Today is Wednesday, December 20, our top story today, after weeks of buildup, the Republican tax plan has been finalized. The Senate passed their version of the bill sending it to the president's desk. In the interest of our listeners we thought we would do a walk-through of the major provisions. Earlier I spoke with Edward McCaffery , the executive director of University of Southern California's Institute of federal taxation. He has testified on tax reform. To start with, none of this should affect our taxes for this year, right?That is right. These phases will go into effect for 2018, as most listeners know you pay on a calendar year. You're not going to completely understand this until April 15, 2019. But you may see some effects.One of the big issues, taxes for pass-through businesses, what is that?A pass-through business, there are basically two forms of businesses. Two broad ways that businesses in America operate. One is through what is called, C corporations, that is what all of the large multinational corporations are. All of the vocabulary is based on the Internal Revenue Code. So there is a subchapter C, the governance large corporations -- that governs large corporations. So they were paying tax at a top rate, of 35%. That will go down to 21%. To your question about pass-through, pass-through is another form of business. And another form of taxation, in which the business itself does not pay a tax but it passes through. Through its items of income and gain and loss, to its owners. So S corporations, partnerships, LLCs, they simply take records and then they transmit forms to the individual owners, and the individual owners pay tax. So they also, it is more complicated because you must interface with the individual tax system. But these are most of the smaller and medium-sized businesses in America. They too are going to get a tax break.Let's talk about individual rates, we hear they are mostly falling and the standard deduction is falling -- doubling. Is it true that most people should expect a cut next year?Really you should go back a few steps. The people who favored this, overwhelmingly Republicans, I don't think they played the media, they played the American public. They initially rolled out a plan that would not lead to decreases for most Americans, then they tweaked and tinkered. The things we are talking about our correct, the rates come down, the standard deduction gets doubled, that is what they keep talking about and what they want to keep talking about. They talk about the good, they don't talk about the fact that they are eliminating the exemptions for individuals, so you don't get a deduction for your children. They are limiting other deductions as well. Some deductions will only last until 2025, and then they will extend them or they are gone. What they have been doing for the last month or so, making small adjustments so that they can plausibly say that 85 to 90% of American taxpayers will get a cut. That seems to be true, but the cuts are going to be very small and they certainly pale in comparison to the brakes that both corporations and the very wealthiest are getting. The wealthiest individuals are saving millions, while ordinary Americans are getting 100 or 200.So remind us, what is the personal exemption? And what does it mean that it is going away.It is roughly $4000 per person. So, if you are an individual, you could have deducted $4000 for yourself. If you are married without children, that would've been $8000. If you are married with two children, that is for personal exemptions, $16,000 worth of deductions. These are all going away. The net effect, even though the standard deduction is going up, and child credits are going up, child credit is limited in its benefit to 2 children. So small families and up being winners, larger families are losers. So these kinds of effects, ripple throughout, and they are very difficult to see. Of course the people who support the plan want to keep talking about, doubling the standard deduction and lowering rates. Not talking about, the other things they are doing that are hurting people.Some versions of this bill have taken out exemptions for medical expenses and tuition waivers, what is the final word?The initial plan was quite draconian, eliminating a wide range of deductions and credits. Providing small but significant benefits to some Americans, like the medical expense deduction. In the last wave, those provisions, which were fairly small, not that many people qualified. They all came back in.Since more people will be taking the standard deduction, does this make the tax code simpler?Good question. For individuals, and again there is a trade-off. Yes, people taking the standard deduction have a simpler time, and simpler forms. They can often have their taxes prepared for free by third parties, because the forms are so simple. And there will be more people taking standard deductions. Because the standard deduction is more generous. And the itemized deductions are being limited. But, anyone involved in a business, anyone with a sole proprietorship, or a small business. Everything on the business side for both large and small businesses, has gotten significantly more complicated. So if you are simply a wage earner, you get W-2s, life has been pretty simple and will continue to be. If you operate a business, you better get to an accountant or tax professional pretty soon.Well ahead, thank you for joining -- Ed, thank you for joining us. That was Edward McCaffery
A triumphant President Donald Trump and jubilant fellow Republicans celebrated the passage of their $1.5 trillion tax overhaul Wednesday as a "historic victory for the American people." The American people, however, will need some convincing.
As Trump and GOP lawmakers gathered at the White House to cheer their first major legislative achievement — and the biggest tax changes in a generation — some Republicans warned that the party could face a painful political backlash against an overhaul that offers corporations and wealthy taxpayers the biggest benefits and triggers the loss of health care coverage for millions of Americans.
