Tuesday, November 7, 2017

Tyler Cowen: The Tax Increases in the Current Tax Bill Are Only the Beginning

In his Bloomberg column, beltarian Tyler Cowen, doesn't seem upset about it, but he correctly warns that the new tax deductions limits in the current bill, when only result in more limitations in future tax legislation:
The tax plan released by the House last week limits deductions for a variety of expenses, including tuition debt, mortgage interest, alimony, medical expenses, state and local taxes, gambling losses, tax-preparation expenses, and moving expenses....

If the bill succeeds in limiting these deductions, a logic is set in motion for
future tax reforms. Let’s say the Republicans eliminate tax deductions for new mortgages above $500,000. That would become a sign that the homeowner and real-estate lobbies are not as strong as we might have thought. The next time tax reform comes around, legislators will consider lowering the value of the deduction further yet. After all, the anti-deduction forces won before and, in the new battle, those who expect to have future mortgages above $500,000 don’t have a stake anymore.

In other words, any squeezed deduction will remain a vulnerable target for more squeezing, or even elimination, over successive reforms...

The state and local tax deduction has been considered hard to touch, but according to one estimate 90 percent of the benefits accrue to individuals earning more than $100,000 a year. If that provision can be touched in the current bill, it too might continue to be hit in future tax reforms.

How else will the Republican tax bill evolve over time? Well, just as the deductions could become politically weaker, the top marginal income tax rates could become politically stronger. The exact treatment in the House plan seems to be in flux, but the top rates from President Barack Obama’s tax reform are likely to stick in some manner...

 If we look at the Republican plan as a whole, it appears to be a recipe for a future tax code with many fewer deductions, lower corporate rates, higher income tax rates for the wealthy and a continuing inheritance tax.

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