Thirteen law professors have written about how the GOP tax plan will provide incentives for tax planning and behavioral changes that might undermine current revenue estimates.
The document, “The Games They Will Play: Tax Games, Roadblocks, and Glitches,” is clearly written by professors skeptical of the overall tax package. But it provides useful examples of potential problems, such as ways new passthrough provisions could lead to complex battle lines between tax authorities and taxpayers.
It also assesses how the elimination of the state and local income and sales deduction (SALT) from the federal income tax code might encourage changes to state tax systems. Remember both House and Senate Bills would only retain a deduction of up to $10,000 for property taxes.
The restriction of the SALT deduction will, ceteris paribus, raise the cost of state and local government expenditures for affected taxpayers, particularly in higher-income, higher-tax jurisdictions. That might be expected to put pressure on states to reduce spending—a feature of this reform, rather than a bug.
But according to the professors, states may also seek to “reshape their tax systems so as to respond to this change and retain the benefit of the deduction for their taxpayers.” One means is to shift towards collecting more revenue from deductible taxes.
How might they do so?
One way for states to achieve this is by shifting to use of the property tax. The liquidity impact on taxpayers of a shift to property taxes can be mitigated by circuit breakers administered through a state’s income tax—essentially, reducing income tax liability in exchange for higher property taxes. Such responses would effectively allow taxpayers to deduct the full amount of state and local property and income taxes, up to the $10,000 cap.
Now, the professors paint this as a bad thing, because they believe it means federal revenue losses from tax reform will be greater than currently projected. From an economic perspective though, property taxes are broadly regarded as being less distortionary to economic decisions than income taxes. They also tend to encourage localism, and given they are widely disliked (particularly by elderly constituencies who turn out in elections), may be even more effective at bringing attention to the scale of state government spending than an increased income tax burden.
Whilst it would be better to have no SALT property deduction at all, if a consequence of tax reform is states using property taxes instead of income taxes, then that could be a good thing for the economy.
News stories are portraying the Republican tax bills as favoring the rich, even though the opposite is true. The GOP cuts would make the tax code more progressive, and the largest percentage cuts would go to middle-income households.
The Washington Post pushed another faulty narrative yesterday. The three layers of headlines on the hardcopy front page were, “Trump’s tax vow taking a U-turn—focus shifted away from middle class—GOP plan evolved into a windfall for the wealthy.” The story’s theme was that Trump originally promised middle-class tax cuts, but House and Senate tax bills have morphed into an orgy of tax cuts for corporations and rich people.
Ridiculous. Business tax cuts have been central to Trump’s message since 2015. He proposed slashing business tax rates to 15 percent and the top individual rate to 25 percent. House Republicans proposed in 2016 to cut the corporate rate to 20 percent and the top individual rate to 33 percent. Trump and House Republicans were elected in 2016 promising large business tax cuts and across-the-board individual rate cuts.
Rather than Trump and Republicans “shifting away” from middle-class cuts toward cuts for businesses and the wealthy as the Post claims, it is the opposite. Current House and Senate tax bills have sadly shifted away from pro-growth reforms toward redistribution from higher earners to lower earners.
Rather than a “windfall for the wealthy” as the Post claims, the GOP bills would provide larger percentage cuts for middle earners than higher earners (see here and here). The GOP may abandon cutting the top individual tax rate at all. Much of the cuts for high earners are allocated corporate tax cuts, but economists disagree about who those cuts would actually benefit.
Furthermore, the GOP tax bills would increase spending subsidies (refundable credits) for people at the bottom who do not pay any individual income taxes. Look at this TPC analysis of the Senate bill. It shows the bottom two quintiles receiving tax “cuts” in 2019 and 2025, yet those groups do not currently pay any income taxes on net.
The Post complains, “the legislation would lower taxes for many in the middle class, but mostly temporarily.” That is true, but virtually all the individual provisions in the Senate bill are temporary, not just the ones for the middle class. The corporate tax rate cut would be permanent, but this JCT analysis shows that in 2027 much of the revenue loss from that cut would be offset by corporate tax increases. Not only that, the Tax Foundation found that the corporate rate cut would nearly pay for itself by 2027 as corporate investment expanded and tax avoidance fell.
The Post presents TPC data showing tax-cut shares for each income group but provides no context. The following chart shows the TPC data in context. First, note the enormous share of federal taxes paid by the top quintile under current law. The chart includes all federal taxes—income, payroll, estate, and excise for 2019.
Now observe that the top quintile would receive a smaller share of the Senate tax cut than their tax share under current law. For the three middle quintiles, it is the opposite.
That means that the Senate tax cut would make the federal tax code more progressive. If the Senate tax cut is enacted, higher earners would pay a larger share of the overall federal tax burden. That moves in the wrong direction because our tax code is already far too progressive.
Trump and the Republicans did take a “U-turn.” They started down the pro-growth highway but veered off course into the redistributionist side roads. The conference committee would put the tax reform engine in reverse if it bumps up the corporate tax rate from 20 percent and makes other anti-growth changes.
Data behind the chart is here.
