The House of Representatives has finally introduced a tax bill, and unless it’s changed substantially, it will give Wall Street a windfall, while middle-class taxpayers get a shortfall.
As written by the House, the bill would eliminate the alternative minimum tax, which ensures that everyone pays a fair share of taxes. It would also abolish the estate tax, which currently applies only to estates over $10 million. These two measures alone would mostly benefit only the wealthiest taxpayers, and cost the U.S. Treasury billions of dollars that could be used to help hard-pressed middle-class taxpayers.
Further, the bill would do nothing to make good on President Trump’s pledge to eliminate the “carried interest” dodge that allows wealthy hedge fund managers to pay less taxes than most other taxpayers. Under current law, partners in these hedge funds are allowed to take profits from their investors’ money, not their own, and convert the profits from being taxed as ordinary income, at up to 43.4 percent, to a far lower capital-gains rate of 23.8 percent.
Closing this loophole could raise up to $20 billion a year for the federal government. If the proposed elimination of the alternative minimum tax and estate tax were also dropped from the House bill, homeowners could be spared the tax increases they would otherwise suffer.
That’s because the bill asks middle-class taxpayers to give up important deductions for state and local income and property taxes, home mortgage interest, medical expenses and college loan costs. Taken together, these changes would mean that many middle-class Long Islanders would actually face a tax increase rather than a tax cut if the bill were to pass in its present form.
The proposed tax changes affecting home ownership would be harmful to both homeowners and the home-building industry, which accounts for one-sixth of the U.S. economy. The bill would limit the property-tax deduction to $10,000, which on Long Island is well below the property tax that many homeowners here pay. And in another hard blow to New Yorkers, it would eliminate the tax deduction for state and local income taxes. It would also cap the mortgage interest deduction at $500,000. In Nassau County, the average home price is just over $500,000.
Not just New York or the Northeast would be affected. Residents of Florida, Ohio, Pennsylvania and Texas also pay relatively high property taxes, and would feel the sting. Ultimately, this attack on home ownership could significantly lower home values and depress home building across much of the country. How could that be good for our economy?
Fortunately, the legislative process this bill will go through affords several openings to throw out these onerous provisions. The Senate will now introduce its own bill, which, we can hope, will toss out some, if not all, of the middle-class hikes. And a House-Senate conference will give legislators another chance to clean up these defects.
In the meantime, our local congressional delegation is leading the charge to protect Long Island taxpayers. Representatives Lee Zeldin and Peter King are fighting hard on our behalf, and they should be joined by some 50 other Republican members of Congress from districts across the country that would also be adversely affected by the proposed House bill. If enough GOP House members withheld their support until the bill were amended, it couldn’t pass as is. That’s a powerful tool to get the changes it needs. And they’ll be helped by the influential real estate and home-building industries, which have raised the alarm and promised to fight to protect home ownership incentives.
The House bill does some things that have broad bipartisan support. It would lower the U.S. corporate tax rate into line with other nations, which would help American companies’ competitiveness and incentivize them to bring cash stored in overseas tax havens back home for investment in the U.S. It would allow companies a tax break for spending on new plants and equipment, which would also spur economic growth and help create new jobs.
But it goes too far for the wealthy few and does too little for too many.
In case they need a nudge, I’d remind our congressional representatives of the last time a Republican administration reneged on its commitment to taxpayers. That was when President George H.W. Bush famously promised, “Read my lips: no new taxes.” He then reversed course, raised taxes, pushed the economy into the doldrums — and turned the White House over to Bill Clinton. If middle-class taxpayers across the country see their taxes go up so a few at the top can see theirs go down, history could repeat itself. That prospect alone should be enough to save the day.
Al D’Amato, a former U.S. senator from New York, is the founder of Park Strategies LLC, a public policy and business development firm. Comments about this column? ADAmato@liherald.com.