Will Tax Reform Cost You? Don’t Panic Yet!
Reports of the negative impact of the tax reform bill have been rampant in the media. But it’s not time to panic yet. Perhaps it would be a good idea to step back and look at this overhyped situation objectively.
Where Tax Reform Stands Now
The House of Representatives passed its version of the tax reform bill on November 16, while the senate its version on December 2. After that, a joint conference committee was established.
The purpose of the committee is to reconcile the myriad differences in the two versions of the bill. Then the “new” version will need to pass in both the House and the Senate before going to President Trump for signature.
What That Means
The number one thing that means is that right now, we don’t actually have a tax reform bill.
The media outlets that are sure the bill will take money out of your pocket can’t know that their projections are true.
Nor can the media outlets that claim the bill is our economic savior know what the final bill will deliver. As of today, there is no single proposed version of the tax reform bill. Specifics of any proposed version are subject to change. And change must occur for the process to move forward. The two versions must be merged into one. Then we can analyze the merits of that bill.
The Similarities Between the Tax Reform Bills
There are some commonalities between the two versions that we currently have. A final version will most likely see a significant reduction in the top corporate tax rate. There will probably also be a reduction in personal income tax rates for most taxpayers. Not of the same magnitude as for corporate rates, but some reduction nevertheless.
Falling Short of True Reform
True tax reform would move the U.S. away from an overly complex system of deductions, credits, and loopholes. There may be some minor changes, but the system appears likely to remain the same overall. The same form of various provisions to appeal to specific groups to garner the necessary votes to pass. A disappointment to those who would like to see a truly clear, simple, and fair system. That would be real reform.
Will Tax Reform Pass?
There is no assurance that any form of this bill will make it to the president’s desk for his signature. Two obstacles present the largest threats to the bill getting all the way to Trump.
First, there isn’t much room for defectors — especially in the Senate. Basically, if one vote changes from “yes” to “no,” the final bill should still be able to advance. But any more than one defector, and the bill will probably die there.
The second potential problem is where the final version ends in terms of its projected addition to the national debt. If the final version of the bill adds less than $1.5 trillion to the national debt over the next 10 years, it can pass the Senate on a majority vote. However, a larger projected deficit than that, and the bill will require 60 votes to pass. In that scenario, Democrats will likely filibuster to kill the bill.
The Bottom Line
The bottom line is that no one can tell you how you will actually be impacted by a bill that doesn’t exist yet. If you ask media outlets that tilt left, the tax reform bill will be a disaster. If they tilt right, it will be an economic boon. But the truth lies at neither extreme.
If the bill passes, it may be more important to see how the deficits will be funded. The bottom line is that most American’s won’t know if they were helped or hurt by the bill. The change will likely be so small that they won’t bother to figure it out. That’s the real tragedy.