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Crain's Chicago Business: The tax bill is Republicans' real moment of truth

September 29, 2017
In the News

This article was published on September 29, 2017. A link to the article can be found here.

By Greg Hinz

For Republicans, the moment that counts is here.

For most of this year, the GOP has done a decent job of faking it, making it seem as if its top priority was to repeal, dismember, dispatch, amend to death and otherwise rid the world of that horrid Obamacare. Indeed, many Republicans, particularly in the tea party base, really did hate the Affordable Care Act as example of the kind of all-encompassing government that a nation of self-reliant entrepreneurs doesn't need.

Down deep, though, another issue better unifies Republicans, from the pinstripes on LaSalle Street to pickup-truck-drivin' Trump fans. Their true heart's desire is to cut taxes. Or, as my Republican friends would put it, to allow people to keep more of their hard-earned cash while incentivizing those without to do more to acquire their own hard-earned cash. And now Republicans have their chance, with the party controlling the White House and both chambers of Congress.

Can they do it?

At first blush, though some Democrats are screaming—Rep. Jan Schakowsky of Evanston termed it "cruel" and "disgusting," while Rep. Raja Krishnamoorthi of Schaumburg likened it to feeding the kids ice cream for dinner—this draft is better than some expected. The bill's sponsors, it seems, are recognizing political reality.

Although the wealthy would catch big breaks with the end of the alternative minimum tax and the inheritance tax, Republican Rep. Peter Roskam of Wheaton points out the top individual tax rate would be at least 35 percent and might approach the current 39.6 percent rate.The standard deduction, used by 80 percent of individual filers, would double. Democratic-sounding perks like expanded child care credits and retirement help might end up in the measure, too.

I'm not sure that's enough to counter the reality that cutting taxes inevitably provides the most help for those who pay the most taxes—the rich—while boosting pressure to cut spending that mostly helps the non-rich. Beyond that, certain provisions in the tax plan clearly are aimed at aiding high rollers, such as retaining the low rate on "carried interest." And others clearly are designed to hurt blue states, such as ending the federal deduction for state and local taxes.

Still, we'll have to wait for number-crunchers to do their thing to find out exactly who would get what. We don't know, for instance, what income levels these new brackets would apply to.

One area worth particular examination is cutting the corporate rate, now 35 percent. That's higher than other in countries, and potentially puts U.S. firms and their employees at a competitive disadvantage. But U.S. companies profit from tons of loopholes that foreign competitors lack. Will those be closed as part of this process? And will individual tax rates be high enough to make up for the fact that most business income ends up being passed on not to the middle class, much less lower-income people, but the well-off?

My major concern is that when changes in the plan are made—compromises with some Democrats are inevitable if Republicans want to pass a bill—Congress will follow the Illinois model and kick the can down the road, adding even more than the $2.2 trillion some reckon this bill will add to the federal deficit over the next decade. As they know in Springfield, it's a lot easier to boost spending and enlarge tax breaks than raise the revenue to pay the bills.

In the end, as Democratic Rep. Mike Quigley puts it, Republicans are going to have to fill in the blanks, avoid the temptation to run up the deficit and involve Democrats if they want to get further than they have on health care. The North Side rep is right. We're about to find out just how real this proposal is.