One of the problems with the GOP tax proposal is that it’s on a track that is maglev fast. As a consequence, the process assures that the final bill, if there is one, will contain a large number of errors both textual and in terms of unexpected policy outcomes.
David Kamin, Mitchell Kane, Daniel Shaviro, and John Steines explore the loophole in the bill “for pass-through business owners and investors (but not employees) that probably was not taken into account in the revenue and distributional estimates.”
Shaviro offers some extended comments . He suggests two possible reasons for the issues raised by this provision: one charitable (a mere misunderstanding) and one less than charitable:
Because I’m a gentle and charitable soul, I am open to the theory that the mistakenly low revenue estimate – albeit, apparently reflecting a deliberate choice to retain likely state and local income tax deductibility for business owners and passive investors but no one else – arose innocently. But a lot of foot-dragging seems to have been going on towards the end of preventing its being addressed or corrected. And at this point, even if they do correct it, I for one will be inclined to attribute it to their having decided the game was up. A mere misunderstanding could easily have been fixed as early as Tuesday, three days ago, and it wasn’t.
No one should have to wonder whether the staff intended a bad result or merely stubbed its collective toe. There should be sufficient time and effort in the development of any tax bill of this magnitude to assure that it is both well-conceived and well-designed. As a result of the rush, this bill is neither.
Wanted: New Massachusetts marijuana inspector.
California race to legal pot: A dispatch from the front lines. The California marijuana tax problem: Why prices could increase 70% in 2018. California treasurer wants the state to study a public bank option for pot businesses. California cities may tax destroyed cannabis crops.
There’s a buzz surrounding Constellation’s legal marijuana deal. How Big Alcohol learned to stop worrying and love marijuana. Marijuana companies weighing billboard advertising’s expense against the exposure. DEA finalizes quota of government-grown marijuana for 2018 research: 978 pounds. Pot legalization opponents are in a state of denial.
Haze around Canada legalized pot sales becomes clearer today. Ontario wants bigger cut of pot tax, expecting strong demand. Please don’t enjoy Ontario legal marijuana. Pot to be sold from private retail locations in Manitoba, supply handled by Liquor and Lotteries.
James Wimberly commented that he was looking forward to my analysis of the GOP’s “assaults on higher education.” Well, to some extent, Kevin Drum beat me to the punch. However, I thought that it would be instructive to go through Drum’s list and attempt to quantify it using the GOP’s JCT numbers. All page references are to the GOP JCT’s tax estimates. Unless noted, the amounts are calculated over a ten year period. (I have skipped the doubling of the standard individual tax deduction mentioned by Drum, because it’s somewhat difficult to quantify the effect that this would have on higher education.)
Perhaps the most contentious proposed change, of course, is the 1.4% excise tax on college endowments where the endowments are greater than $100,000 per student. Interestingly, however, the actual dollars involved in this proposed change are relatively small, only $3.0 Billion according to the GOP JCT estimate. (text page 74, pdf page 80) The GOP JCT explanation is somewhat disingenuous, justifying the tax by reference to the excise tax on private foundations, like, say, the Trump Foundation. Of course, college endowments have a greater similarity to public foundations, like, say, the Clinton Foundation. My sense is that this is an attempt to pitch to the know-nothing base of the GOP by tweaking the nose of those elite, eastern, educated liberals. However, the list of affected institutions compiled by the Chronicle of Higher Education reveals that a large number of small, lesser-known liberal arts colleges, many in red states, would be subject to this tax.
Update, November 7: According to the Washington Post, this portion of the bill has already been amended to limit the excise tax to institutions where the endowments are greater than $250,000 per full-time student. Apparently, this will cut in half the total number of institutions upon which the tax is imposed. More details as they become known.
Next, the GOP JCT lumps several provisions together for purposes of a single analysis: (i) interest payments on qualified loans, (ii) U.S. Savings Bond interest used to pay higher education expenses, (iii) qualified tuition reductions provided by educational institutions to their employees, spouses, or dependents, and (iv) employer-provided education assistance, all of which, except for the U.S. Savings Bond provision, are mentioned by Drum. The estimate for all of these, together, is that revenue would increase by $45.1 Billion and outlays would be reduced by $2.4 Billion. (text pages 10-12, pdf pages 16-18)
But Wait, There’s More!
