Monday, December 18, 2017

Just passing through

NOTE: NOTHING IN THE FOLLOWING TEXT IS MEANT TO SUGGEST THAT I INTEND TO CRITICIZE REPUBLICANS FOR BLOWiNG UP THE DEFICIT. I CRITICIZE SENATOR CORKER FOR HIS HYPOCRISY IN PRETENDING WITH SUCH DRAMA QUEEN INTENSITY THAT HE CARES ABOUT THE DEFICIT WHEN HE DOES NOT AND FOR BREAKING HIS WORD, AND I CRITICIZE THE GOP FOR THROWING AWAY THE MONEY ON PEOPLE WHO ALREADY HAVE TOO MUCH INSTEAD OF TRYING TO GET IT TO THOSE WHO NEED IT. I DO NOT BELIEVE DEFICITS IN THEMSELVES ARE WRONG. I BELIEVE IT IS NECESSARY TO BORROW MONEY IN ORDER TO MAKE PROGRESS. I CONDEMN THE AUSTERITY INTO WHICH I EXPECT THE DEMOCRATIC PARTY TO FALL WHEN THEY COME INTO POWER. I BELIEVE THEY SHOULD INSTEAD INVEST. I HOPE THIS IS CLEAR.




"I'm shocked, shocked to find an item in this legislation that will save me some hundreds of thousands of dollars a year!" "Your winnings, Senator."
Sen. Bob Corker (R-Tenn.) sent a letter on Sunday to Sen. Orrin Hatch (R-Utah) asking how a provision that would potentially benefit real estate moguls, including Corker, made it into the final version of the Republican tax-reform bill.
“Because this issue has raised concerns, I would ask that you provide an explanation of the evolution of this provision and how it made it into the final conference report,” Corker wrote.
Which provision is that, Senator? The part that says you can deduct 20% of the real estate rental income in your portfolio—somewhere between $240,000 and $1.4 million—from your gross income, lowering your effective marginal rate to somewhere south of 30%?

People are finding it hard to believe he didn't know, since John Cornyn (second-ranking Republican on the conference committee) has explained on national television that the provision in question was added in the scramble to "cobble together the votes we need to get this bill passed" and Corker's vote was the only one we know they didn't have.


This was about the treatment of so-called pass-through income, the income of a business owner in a partnership or S-corporation which she or he receives directly. House and Senate both thought this should be treated as more like business income and get a break comparable to the break being given to C-corporations, of having their top rate lowered from 35% to 20%, as we were saying earlier in the month, but the two bills had very different ways of doing it, as of December 2, with the House giving them a special 25% tax rate on 30% of the income (except for professionals in services industries, doctors, lawyer, plumbers, and proofreaders, etc.), while the Senate offered them this straight-up off-the-top deduction, of 23% at that point in time, and allowed the professionals into the mix, but only up to an income of $500,000.

One of the things that the House bill did do that was related to what it was supposed to do was that it would bring the effective rate for business pass-throughs somewhere near to the rate for C-corps, whereas the Senate bill didn't bring them close, getting the pass-throughs only about a 30% rate overall, and creating the likelihood that all the pass-through partnerships would just turn themselves into C-corps. On the other hand it was a lot cheaper, as the Los Angeles Times reported:
The lower House rate for pass-throughs — 25% compared with the effective rate of 30% with the Senate bill — means it will be more expensive to go with the House plan. The cost of the pass-through tax cuts envisioned by the House is about $600 billion over 10 years, while the congressional Joint Committee on Taxation estimates it at $340 billion for the Senate plan.
Or, according to the helpful folks at Accounting Today,
“So the policy purpose of the 30-70 split in the House bill is to bring the two entities to parity. The Senate bill has no policy purpose, it’s, ‘How do we get this thing passed?’”
So naturally in deciding which approach to take, the conference committee went with the Senate bill. Because the conference committee didn't have a policy purpose either.

But then they added an extra wrinkle from the House bill, in defining what counts as qualified business income for the purpose of giving it that deduction, now set at 20% instead of 23% and available to every pass-through business including professionals up to a phaseout of $315,000 for a couple instead of $500,000. In the original provision, there was a rule that limited the deduction to businesses with relatively more employees; you couldn't get it unless your income was less than 50% of the W-2 income you paid to others. With the new rule, an alternative formula allowed you to take the deduction if your income was less than a combination of W-2 income and the cost of "tangible depreciable assets" (read: commercial real estate). Peter J. Reilly for Forbes, my source for the gory deals, says a million dollars in depreciable assets is worth the same as an employee getting $50K in the calculations.

Meaning a big benefit for Corker, who owns a lot of rental property and whose financial disclosure form says he earns between $1.2 million and $7 million a year from it. The 13 Republicans on the conference committee, according to International Business Times (which is responsible for most of the reporting on this), own between $36 million and $136 million in qualifying real estate businesses among them. And much bigger, of course, for Donald J. Trump, believed to earn between $41 million and $68 million from 25 different pass-through companies.


I'm not at all convinced Trump is intellectually clear on how simple it is and how it works, but you know who is, and whose income depends much more significantly on real estate holdings than the Emperor's: imperial son-in-law and Lord High Everything Else Jared Kushner. Maybe it's his vote, rather than poor Corker's, the committee was anxious about.

Unsurprisingly, the tax bill breaks most of the major promises Trump and the congressional leadership have been making:
It leaves nearly every large tax break in place. It creates as many new preferences for special interests as it gets rid of. It will keep corporate accountants busy for years to come. And no taxpayer will ever see the postcard-size tax return that President Trump laid a kiss on in November as Republican leaders launched their tax overhaul effort....
What emerged on Friday, in the final product agreed to by Republican members of a House-Senate conference committee, was a bill that layers new tax complexities upon businesses large and small, and which delivers a larger share of benefits to corporations and the rich than to the middle class.
It sets all tax relief for individuals to expire in eight years, while making deep and permanent cuts to the corporate tax rate. It limits one key benefit for taxpayers in high-tax states, such as New York, but otherwise does little to back up Mr. Trump’s promise last month that “we’re also going to eliminate tax breaks and complex loopholes taken advantage by the wealthy.”
It also seems less viciously punitive than its earlier versions, with the senseless attacks on teachers and researchers removed, and more likely to give most taxpayers some kind of cut, for the first eight years, though a lot of people rather better off than me in those particular high-tax states may still get hit fairly hard. I can't imagine how its scores from CBO and JCT are going to be anything but much worse than those for the original House and Senate bills. I'm afraid that, in spite of the extraordinary poll numbers against it right now, it's going to be really hard to mobilize rage against it next year, when a majority of the people who notice it at all will notice a little downward bump in the withholding tax on their paystubs. But it remains as much as it was an enormous transfer of money to the capital-owning class, with the source of the money to be determined later (it's us).

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