 3.5 percent on other profits.
  • Modifies all business income taxes to be border-adjustable, disallowing the deduction for purchases from nonresidents and exempting export profits and foreign-derived profits from taxation.

 Impact on the Economy

According to the Tax Foundation’s Taxes and Growth Model, the House Republican tax plan would increase the long-run size of the economy by 9.1 percent (Table 3). The larger economy would result in 7.7 percent higher wages and a 28.3 percent larger capital stock. The plan would also result in 1.7 million more full-time equivalent jobs. The larger economy and higher wages are due chiefly to the significantly lower cost of capital under the proposal, which is due to the lower corporate income tax rate and the full expensing of capital investment.”

A December, 2016 analysis by Mark Bloomfield, writing for The Hill maintained that all the ingredients necessary for tax reform exist, including the desire of major U.S. corporations to repatriate funds orphaned abroad due to current tax law, the need for those funds to be brought stateside to pay for infrastructure, and the desire of the GOP leadership to get it done.

That doesn’t necessarily indicate that the task is certain or easy. Bloomfield notes that “The Republican majority in the House can pass tax reform without any problem. It’s a different story, however, in the Senate, where 60 votes are required to advance even the slightest controversial legislation. However, there is a way around the Senate’s filibuster rules. McConnell confirmed on Dec. 12 that the Senate would pass tax reform using the budget reconciliation process, which is a privileged motion that needs only a simple majority to pass…There are also a number of Red State Democratic senators up for reelection in 2018, who could make tax reform bipartisan. I reckon that there’s a 63 percent chance of tax reform succeeding in 2017. Why? Because it has been that many years since the Internal Revenue Act of 1954, the first comprehensive reform of the federal income tax since its origin in 1913.”

Because tax reform is central to almost every other aspect of governance, fighting will be fierce. However, the impact of a reduced tax on the American economy, particularly for jobs creation and economic revitalization, would be exceptionally significant, and the political gains from a simplified tax code would be substantial.  With a majority in both houses of Congress, and with the precedent set by the Gorsuch nomination rules change, expect the GOP to move forcefully on the issue.

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Tax Reform and America’s Financial Death Spiral

The New York Analysis of Policy and Government takes a two-part look at the tax reform debate.

Tax reform is about to be debated in Washington—and not a moment too soon.

America’s finances are in a death spiral. Similar to a heroin addict that has reached the point where ever-larger doses are necessary to get a desired “high,” federal tax rates are at a point that discourages businesses from investing in job-producing activities in America, and penalizes individuals who seek to grow their income.   Continuing the current system and rates (or increasing them) to address the near-$20 trillion national debt and the annual deficits that add to it won’t cure the problem; it will kill the patient.

Washington is certainly collecting a great deal of revenue. The U.S. Treasury  has disclosed that during the first six months of the current fiscal year, it has pulled in a record haul of $695,391,000,000 in individual income taxes. This was in addition to $547,491,000,000 in Social Security and other payroll taxes.  The Tax Foundation  gave a bad mark to the United States in individual income taxes, ranking it behind 24 other developed nations in ease of burden of this type of levy.

The Congressional Budget Office describes how the current tax system discourages incentive:

“When workers’ earnings rise but their after-tax income rises less—because of increases in their income and payroll taxes or declines in their benefits from government programs—their incentive to work typically declines.”

Despite the record intake from individual income taxes, the federal government still ran a $526,855,000,000 deficit. Even with that vast intake from the Individual Income Tax and all that deficit spending, crucial needs, including an underfunded national defense, a crumbling infrastructure, and a social security system headed for insolvency all remained unresolved.

In fact, total federal tax collections declined because of lower returns from the corporate income tax. America’s uncompetitive corporate tax rates discourage business survival, growth and job creation within the nations’ borders.

The Tax Foundation notes that The United States has the third highest general top marginal corporate income tax rate in the world, at 38.92 percent. The U.S. rate is exceeded only by the United Arab Emirates and Puerto Rico. The worldwide average top corporate income tax rate, across 188 countries and tax jurisdictions, is 22.5 percent. Forbes  found that America has the highest statutory corporate income tax rate of any Organization for Economic Cooperation and Development (OECD) nation.

The OECD also reports that the tax-to-GDP ratio in the United States increased by 0.5 percentage points, from 25.9% in 2014 to 26.4% in 2015. The corresponding figures for the OECD average were an increase of 0.1 percentage point from 34.2% to 34.3% over the same period.

High rates, combined with an extraordinarily complex code, serves as a significant drag on the national economy. Americans for Tax Reform  notes that “…the U.S. has one of the most complex, internationally uncompetitive tax codes and double taxes income earned abroad. As a result, this money is unable to be reinvested back into the [U.S.] economy.”

Former NY lt. Governor Betsy McCaughey, writing in the NY Post   has suggested cutting corporate tax rates to 20%, and candidate Donald Trump had suggested reducing the rate to 15%.

Lowering taxes was a major plank in President Trump’s campaign platform.

President Trump is promising “the biggest tax cut in history,” in a bid to jump-start the sluggish American economy, improve a weak job market, and restore stability to the nation’s middle class.

Specifics appear to include reducing business taxes, currently the highest in the developed world, to 15%, doubling the individual income standard tax deduction and simplifying individual tax returns.

Additional details were not available at the time this report was prepared.

The GOP plan prepared by a “Tax Reform Task Force” began to take shape last June. It established its’ central logic:

“The United States stands at a pivotal moment. Today’s policy decisions will have a lasting effect on future generations – for better or worse. If we stay within the bounds of the current tax discussion, we have only three choices for the path forward:

  • We can do nothing, leaving our children with the responsibility to clean up the tax code and its ruinous effects.
  • We can raise taxes under the existing system, which would levy harsher penalties on hard work, savings, and entrepreneurship.
  • We can tinker around with little tax changes while the sun sinks ever lower on the age of American excellence.

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“The Tax Reform Task Force rejects these false choices and believes it is time to go in a completely new direction. Today we have a once-in-a-generation opportunity to move forward with bold, pro-growth tax reform. As the Task Force worked to develop smart reforms, we asked ourselves two questions about each policy or provision: ‘Will this policy reform grow our economy?’ and ‘Is it worth raising taxes on everyone else to include this provision?’ We are committed to growing our economy without increasing the deficit – taking into account the increased Federal revenues that result from economic growth.”

In its essence, the GOP plan combines lower rates for both companies and individuals, along with a far simpler tax code—including a goal of making the annual individual income tax filing as simple as filing out a single sheet of paper.

The Report concludes tomorrow