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Who Wins and Loses in Trump Tax Reform?

《Illini News》 December 14, 2017

Professor Richard Kaplan
PHIL CICIORA, BUSINESS AND LAW EDITOR

Businesses and heirs to vast amounts of money and property stand to benefit the most from Republican efforts to overhaul the tax code, said Richard L. Kaplan, an internationally recognized expert on U.S. tax policy and the Guy Raymond Jones Chair in Law at Illinois.

How does the 2017 tax reform legislation compare with the Tax Reform Act of 1986?
It’s not even close. In 1986, the legislation was crafted over 14 months and it cut taxes for most individuals. High earners saw the most significant benefits – their top tax bracket went from 50 percent to 28 percent. But unlike today, those cuts were revenue neutral because taxes were raised on businesses – in particular, corporations.
The 2017 version is almost the opposite of that. The current legislative efforts at tax reform have been gestating for barely two months. Some individuals will pay more in taxes while others will pay less. The Warren Buffetts of the world will be in exactly the same situation they are now. The vast majority of wage earners may have a few more dollars in each paycheck, but it will not be a life-altering sum.

Who wins under the new legislation?
Most business are going to see tax cuts – corporations' top marginal rate will decrease from 35 percent to 20 percent. Partnerships, S corporations and individual proprietorships will get a special lower tax rate. Businesses also will be able to immediately write off their depreciable assets, something that has occasionally been done in the past as a temporary economic stimulus but will now be the law of the land.
Besides businesses, which will face a far more advantageous tax environment, the other big winners are individuals who will inherit vast amounts of money and property. Both versions of the tax bill double the estate tax exemption to $11.2 million, and twice that amount for married couples, which largely takes care of the family farms issue.

Who loses?
Some wage earners could be worse off. Many employer-provided fringe benefits outside of health insurance and 401(k) plans – moving expenses, employer-provided housing, tuition reductions, employee achievement awards, adoption assistance, subsidized public transportation fare cards – will now be taxed. Some of these items are bigger than others, but there is little rationale for these changes beyond raising revenue to pay for other tax cuts.

With the haphazard way the legislation was cobbled together, could it fall apart?
It’s possible. It’s also possible it gets postponed. The real pressure is political. We’re going into the political season of 2018 and Republicans need to show some results because they want to forestall a primary challenge against their seat. Thus the impetus to get tax reform done sooner rather than later.

Should the far-reaching effects of this legislation be troubling?
The corporate tax cuts are “permanent,” but that just means there is no preset expiration date. Nothing is ever truly permanent while Congress is in session. One session of Congress cannot bind future Congresses, after all. Besides, the one tax principle that Republicans and Democrats can agree on is that the tax code is not OK the way it is.

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