Tax Reform Trial Balloons Keep Popping – Ep. 296

Trial Balloon #1: Backpedaling on State and Local Tax Deductions

All this talk about tax cuts is all a fraud, because government is getting more expensive and the taxpayers are going to be stuck paying the bill one way or another.  They keep on launching these “trial balloons. I was reading over the weekend that they are backpedaling, talking about the idea of eliminating the deduction for state and local taxes, but not for property taxes. So everybody can deduct their property taxes because everybody pays property taxes, whether you’re in a red state or a blue state, whether you have state income tax or not. In fact, some states without state income tax have higher property taxes to compensate. So they still are going to allow the property tax deduction. That’s the latest trial balloon that I have heard about.

Housing Lobby Against Tax Reform

But we still a lot of Republicans from high-tax states to allow the deduction for all taxes, including income taxes. The housing industry is still pushing back because they want people to deduct property taxes because that reduces the cost of owning property and makes it easier to sell at a higher price because one of the features of the property is a tax deduction. They also want to preserve the home mortgage deduction.  I was reading that the housing lobby is trying to get something in there.  Because if you double the standard deduction, that means far fewer people will itemize and they won’t need the tax break associated with home ownership and that is a problem for the housing industry, that is really selling tax shelters. They are lobbying to get Congress to put back in a “homeowner’s credit”.  Even if you don’t itemize, you could still get some kind of tax benefit for being a home owner, which, if we were really reforming the tax code we would not want to do.

Trial Balloon#2: 20% Corporate Tax Rate “Phased In Over 4 Years”

Another trial balloon that came out over the weekend, obviously the market is not liking it, is that corporate tax cuts, where the plan is to lower the corporate tax rate to 20% from 35% – now they are saying that this would be phased in over a number of years so we wouldn’t actually get to a 20% corporate tax rate until the year 2022.  Now, why would they be doing this?  Well, obviously, to the extent that they can delay the phase-in of the lower rate, then the effect on the deficit, at least during the initial years is not as great because they don’t have to immediately calculate the reduction in tax revenue.

Failing to Attract Business to the U.S.

A lot of people are saying, “Well this will still be okay, because at least it’s a permanent tax cut, and American businesses with still know that they can look forward to these lower tax rates…” And really what these lower tax rates are designed to do is to make the U.S. a more competitive place to do business.  My feeling would be, if they delay the implication of these tax cuts until 2022, they ain’t happening!

Getting a Bad Rap

A lot of stuff is going to happen in the economy between now and 2022, including another presidential election in 2020, and I’m already on record as saying that Trump will be a one termer, a placeholder between 2 democratic administrations.  All the economic problems that built up during the Obama administration will blow up under Trump.  If we get a Bernie Sanders-type as President in 2020, what are the odds that the 2022 corporate tax cuts are ever going to see the light of day?

No Such Thing as Permanent Tax Relief

All these people talking about permanent tax relief, what are these guys smoking? There is no permanent tax relief, especially when you don’t have any relief from increased government spending.  You know how much bigger the national debt will be by 2022?  They will have to raise taxes on somebody, and obviously, corporations will be an easy target, especially if they are vilified.  If corporate tax happen at all, they could be the reason that the left could say this is why the economy is so screwed up.

 

 

Peter Schiff is an economist, financial broker/dealer, author, frequent guest on national news, and host of the Peter Schiff Show Podcast.

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