There are three existing higher education credit programs, the American Opportunity Tax Credit (AOTC), the Hope Scholarship Credit (HSC) and the Lifetime Learning Credit (LLC). These three programs “would be consolidated into an enhanced AOTC.” This is projected to increase revenues by $17.5 Billion and increase outlays by $0.2 Billion. (text pages 8-9, pdf pages 14-15) I can’t figure out whether the use of the word “enhanced” in this context means that the GOP members of the JCT (i) flunked English, (ii) flunked basic arithmetic, or (iii) don’t realize that Orwell thought that Newspeak was a Bad Thing.
There are also provisions related to Cloverdale educational savings accounts and 529 plans. The provision that has gained the most notice here is the change to 529 plans that “provides that unborn child may be treated as a designated beneficiary or an individual under section 529 plans. An unborn child means a child in utero. A child in utero means a member of the species homo sapiens, at any stage of development, who is carried in the womb.” This, of course, has virtually nothing to do with taxation, but is an ideological nod to the anti-abortion forces. According to the GOP JCT, these changes would reduce revenues by $0.6 Billion. (text pages 9-10, pdf pages 13-14)
Total savings, net, of the above changes: $67.2 Billion or about 3.36% of the cost of the $2 Trillion revenue loss due to corporate tax cuts. In other words, the corporate tax could still be dramatically reduced without any direct negative affect on higher education.
Maine governor vetoes voter-approved bill to legalize the sale of recreational marijuana. New Jersey likely to elect a governor determined to legalize marijuana. Here’s how much Virginia taxpayers are spending to jail marijuana users.
Confusion coming with California legal marijuana. California to tax pot as much as 45%. Can Los Angeles repair the damage done by the war on marijuana? Some Los Angeles pot growers, manufacturers may get legal grace period ahead of licensing.
States consider best ways to legalize recreational marijuana. Seeing the light on legalization at Rhode Island cannabis convention. Montana marijuana advocates say 2018 is the year they make it legal.
Canada government facing resistance from Senate over pot law. Ready or not, recreational marijuana use is coming to Canada. Angela Merkel may agree to legalize marijuana in Germany under coalition deal.
The Institute on Taxation and Economic Policy has an analysis of the distributional effects of the GOP tax bill. At the bottom of the page, you can click and find a distributional analysis for each of the individual states and the District of Columbia. Thus, for Maryland, we find that in 2018 the richest 1% get 38% of the total benefit, but that this percentage grows to 93% by 2027.
The proposed GOP tax bill repeals the so-called “Johnson Amendment” to IRC 501(c)(3) which allows tax exempt status only to an organization “which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”
Under the proposed bill, Section 501(c)(3) would be modified to allow “campaign activity by churches, their integrated auxiliaries, and conventions or associations of churches.” As set forth in the explanation of the bill (text pages 297-297, pdf pages 304-304):
[A] church, an integrated auxiliary of a church, or a convention or association of churches shall not fail to be treated as organized and operated exclusively for a religious purpose, nor shall it be deemed to have participated in, or intervened in any political campaign on behalf of (or in opposition to) any candidate for public office, solely because of the content of any homily, sermon, teaching, dialectic, or other presentation made during religious services or gatherings, but only if the preparation and presentation of such content: (A) is in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose; and (B) results in the organization incurring not more than de minimis incremental expenses.
Oddly, the bill is essentially effective immediately upon enactment, since it is effective for all years ending after the date of enactment. Because the taxable year for most churches ends on December 31, if the bill is passed in December, political activities in 2017, even if they took place before the date of enactment, will not result in disqualification of the church’s tax exempt status.
According to the majority GOP estimate (text page 76, pdf page 82) (which manages to misspell “de minimis”), this provision will cost the Treasury $2.1 Billion over 10 years.
One can see from the explanation one of the most significant problems with this provision that, in order to determine if any church is or is not violating the provision, there will have to be direct government entanglement with religion. This poses a direct threat to the Establishment Clause of the First Amendment. Walz v. Tax Commission, 397 U.S. 664, 674 (1970).
Today, Paul Ryan tweeted: “Reports out of Texas are devastating. The people of Sutherland Springs need our prayers right now.” Of course, my prayer is that Paul Ryan vacate his position as Speaker of the House as soon as possible. Judging by the tweets in response to Ryan’s tweet, this country is about to undergo a religious revival and answer my prayers. And, if the churches chime in, the revival will be tax exempt.
(*PS to CharlesWT: There is no Photoshopping involved.)