Let’s hope the House wins at least a few battles in committee, because the Senate tax bill has a number of disappointing features:
Keeps mortgage interest deduction as is: The Senate bill would still let you claim a deduction for the interest you pay on mortgage debt up to $1 million.
The House wants to cap the loan limit at $500,000 for new mortgages.
Preserves the Alternative Minimum Tax: The original Senate bill, like the House-passed bill, would repeal the AMT. But to help offset the cost of other late amendments, the final revision of the Senate bill now keeps the AMT in place but raises the amount of income exempt from it.
Preserves the estate tax, but exempts almost everybody: Unlike the House GOP bill, Senate Republicans have not proposed repealing the estate tax.
But they are proposing to double the exemption levels — which are currently set at $5.49 million for individuals, and $10.98 million for married couples. Even at today’s levels, only 0.2% of all estates ever end up being subject to the estate tax.
Increases teacher deduction: Teachers who buy their own supplies for the classroom may deduct up to $250 today. The Senate bill doubles that amount to $500.
The House bill, by contrast, eliminates the deduction.
Expands the medical expense deduction: Today itemizers may deduct their medical and dental expenses that exceed 10% of their adjusted gross income.
While the House bill gets rid of that deduction, the Senate bill not only keeps it but temporarily lowers that 10% threshold to 7.5% for tax years 2017 and 2018.
I wonder if this partly reflects the characteristics of the two leaders. Paul Ryan has a reputation as being someone who cares about public policy, whereas Mitch McConnell is often described as someone who likes to make deals.
The last major tax reform was in 1986, and was far superior to what’s being proposed here. Interestingly, that was a bipartisan endeavor, from back before the US became a tribal country. I don’t expect miracles (indeed the worst aspects of the tax code—health care, marriage penalty, etc.— aren’t even touched.) But the Senate bill is hardly worth the effort, while the House bill does have some meaningful simplification, which would make our lives a bit less annoying.
I pay little attention to the “who gains and who loses” discussion, as those estimates are not worth the paper they are written on. In any case, the next Democratic President will reverse the tax cuts, as we’ll need higher taxes to pay for the big spending programs that are now favored by both parties.
In contrast, tax simplification actually might stick, and is a worthy goal of Congress.
Questions for Senate Republicans:
1. Why do you think that married people like me should pay higher taxes than my colleagues who are “living in sin”? One of my colleagues recently got divorced for the sole purpose of lowering his tax bill. Does the GOP disapprove of marriage?
2. Why do you favor the AMT?
3. Why do you think equity financed investment should be taxed at a higher rate than debt financed investment? Are we trying to encourage more debt?