2017 has been a year of massive expansion for the Global War on Terror, but you could be forgiven for not noticing. In addition to the media focus on the ongoing chaos in the Trump White House, the Pentagon has consistently avoided disclosing where and who America’s armed forces are engaged in fighting until forced to do so.
Take Syria, where the Pentagon long claimed that there were only 500 boots on the ground, even though anecdotal accounts suggested a much higher total. When Maj. General James Jarrard accidentally admitted to reporters at a press conference in October that the number was closer to 4000, his statement was quickly walked back. Finally, last week, the Pentagon officially acknowledged that there are in fact 2000 troops on the ground in Syria, and pledged that they will stay there ‘indefinitely.’
Even when we do know how many troops are stationed abroad, we often don’t know what they’re doing. Look at Niger, where a firefight in October left four soldiers dead. Prior to this news—and to the President’s disturbing decision to publicly feud with the widow of one of the soldiers—most Americans had no idea that troops deployed to Africa on so-called ‘train-and equip’ missions were engaged in active combat.
Yet U.S. troops are currently engaged in counterterrorism and support missions in Somalia, Chad, Nigeria, and elsewhere, deployments which have never been debated by Congress and are authorized only under a patchwork of shaky, existing authorities.
Even in the Middle East, deployments have been increasing substantially under the Trump administration, with the number of troops and civilian support staff in the region increasing by almost 30% during the summer of 2017 alone. These dramatic increases were noted in the Pentagon’s quarterly personnel report, but no effort was made to draw public attention to them.
The fundamental problem is simple. With only limited knowledge of where American troops are, and what they are doing there, we cannot even have a coherent public discussion about the scope of U.S. military intervention around the globe. We should be discussing the increase in U.S. military actions in Africa or the growth in U.S. combat troops in the Middle East, but that discussion is effectively impossible—even for the relevant congressional committees—with so little information.
So if I could ask for one change to U.S. foreign policy for Christmas, I’d like to know where American troops are and what they’re doing there. It’s past time for a little more transparency, from the Trump administration, and from the Pentagon.
A Wall Street Journal op-ed last week by liberal billionaire Tom Steyer complained that the proposed Republican tax cut “overwhelming helps the wealthy.” He said that the American people will be furious “if they see a bill passed that hands out filet mignon to the wealthy while leaving them struggling over scraps.”
Steyer’s op-ed had more rhetoric than data, but he did cite a Tax Policy Center (TPC) analysis of the Senate bill. So let’s look at the TPC data. The table below summarizes the Senate tax cuts for 2019 and compares them to current-law taxes.
Looking at the block on the right, TPC finds that 62.2 percent of the tax cuts would go to the highest quintile, or fifth of U.S. households, and 15.3 percent would go the top 1 percent. Just 13.5 percent of the cuts would go the middle quintile. Does that mean filet mignon for the top and scraps for the middle?
No, it does not. We need context. We need to know how much tax those groups are currently paying, but TPC does not show that in its analysis of the Senate plan. You have to dig through TPC’s website to find it here. TPC’s estimates of current law taxes for 2019 are below in the block on the left. “All Federal Taxes” includes the taxes shown plus payroll and excise taxes.
Without any tax cut, the top quintile will pay 67.0 percent of all federal taxes in 2019, and the top 1 percent will pay 26.7 percent. Since the tax cut shares for those groups are less than that, the cuts will make federal taxation more progressive. If the Senate bill were passed, the top quintile of higher earners would pay an even larger share of the overall federal tax burden. That would undercut the growth potential of tax reform and make our excessively progressive tax code even more so.
What about the middle quintile? TPC estimates that under current law the group will pay 5.4 percent of individual income taxes, 8.6 percent of corporate taxes, and 10.0 percent of all federal taxes in 2019. Yet this group would receive 13.5 percent of the Senate tax cuts. Thus, middle earners would gain a disproportionately large share of the tax cuts under the Senate plan.
So which group is dining on fillet mignon? It is the overgrown federal government because—with or without a tax cut—spending is projected to soar in coming years. Federal spending is one fifth of gross domestic product and rising, and unfortunately that quintile receives solid bipartisan support.
Citing TPC, Steyer says, “Sixty-two percent of the benefits from the Senate bill’s tax cuts flow to the top 1% of earners.” Bernie Sanders used that statistic on TV yesterday.
That figure is for 2027 when nearly all the individual tax changes are scheduled to have expired in the Senate bill, so it is kind of meaningless. For one thing, it is 62 percent of a small overall revenue loss number. TPC finds that the 2027 tax cuts would reduce revenues by 0.2 percent of income, or just one-sixth the amount that revenues would be reduced in 2019.
The corporate tax rate cut would be the main cut in place in 2027, and TPC assumes that higher earners would receive most of those benefits. But other economists dispute that view, arguing that corporate tax cuts would benefit workers across the income spectrum, as discussed by the CEA.
Finally, most of the estimated static revenue losses from the corporate rate cut in 2027 would offset by corporate tax increases that year, as shown in this Joint Tax Committee report.