There was no hint of anxiety at the White House, though, as the president and congressional Republicans pushed any qualms aside and reveled in a much-needed win at the end of a year marked by GOP infighting and political stumbles.
"We are making America great again," Trump declared, personally thanking his "little team" of Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan, before lawmakers lavished praise upon a president they have often openly criticized.
"I don't know if we'll have bigger moments, but we hope to," said Trump.
The president was expected to sign the bill at a later date for technical reasons. In fact, the signing may be postponed until the start of the new calendar year in order to delay $120 billion in automatic cuts to popular programs such as Medicare and spare Republicans from having to explain them in an election year.
The tax package provides a deep cut in the corporate rate, from 35 percent to 21 percent. On the individual side, about 80 percent of American households will get tax cuts next year, while about 5 percent will pay more, according to the nonpartisan Tax Policy Center.
People who make less than $25,000 will see an average tax cut of $60; those who earn between $49,000 and $86,000 will get about $900, and those in the top 1 percent of income — earning more than $733,000 — will receive around $51,000 in tax savings, the policy center said.
The cuts will come at a price: The Congressional Budget Office predicts the legislation will add $1.4 trillion to the national debt over the next decade.
Some of the president's strongest allies conceded that voters may not immediately warm to the new law.
Andy Surabian, a senior aide for a pro-Trump super PAC, likened the president's position to that of Ronald Reagan, who struggled through low approval ratings early in his presidential term after Congress passed a tax cut that led to huge Republican losses in the 1982 midterm elections. Reagan went on to a sweeping re-election in 1984 after the economy improved.
Said Surabian: "Even if we don't start seeing positive effects in 2018, the important thing here is President Trump sets himself up to win re-election in 2020."
GOP strategists and candidates alike called on Trump to launch an immediate public relations tour to sell the plan to help avert an anti-Republican tsunami in 2018.
"People don't understand it," said Virginia Republican Senate candidate Corey Stewart, though he still called passage "a massive win" for Trump and the GOP.
Only about 1 in 3 voters have supported the legislation in recent days, according to several polls. About half of Americans believe the plan will hurt their personal finances. And 2 in 3 voters say the wealthy will get the most benefits, according to a USA Today/Suffolk University poll released last week
The White House said Wednesday that Trump will actively promote the bill. Aides argued that media coverage has not accurately portrayed the benefits and that people will come around as they feel the payoff.
Trump himself complained in a tweet that "defeated Dems" and the media were out to "demean" the tax package but "the results will speak for themselves, starting very soon."
Democrats, who unanimously opposed the tax plan in Congress, were furious about the new policy yet upbeat about the potential political fallout in next year's elections. They need to flip 24 House seats and just two Senate seats to take control of each chamber.
Asked if the tax bill will help Republicans hold the House, Minority Leader Nancy Pelosi leaned into a microphone and said, "Let. Them. Think. That."
The bill goes far beyond taxes.
While it does not repeal the law known as "Obamacare," the legislation finalized by the House on Wednesday attacks a central tenet of the health care system by eliminating the requirement that all Americans have health insurance. The Congressional Budget Office says elimination of the "individual mandate" will boost health care costs by about 10 percent for those with coverage and leave 13 million additional Americans without health insurance in 10 years.
Millions of people will still remain covered under the law's Medicaid expansion and health care exchanges, but Trump cast the package as a shadow repeal.
"We have essentially repealed Obamacare," the president declared.
On taxes, the first modest effects will be felt in February paychecks.
People living in high-tax states like New York and California may ultimately pay more. Among those who benefit, the wealthy will make out far better than the working-class voters who fueled Trump's victory last year.
Trump said Wednesday the bill will spur economic growth as corporations, flush with cash, increase wages and hire more workers. Democrats questioned, even mocked that prediction.
Reflecting the political risks, some of the nation's most vulnerable House Republicans voted against the bill.
Rep. Peter King, R-N.Y., one of 12 GOP House members to vote no, said the tax plan would hurt many people in high-tax states by eliminating the deduction for state and local taxes. All but one of the GOP no votes came from like-minded Republicans facing re-election in 11 months in moderate districts across New Jersey, New York and California.
The road to a Democratic House majority, if there is one, runs through these districts.
All the salesmanship in the world won't change the reality that the tax overhaul overwhelmingly favors the rich, Democratic critics said.
"People think it's unfair. They want tax reform, they don't want tax cuts for the wealthy," said Gov. Terry McAuliffe of Virginia. "And I think people will realize they've been sold a pig in a poke."
