Joe had a nice little plumbing business in a pleasant small town. After paying his business expenses, he pulled in a tidy $100,000 a year. For protection against lawsuits, he was incorporated. But he didn’t pay corporate tax. His accountant, Mrs. Ledger, said Joe’s business was a subchapter S corporation, and that meant all his business income passed through to his 1040. So he paid tax on his plumbing income at his personal income tax rate. It was all simple enough. Then along came the Tax Cuts and Jobs Act of 2017.
Tax Analysts Blog
Martin A. Sullivan, chief economist and contributing editor for Tax Analysts’ daily and weekly publications and blog, is an expert on federal tax reform. Sullivan has written over 500 economic analyses for Tax Analysts’ publications and is the author of two books on tax reform, including the recent Corporate Tax Reform: Taxing Profits in the 21st Century. He has testified before Congress on numerous occasions. Previously, Sullivan taught economics at Rutgers University and served as a staff economist at the U.S. Treasury Department and later at the congressional Joint Committee on Taxation. Sullivan graduated magna cum laude from Harvard College and received a PhD in economics from Northwestern University. In October 2013 he was the subject of a 4,500-word feature in The Washington Post by Pulitzer Prize-winning journalist Steven Pearlstein.
Finally we’ve had time to review all the dynamic estimates now available on the pending tax legislation. The results are not surprising given what mainstream economists have been saying about the legislation’s effect on growth.
Whether you love or hate the tax bill soon to receive President Trump’s signature, knowing about its hidden problems and opportunities could play a major role in determining everything from your own personal finances to the outcome of the 2018 elections.
I write this as the sun is rising on Capitol Hill. It’s a brisk Friday morning, the first day of December. Senators should already have flown home for their five-day weekends. But Elizabeth MacDonough and Tom Barthold have made that impossible. Elizabeth is the Senate Parliamentarian, the unelected but respected referee who rules on what is in and out of bounds of Senate rules.
History will be made this week on the Senate floor as well as in the opulent cloakrooms adjacent to it, where cameras are not allowed. More than likely it will be in these spaces – no larger than a high school basketball arena and the adjacent locker rooms -- where the upper chamber of the U.S. Congress will draft and then pass the most significant piece of tax legislation in 31 years.
On Capitol Hill and in the media, there is a great deal of debate about the fairness of the Senate bill, especially after the November 16 release of the distribution tables from the Joint Committee on Taxation. (Doc JCX-58-17 at www.jct.gov). Below is a visual summary of one of those tables with some (nonpartisan) embellishment by your author.
The ultimate fate of the tax cut now before Congress will probably depend more on fairness than competitiveness. But what is fairness?
Tax Analysts reports that Ways and Means Committee Chair Kevin Brady will release a description and statutory text of his long-awaited tax plan on November 1. Markup will begin on November 6. No matter how smart you are, five days doesn’t provide a lot of time to evaluate an extremely complex piece of legislation.
Currently, in poll after poll, Americans by a large majority believe that U.S. corporations pay too little in taxes, and they fear future tax cuts will favor corporations and the wealthy. Business-only tax reform may be good economics, but no member of Congress from either party will seriously consider it.
The October 16 study from the Council of Economic Advisors — which I will take the liberty here to rename “The Economic Effects of a Yet Unspecified Corporate Tax Reform: Some Theory and Some Evidence” — is a classic example of how industry and partisan interests use economic analysis to give the public the impression their views are scientifically proven.
For years—especially since the Republican Congress and President Obama agreed to extend the Bush tax cuts to all but those in the highest brackets -- passthrough businesses have been bemoaning their potentially unfair treatment under the next tax reform.