Strategic Communications and Marketing News Bureau

Who wins and loses in proposed tax reform?

Richard L. Kaplan, the Guy Raymond Jones Chair in Law at Illinois, is an internationally recognized expert on U.S. tax policy. In an interview with News Bureau business and law editor Phil Ciciora, he discusses the Republican tax overhaul plan.

How does the 2017 tax reform legislation compare with the Tax Reform Act of 1986?

It’s not even close. In 1986, the legislation was crafted over 14 months and it cut taxes for most individuals. High earners saw the most significant benefits – their top tax bracket went from 50 percent to 28 percent. But unlike today, those cuts were revenue neutral because taxes were raised on businesses – in particular, corporations.

The 2017 version is almost the opposite of that. The current legislative efforts at tax reform have been gestating for barely two months. Some individuals will pay more in taxes while others will pay less. The Warren Buffetts of the world will be in exactly the same situation they are now. The vast majority of wage earners may have a few more dollars in each paycheck, but it will not be a life-altering sum.

Who wins under the new legislation?

Most business are going to see tax cuts – corporations’ top marginal rate will decrease from 35 percent to 20 percent. Partnerships, S corporations and individual proprietorships will get a special lower tax rate. Businesses also will be able to immediately write off their depreciable assets, something that has occasionally been done in the past as a temporary economic stimulus but will now be the law of the land.

Besides businesses, which will face a far more advantageous tax environment, the other big winners are individuals who will inherit vast amounts of money and property. Both versions of the tax bill double the estate tax exemption to $11.2 million, and twice that amount for married couples, which largely takes care of the family farms issue.

Who loses?

Some wage earners could be worse off. Many employer-provided fringe benefits outside of health insurance and 401(k) plans – moving expenses, employer-provided housing, tuition reductions, employee achievement awards, adoption assistance, subsidized public transportation fare cards – will now be taxed. Some of these items are bigger than others, but there is little rationale for these changes beyond raising revenue to pay for other tax cuts.

With the haphazard way the legislation was cobbled together, could it fall apart?

It’s possible. It’s also possible it gets postponed. The real pressure is political. We’re going into the political season of 2018 and Republicans need to show some results because they want to forestall a primary challenge against their seat. Thus the impetus to get tax reform done sooner rather than later.

Should the far-reaching effects of this legislation be troubling?

The corporate tax cuts are “permanent,” but that just means there is no preset expiration date. Nothing is ever truly permanent while Congress is in session. One session of Congress cannot bind future Congresses, after all. Besides, the one tax principle that Republicans and Democrats can agree on is that the tax code is not OK the way it is.

 

Editor’s note: To contact Richard L. Kaplan, call 217-333-2499; email rkaplan@illinois.edu

Read Next

Life sciences Photo of Michael Ward standing in tall grass on a riverbank.

How are migrating wild birds affected by H5N1 infection in the U.S.?

Each spring, roughly 3.5 billion wild birds migrate from their warm winter havens to their breeding grounds across North America, eating insects, distributing plant seeds and providing a variety of other ecosystem services to stopping sites along the way. Some also carry diseases like avian influenza, a worry for agricultural, environmental and public health authorities. […]

Announcements Marcelo Garcia, professor of civil and environmental engineering at The Grainger College of Engineering.

Illinois faculty member elected to National Academy of Engineering

Champaign, Ill. — Marcelo Garcia, a professor of civil and environmental engineering in The Grainger College of Engineering, has been elected to the National Academy of Engineering.

Social sciences Male and female student embracing on the quad with flowering redbud tree and the ACES library in the background. Photo by Michelle Hassel

Dating is not broken, but the trajectories of relationships have changed

CHAMPAIGN, Ill. — According to some popular culture writers and online posts by discouraged singles lamenting their inability to find romantic partners, dating is “broken,” fractured by the social isolation created by technology, pandemic lockdowns and potential partners’ unrealistic expectations. Yet two studies of college students conducted a decade apart found that their ideas about […]

Strategic Communications and Marketing News Bureau

507 E. Green St
MC-426
Champaign, IL 61820

Email: stratcom@illinois.edu

Phone (217) 333-5010