Devil in the details for Republican tax plan
Philadelphia region has mixed reaction to tax reform proposal
Regional reaction to a tax reform proposal was predictably mixed the day after President Donald Trump announced it, with pro-business groups and Republicans singing its praises while Democrats and some economists urged caution until details are provided.
“The document released by the administration and congressional Republicans contains massive tax cuts for the superrich, big corporations and Washington special interests, which won’t create jobs or grow incomes for middle class families,” said Pennsylvania’s Democratic Senator Robert Casey. “In order to finance tax cuts for the super-rich and big corporations, this proposal from Republicans in Washington would add $1.5 trillion to our deficit, which could lead to cuts to Social Security, Medicare and Medicaid.”
The state’s Republican Senator Patrick Toomey was effusive in his praise for the plan, which is dubbed the “Unified Framework For Fixing Our Broken Tax Code” by Congressional Republicans and the White House:
“There’s nothing normal about 2 percent growth for the United States of America,” Toomey said. “We’re capable of so much more. When we get this right, I am confident that we will achieve robust growth. What that means for the hardworking families that I represent all across Pennsylvania is a direct pay raise when we lower their direct tax burden. It also means an indirect pay raise as more jobs are created and more businesses are launched. Upward pressure on wages allows people to have a higher standard of living.”
The sweeping plan would deeply cut levies for corporations, simplify everyone’s tax
brackets and nearly double the standard deduction used by most Americans. However, the measure is expected to face strong opposition from Democrats who contend it is tilted too much to the wealthy and would explode future deficits.
“Our country and our economy cannot take off like they should unless we dramatically reform America’s outdated, complex and extremely burdensome tax code,” Trump told a crowd in Indiana on Wednesday, urging them to lobby Congress to win passage of the first major revamp of the nation’s tax code in a generation.
Guy Ciarrocchi, president and CEO of the Chester County Chamber of Business & Industry, said his organization would work with many other business support groups across the nation to get tax reform legislation passed by the Republicancontrolled Congress.
“We will be working tirelessly to make tax reform a reality,” Ciarrocchi said. “This plan will make filing taxes easier and simpler. And, reducing rates and reforming the IRS will not only bring about fairness to small businesses, it will also encourage job creation and higher wages. There is no more important priority for our chamber.”
The chamber is one of 239 pro-business groups from across the nation to sign a letter sent to members of Congress in support of tax reform.
“It has been 31 years since Congress last reformed the tax code,” the letter reads in part. “Since then, the code has become an anchor weighing down the economy, job creation and wage growth for American families. This Congress has a once-in-a-generation opportunity to fix the problem.”
But exactly how the plan will affect taxpayers remains an unknown since it will be up to Congress to work out the details.
Joel Naroff, an economist from Holland, Pa., who often writes columns for Digital First Media newspapers, said individuals with the same incomes could have different experiences with the proposed reforms.
“This is a case where the individual matters —and that means you really need an accountant to parse the options,” Naroff noted. “That said, there are winners and losers that can be identified in general. They depend on the types of deductions taken as well as the level of income. On the personal side, do your deductions exceed or are they below the new standard deduction. If it is below, you switch from itemizing to taking the standard deduction and you make out well. But what if it is above and you got there using the state and local tax deduction, you will likely pay more because you cannot use the state and local tax deduction.
“Pennsylvania tends toward the higher level for state and local taxes, so this could be a problem, potentially a large one, for many (Pennsylvania) residents,” Naroff said. “The point here is that two families with the same income but different circumstances could find the tax changes raise or lower their taxes. Thus, income isn’t the only determinant of the impact of the tax changes.”
On the business side, it again depends on current tax rates and loopholes.
“We don’t know what business (or even household) tax breaks will be eliminated,” Naroff noted. “So it is hard to know who wins and who loses ...
“Any change will have major economic implications. Right now we only have a rough outline of the plan. It’s the details that matter and as usual, those are being left up to Congress, where politics and influence will determine the final structure of any bill.”
Greg Davis, CIO at Vanguard, told Bloomberg the Malvern area-based mutual fund giant supports tax reform — as long as it’s done responsibly.
“Our view is that, look, tax reform, we view that very positively,” Davis said. “Reducing corporate tax rates, simplifying and reducing individual tax rates, we view that all as very positive in terms of economic growth ... The details are going to be unbelievably important because you need to do all these things in a very fiscally responsible way. So the details are absolutely going to matter.”
“Reducing corporate tax rates, simplifying and reducing individual tax rates, we view that all as very positive in terms of economic growth ... The details are going to be unbelievably important because you need to do all these things in a very fiscally responsible way. So the details are absolutely going to matter.” — Greg Davis, Vanguard CIO
President Donald Trump speaks Wednesday in Indianapolis.