In 1986, big gubmint tax and spending slasher Ronald Reagan unveiled a tax “reform” plan that continued the massive transfer of wealth from the poor and working classes upwards to the very wealthy. Reagan’s plan eliminated essential deductions for consumer loans (auto, credit card, personal) and overhauled the deduction for medical expenses, so that they had to have amounted to 10% of an individual or married couple’s income.
Donald Trump, as always dominated by the disastrous neocon thinking of Republican leaders like Paul Ryan, has released a new tax “reform” plan. The plan is huge- nearly 500 pages long- and thus, like most important recent legislation, will almost certainly not be read in depth by those voting on it or the mainstream “journalists” tasked to report on it. What we do know so far about the plan hardly inspires confidence or optimism.
Perhaps the most inexplicable aspect of this plan is its attack- and there is no other word to describe it- on home ownership. As a long time licensed realtor myself, I can attest to how stagnant the real estate industry is, especially for first-time home buyers, upon whom the industry has always relied. It is already difficult to find buyers who can afford starter homes, but this plan will make it even harder.
Homeowners will no longer be able to deduct the property taxes they pay on their home under this plan. Mortgage interest deduction, while salvaged, has been slashed so that only mortgages up to $500,000 can be deducted. That may seem like a lot, but the cost of housing in many areas of America is such that many upper middle-class homeowners will lose a valued tax benefit. It is also unclear if this $500,000 cap applies to each mortgage a person or couple receive, or if it is a total amount for that individual or couple, in which case real estate investors would lose most of their incentive to invest. Survival of the Riches... Best Price: $7.29 Buy New $11.50 (as of 07:10 EST - Details)
National Association of Realtors President William Brown stated, “We are currently reviewing the details of the tax proposal released today, but at first glance it appears to confirm many of our biggest concerns about the Unified Framework. Eliminating or nullifying the tax incentives for home ownership puts home values and middle-class homeowners at risk, and from a cursory examination this legislation appears to do just that.” Jerry Howard, CEO of the National Association of Homebuilders, agreed, declaring, “The details that are coming out show that the House Republicans are picking large corporations and wealthy Americans over small businesses and middle-class American homeowners.”
This attack on the real estate industry and the attractiveness of home ownership in general makes no sense from any perspective. No one appears to gain from it. Trump is a real estate magnate- what is he thinking here? Why would big business like it? If realtors can’t point out the tax advantages of home ownership, and if indeed investors can’t benefit from them, it takes away one of the largest selling points of home ownership, and a primary reason for real estate investment.
The Republican tax plan also eliminates some of the remaining deductions that poor and working class Americans still benefit from. Student loans will no longer be deductible. The medical expense deduction that Reagan slashed dramatically will be eliminated. There will no longer be deductions for alimony expenses or moving expenses. As perhaps the most laughable aspect of the entire plan, it leaves the dreaded Obamacare mandate intact, which means Americans can still be penalized for not having health insurance.
Trump will benefit directly to an enormous degree from the elimination of the Alternative Minimum Tax, which served to force the very wealthy with numerous loopholes and deductions to at least pay some tax. And the centerpiece of the plan is a huge cut in the corporate tax rate, from 35% to 20%. Making a mockery of Trump’s rhetoric about forcing companies to move their industry back home, the plan permits companies to keep their profits offshore. The estate tax is also being eliminated, a benefit which will only apply to the absolute One Percent.
There will only be three tax brackets under the new plan. On the surface, it looks as if some lower-wage earners will get a tax break, but this must be juxtaposed against the elimination of most of the deductions they once benefited from. For most of us, there will be a minimal difference, if any at all. Any slight lowering of the tax rate will at least be countered by the loss of deductions. The only real winner here is corporate America.
The last thing a real populist would be concerned about, in a country where the bottom half of the population has less than 1% of the collective wealth, is slashing the corporate tax rate and eliminating the estate tax. The Stupid Party mantra regarding the lower corporate tax rate is that this will “create jobs” and an incentive to give pay raises to employees. While most employees desperately need a pay raise, it takes something beyond simple naivete to expect business leaders to pass anything meaningful along to those at the bottom, instead of further lining their overflowing pockets as usual.
Huey Long’s Share the Wealth tax plan would have exempted the first million dollars of income from taxation. Remember, this was in the mid-1930s, which would be close to $18 million today. His tax plan was populism exemplified- the entire burden would be placed on the most upper tier of the One Percent, and everyone else would benefit to at least some degree. Those at the bottom would enjoy the greatest benefits.
As I have stated many times before, every American could receive at least a 33% tax cut by simply eliminating the massive waste, fraud and abuse in government. The Grace Commission came up with those figures during a 1980 investigation, but predictably Reagan and the Stupid Party completely ignored their conclusions.
True tax reform would start with auditing and abolishing the Federal Reserve, and adopting an honest money system that isn’t based on fractional lending, or more bluntly counterfeiting. “Our” debt belongs to the bankers, and isn’t our responsibility. It should be repudiated. Our spending should reflect American interests, as candidate Trump stressed repeatedly, but President Trump has ignored. Rebuild the infrastructure. Bring all the troops home and stop starting pointless wars. Guard the borders and deport illegal immigrants. End the foreign visa work programs. America First and all that.
This tax plan will negatively impact a struggling real estate market, offer little if any tax relief to anyone except corporations, and eliminate the remaining deductions that the poor and middle-class most benefit from. It isn’t populist, won’t help the economy, and it certainly won’t make things any better for the majority of citizens.