WINNING: 9 Things You Need To Know About The Big Republican Tax Reform

Late Tuesday night, the Republican Senate passed historic tax reform — a massive package of corporate tax cuts and well-sized individual tax cuts, combined with the repeal of the individual mandate and opening the Arctic National Wildlife Refuge for oil exploration. It represents the only significant win for President Trump and the Republicans in Congress — but it is a major win. Here’s what you need to know.

1. Virtually Everyone Will Get A Tax Cut. Despite the media’s insistence that this is a “tax cut for the rich,” virtually everyone who pays taxes gets a tax cut. The only people who see tax increases are high income-earners living in high-tax states (like yours truly). This isn’t the biggest tax cut in history, as Republicans have been pitching, but it’s not insignificant either — according to the Tax Policy Center, the average household will receive a tax cut of $1,610 in 2018; an average household earning $1 million or more would see a tax decrease of approximately $69,660, as compared with $870 for households making $50,000 to $75,000. The reason for that: high income earners pay the vast bulk of the taxes in the country. The idiotic idea that Americans will pay more taxes after the bill — an idea believed by 50% of the population — is simply wrong.

2. Individual Tax Decreases Sunset, But Will Likely Continue. The media are making a lot of the fact that these tax rates expire in 2025 — a provision Republicans had to include in order to pass the bill through reconciliation. But the chances that these individual tax rates will be increased for those in the middle class are negligible — even Democrats aren’t stupid enough to dramatically raise taxes on the middle class.

3. Corporate Tax Rates Drop Dramatically. This was the biggest motivating factor with the bill: cutting the corporate tax rate. The United States had the highest corporate tax rate in the industrialized world. Cutting that rate from 35% to 21% is a huge cut indeed, and brings the United States into competition with European states with far lower corporate tax rates. Countries like Ireland, which has a 12.5% corporate tax rate, have seen high sustained growth thanks to a healthy business climate — Ireland cut its corporate tax rate from 40% to 12.5% in 1995, and has seen 23% GDP growth, compared with 7.2% GDP growth from 1960 to 1995.

4. There Is A Big Increase In The Child Tax Credit. The child tax credit, which is truly a redistribution scheme backed by some conservatives, will be boosted to $2,000 per child and will be refundable up to $1,400. That was the provision Sen. Marco Rubio (R-FL) wanted, and one he got — and one that will be politically beneficial to Republicans in their fight to make the tax bill seem populist.

5. High-Income Earners In High-Tax States Pay More. Because tax reform includes reductions in tax deductions for state and local taxes, those in high-tax states with high incomes could pay more. Furthermore, the mortgage interest deduction has been decreased markedly, which hits high real estate value blue states. This could lead to a downturn in the real estate market.

6. Itemization Is Downsized. The new bill doubles the standard deduction, so fewer Americans will bother itemizing — they won’t reach the standard deduction with itemization. This means simplifying the tax system, meaning that many Americans will be able to fill out their taxes on a postcard.

7. The Individual Mandate Is Gone. The tax bill uses the death of the individual mandate to reduce deficits. That’s because many of those who were encouraged to seek health insurance by the individual mandate were on Medicaid, meaning that they cost the federal government billions. Now many people will opt out. The upside to ending the individual mandate is obvious: Americans will no longer be forced to purchase a good they don’t want. But there is a downside: that cash from the individual mandate was used to bring down costs for older and sicker members of the individual insurance market. That means that Republicans will have to either reduce regulations in health care, states will have to do so, or insurance companies will have to find better ways to compete on pricing — or, alternatively, Republicans can bail out the insurance companies. It looks like the latter possibility is most likely, which effectively means a new government entitlement.

8. Oil Exploration In The ANWR Is Now Possible. For well over a decade, Democrats have prevented the oil exploration of the Arctic National Wildlife Refuge. That was foolish policy, given the amount of oil expected to be found there, as well as the small footprint necessary for drilling. Concerns about the impact on wildlife have been wildly overstated — caribou populations have increased in areas around existing pipelines. Alaskans are likely to be far richer than they otherwise would have been thanks to this provision.

9. Deficits Will Increase. The bill was slated to create $1.5 trillion in new deficits. That’s likely an understatement, since the individual tax rates won’t be allowed to sunset. That means that Republicans will have to figure out a way to cut, or they’ll just be continuing to blow through borrowed cash, which means inflation or tax increases in the future.

All in all, the Republican tax bill is strong policy — and insertion of the end of the individual mandate could turn out to be a feat of political genius by Sen. Tom Cotton (R-AR). The bill is unpopular right now, but that’s because most Americans believe the media — when they see that their taxes are lower, that effect will dissipate somewhat. With that said, Republicans had better see continued strong economic growth, or voters will mistake correlation for causation and attribute any weakening in the economy to the tax reform bill, buying into the Democratic narrative that Republicans were out to help fat cats rather than middle class Americans.

This is President Trump’s first big legislative win. And it deserves to be cheered by conservatives.

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