President Donald Trump announced the Republican tax plan on Sept. 28 in Indianapolis. He characterized it as “a once-in-a-generation opportunity,” that will end up being “the largest tax cut in our country’s history.”
Dr. Michaele Morrow, an associate professor of accounting at Suffolk University, did not characterize the Republican tax plan the same way as Trump in a recent interview with The Suffolk Journal.
“Everything that the Republicans are proposing will increase the national debt, which has long-lasting effects that should be of significant concern to Suffolk students,” said Morrow.
Congressional Republicans and the Trump Administration have made tax reform a priority. Their proposed plan offered very few details, and has left supporters excited and experts puzzled.
Dr. James Angelini, associate professor of tax accounting and director of the Masters of Science in Taxation (MST) program at Suffolk University, said that college students should pay attention to how taxes interact with student loans, tuition and scholarships.
Both professors agreed that while the tax plan may seek simplification, its results are complicated.
One aspect of the Republican plan changes the number of tax brackets from seven to three. Based on income, individuals will be taxed at either 12 percent, 25 percent, or 35 percent. The plan does not specify who is subject to these new brackets, creating uncertainty.
While it is unclear how the tax plan will affect upper, middle and lower class Americans without analyzing specific policy choices, Morrow believes that the proposal to change the standard deduction and dependency exemption will have a large negative impact on single parents and families with multiple children.
The Republican tax plan would also eliminate the estate tax, referred to informally as the “death tax.” According to Internal Revenue Service data from October, the estate tax applies to the transfer of property worth more than $5,490,000 to an heir at the time of the owner’s death.
“The estate tax generates a very minor amount of tax revenue (.6 percent), so the budget impact would be small,” said Angelini. “Therefore, eliminating the estate tax does look like a tax cut for the rich (President Trump included!). But, is it a fair tax to begin with? In many cases it is double taxation on assets that have already been depleted by a lifetime of paying taxes.”
The Center on Budget and Policy Priorities estimates that repealing the estate tax would result in $3 million tax cuts for wealthy heirs, and only affect 0.2 percent of American estates.
Morrow said repealing the estate tax would result in decreased revenue and increased income inequality.
The Massachusetts state legislature has been working on their own tax reform with regards to a constitutional amendment to impose a “millionaire’s tax.” The “millionaire’s tax” would call for an extra 4 percent tax on incomes over $1 million in the commonwealth, with the revenue going towards education and infrastructure initiatives.
While the House and Senate decided in June of this year to put the amendment on the 2018 ballot, the measure could be blocked in a legal battle by influential business groups, according to the Boston Globe.
Massachusetts has historically been nicknamed “Taxachusetts” for the reputation of high taxes, but the commonwealth ranks 18th out of the 50 states for tax burden by state, with a total tax burden just over nine percent.
In 2011, Congressional Republicans agreed to an “Americans for Tax Reform pledge” which was a commitment to not raise taxes. Through Reconciliation, a legislative process that curtails traditional rules, Congressional Republicans can uphold “the Pledge” through simple majority. Even so, any changes, passes or bills that could add to the deficit, such measures will expire after 10 years.
“If they could get 60 votes [in the Senate] the changes would be permanent, which is much better tax policy, but that would require some Democratic support,” said Angelini.
Angelini fears uncertainty will create more chaos if retroactive laws are pushed through during reconciliation; meaning that tax policies passed in November of this year could affect filing for the entire year. Retroactive laws create uncertainty for taxpayers who rely on consistency validity of current law.
While he acknowledges that the research is mixed on whether cutting or raising taxes leads to growth, Angelini said he believes a result of Congress’ inability to pass a tax policy by 2018 would perpetuate slow economic growth.
Morrow added that both Republicans and Democrats are to blame for the failure to pass effective tax reform that would deal with government spending.
“As I tell my class, these people making decisions for our country will be dead when the negative effects of those decisions start to be felt,” said Morrow.
Angelini offered that Congress should pursue business tax reform as a more certain means to grow the economy. Angelini argued that the current corporate tax system is pushing businesses offshore, stifling international competition and limiting immigration.
Morrow and Angelini agreed that a conversation on the national debt, with some sort of entitlement reform, is necessary to the tax policy conversation.