The United States’ immigration system favors family reunification, even in the so-called employment-based categories. The family members of immigrant workers must use employment-based green cards despite the text of the actual statute and other evidence that strongly suggests that this was not Congress’ intent. Instead of a separate green card category for spouses and children, they get a green card that would otherwise go to a worker.
In 2015, 56 percent of all supposed employment-based green cards went to the family members of workers (Chart 1). The other 44 percent went to the workers themselves. Some of those family members are workers, but they should have a separate green card category or be exempted from the employment green card quota altogether.
Employment-Based Green Cards by Recipient Types
Source: 2015 Yearbook of Immigration Statistics, Author’s calculations
If family members were exempted from the quota or there was a separate green card category for them, an additional 76,711 highly skilled immigrant workers could have earned a green card in 2015 without increasing the quota.
About 85 percent of those who received an employment-based green card in 2015 were already legally living in the United States (Chart 2). They were able to adjust their immigration status from another type of visa, like an H-1B or F visa, to an employment-based green card. Exempting some or all of the adjustments of status from the green card cap would almost double the number of highly skilled workers who could enter. Here are some other exemption options:
Adjustment of Status vs. New Arrivals
Source: 2015 Yearbook of Immigration Statistics, Author’s calculations
- Workers could be exempted from the cap if they have a higher level of education, like a graduate degree or a Ph.D.
- A certain number of workers who adjust their status could be exempted in the way the H-1B visa exempts 20,000 graduates of American universities from the cap.
- Workers could be exempted if they show five or more years of legal employment in the United States prior to obtaining their green card.
- Workers could be exempted based on the occupation they intend to enter. This is a problem because it requires the government choosing which occupations are deserving, but so long as it leads to a general increase in the potential numbers of skilled immigrant workers without decreasing them elsewhere, the benefits will outweigh the costs.
I've had lots of requests for a non-Scribd link to the 2004 DoD IG report on the THINTHREAD and TRAILBLAZER programs I mentioned in my JustSecurity.org piece yesterday, so you can now find it here.
I should point out that at the end of the excellent documentary on this topic, A Good American, the film's creators noted that Hayden, NSA's Signal Intelligence Division director Maureen Baginski, and two other senior NSA executives involved in this affair declined to be interviewed on camera.
Michael Currier, like more and more defendants in recent years, was charged with multiple, overlapping offenses: (1) breaking and entering, (2) grand larceny, and (3) possession of a firearm as a convicted felon. This charging decision turned on an aggressive application of Virginia’s felon-in-possession statute, because the alleged firearm violation here was fleeting happenstance: Currier supposedly “handled” the victim’s firearms by moving them out of the way in order to commit the different offense of stealing money from a safe. If Currier had been tried on all these charges at once, the evidence needed to show he was a convicted felon would have been unduly prejudicial on the two primary counts (evidence of past, unrelated criminal behavior is generally inadmissible). The Commonwealth recognized this potential for prejudice, and therefore moved to sever the felon-in-possession count. It opted to try the primary offenses first, and the jury acquitted Currier of the breaking and entering and grand larceny charges. Undeterred, the Commonwealth pressed forward on the felon-in-possession count, refining its case to present the same underlying factual theory to a second jury. And on this second go-round, Currier was convicted.
As Cato argued in our recent amicus brief, Currier’s conviction is squarely in conflict with the Double Jeopardy Clause of the Fifth Amendment. That provision guarantees that no person shall be “twice put in jeopardy of life or limb” for the same offense, and includes the principle that when an issue of ultimate fact has necessarily been determined by a jury acquittal, the government cannot relitigate the same factual question in a second trial for a separate offense. Given how Currier’s charges were tried the first time, the jury necessarily concluded that he wasn’t guilty of participating in the underlying burglary and theft—he simply wasn’t there at all. But that’s the exact same set of facts the government needed to obtain a conviction in the second trial, because Currier was only alleged to have “handled” the guns in the course of the robbery.
The Commonwealth justifies this result by arguing that Currier waived his double-jeopardy rights by agreeing to severance, and that there was no blatant prosecutorial misconduct. But this position would deprive the Double Jeopardy Clause of much of its significance, and is inconsistent with the historical development of double jeopardy jurisprudence in the United States—in particular, its goal of guarding against the structural power imbalances that exist between prosecutors and defendants. It is also impossible to square the Commonwealth’s position with the sanctity of jury acquittals and the time-honored authority and prerogative of the jury, speaking for the community, to ultimately and finally determine facts.
If the Commonwealth’s position becomes the law of the land, the government will be further incentivized to charge more offenses based on the same underlying conduct, thus increasing the need for (and likelihood of) multiple trials for the same underlying series of events. This type of overreach will allow the government to run dress rehearsals for successive prosecutions in more and more cases, thereby undermining the sacred liberty interests protected by the Double Jeopardy Clause, and diminishing the responsibility of the jury to stand between the accused and a potentially arbitrary or abusive government. This result would be a travesty; in today’s world of ever-expanding criminal codes and regulatory regimes, the government needs fewer, not greater, incentives for piling on theories of criminal liability.