I love the Republican tax reform bill. It’s not perfect, it has flaws, but it’s a great start that can be built upon.
I love this legislation even though I have a second residence and taxable income in New York. Given the high local tax rates in New York and the capping of the state and local tax deductions, I’m likely part of the 5 percent whose taxes will go up, not down. I’ll still itemize deductions, just not as much. And I’m far from rich.
What I love is the immediate benevolent response by many businesses, the legislation’s inevitable positive impact on the economy, and its focus on providing tax relief to those who pay a minority share of taxes to begin with. The doubling of the standard deduction and the child-care credit is like manna from heaven to mid- and lower-income households. Democrats will have a lot of explaining to do about their outrageous lies when their constituents realize the positive impact on them.
However, there’s one major fly in the ointment that’s given this legislative victory a big black eye: The failure to eliminate the carried interest deduction that bestows undeserved largesse on the wealthiest by allowing them to treat investment income as a capital gain. Capital gains are taxed at only 20 percent, not the 37 percent rate for ordinary income.
The repeal of the carried interest deduction was a major campaign promise by President Donald Trump. Its repeal was assured by Treasury secretary, Steve Mnuchin, and budget director, Steve Cohn, on many Sunday programs this year. House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell talked about the impending demise of the carried interest deduction, yet its repeal was never a part of any iteration of either the House or Senate bills and was never offered as an amendment. In other words it was never under serious consideration.
Why is this single omission such a black eye? First, though Trump has kept many promises, this wasn’t one of them. His failure to repeal the carried interest deduction ranks right up there with “Mexico will pay for a border wall.” But people will remember the carried interest fiasco long after they have forgotten about who pays for the wall.
Second, eliminating the carried interest deduction would have netted an additional $100 billion to $150 billion in revenue. This could have been used to reduce the small-business pass-through rate a few additional points, offset or ameliorate the impact of state and local tax deduction limits, or perhaps extend the child care credit even further. Instead, this money stays in the pockets of the wealthiest billionaires in the country. The inherent inequity is glaring.
Last, but not least, is the president’s concomitant abrogation of two other campaign promises: The forgotten man is forgotten no more. Drain the swamp!
I can’t think of a more salient metaphor for “the swamp” than the exercise of such political power by a few wealthy people in a way that runs counter to the welfare of the forgotten men and women. This failure by Congress — Republicans and Democrats alike — to even touch the deduction for investors symbolizes a swamp that owns our elected officials in the halls of Congress.
Mr. President, you ran on the premise that nobody could buy you. Prove it. Find a way to reverse this black eye.
Steve Nussbaum is president of Nussbaum Long-Term Care Planning & Insurance in Nicholasville. Email him at LTCSPEAKER@aol.com.