A Ticking Tax Bomb (Part I)

In Stories by Tom McManus and Arny DiLaura

This is the first installment of a two-part essay; read the conclusion in the February 1 edition of the Ridgefield Press, or click here.

2018 is a critical opportunity for voters to deliver an important message: “Enough!” to Republican control of Congress … and eventually, the White House.

Last month, President Trump signed into law a tax bill (“TCJA”) that had passed both houses of Congress with only Republican votes. The highly partisan process and overtly skewed distribution of front-loaded stimulus and deferred costs ensures that this legislation will be an important issue in upcoming elections.

Some features of TCJA — especially the reforms to corporate taxation — had been discussed and debated for years with bipartisan support. Some large multinational corporations had been avoiding U.S. taxes for a dozen or more years utilizing a range of complex strategies, while smaller and mostly domestic companies paid a rate seen as unfairly burdensome. The intent of corporate tax reform is to reduce the old statutory rate from 35% to 21% — boosting company profits — while reducing the opportunities to game the system.

Why then did Democrats in Congress refuse to supply even one vote to support the new tax law? Won’t the business tax windfall trickle down to everyone’s benefit?

To boost investment spending, companies are temporarily allowed to depreciate newly acquired equipment immediately. (Imagine: the economic equivalent of extending teens’ curfew a few hours. Newsflash: it’s popular with teens). It’s a blatantly transparent strategy to front-load the stimulus, under the pretense that growth will minimize the future costs. Besides, the economic benefits of the repatriation of foreign profits have been vastly overstated.

The individual tax rate cuts that Republicans celebrate are temporary. While TCJA’s changes benefiting corporations and the wealthiest few are permanent, Republican politicians — from the White House to Congress — are hoping that voters overlook the fact that their tax rate cuts expire after eight years.

The most egregious feature of the new law is the axe it takes to individuals’ deductions for state and local taxes (“SALT”). These had been fully deductible under the theory that state and local governments were providing services for the public good (like education, security and infrastructure). Henceforth, the deduction will be capped at $10,000 (which, to no one’s great surprise, buys a lot more in Ohio than Connecticut).

The new federal cap on SALT deductions is a missile aimed directly at states and towns like ours, effectively raising our cost of maintaining high standards for public education and providing a wide range of essential services for all residents, especially those in need.

In Ridgefield, real estate taxes alone will cause half of homeowners to hit or exceed the $10,000 cap; whatever more they pay in state income taxes will take a bigger bite from their own wallets, while harming states’ fiscal situation as well. While the situation is unsustainable, there are actions we can take.

The Ridgefield Democratic Town Committee provides this column. Tom McManus and Arny DiLaura are members of the DTC.