Editor’s Note: Edward J. McCaffery is Robert C. Packard trustee chair in law and a professor of law, economics and political science at the University of Southern California. He is the author of “Fair Not Flat: How to Make the Tax System Better and Simpler” and founder of the People’s Tax Page. The opinions expressed in this commentary are his own.
When Senator Bob Corker, R-Tennessee, a longtime “deficit hawk,” or so-called fiscal conservative, voted against the Senate version of the Republican tax plan, it seemed as if principle might prevail – at least among Republicans not facing re-election.
That particular fantasy did not last long.
Corker announced on Friday that he would vote for the Senate-House Conference version of the tax cut bonanza, even though it has the same irresponsible deficit impact as the Senate version that he had opposed. Shortly after Corker’s announcement, the International Business Times broke a story that the Conference bill had added a provision that would benefit both Corker and Trump, personally. The particular provision in question allows real estate investors to get a special 20% tax rate like other small businesses – even without paying significant wages to anybody, unlike other businesses. This clearly helps Trump himself, who holds many assets that he simply licenses out to others to run.
While Corker has publicly denied that the addition of this real estate benefit influenced his decision, its presence further underscores the cruelty of this bill – and the cruel familiarity of the process of generating it. The Republican plan privileges the wealthy – including the ones with large real estate holdings like the President – while largely ignoring the forgotten working men and women who voted for Trump. Some low- and middle-income taxpayers may initially get a small benefit from the plan, but all the individual cuts are set to expire by 2025 at the latest, and the largest gains will go to those at the top of the wealth scale.
Meanwhile, the tax cut plan busts a $1.5 trillion hole in the deficit. Though Republican lawmakers estimate that it will be, in part, offset by increased economic growth, the plan will still add hundreds of billions – if not more – to the deficit over the next decade. It looks like this very fiscal gap will immediately call into question the stability of entitlement programs such as Social Security and Medicare, as Republicans like Paul Ryan, having just cut taxes, remember that they are fiscal conservatives after all.
But what makes this process especially maddening is that Trump is violating one of his most fundamental campaign promises: to drain the swamp. This massive tax legislation is being developed and brokered in haste and secrecy – fundamental ingredients of a thriving swamp.
It is also full of breaks for certain industries, an indication that lobbyists are playing a large role in influencing the final version of the bill. Take commercial real estate, to name a large and suspicious example. Real estate investors like Trump will see more generous depreciation schedules, continued deductibility for interest and lower tax rates on the business forms that hold their real estate, like real estate investment trusts – all without having to actually hire workers.
Real estate is not the only happy industry this holiday season. The New York Times reports that “cruise lines, craft beer, wine producers (even foreign ones), car dealers, private equity and oil and gas pipeline managers did particularly well.”
Wall Street gets a seat at the banquet, too. Remember all of Trump’s campaign talk about closing the “carried interest” loophole? This is a tax break that allows hedge fund managers to pay a favorable capital gains rate (20%) on their earnings – a benefit for the upper income that Trump pledged repeatedly to shut down when he was running for office. Somehow shutting that loophole did not make the final cut, either.
The tax cut process, moving at breakneck speed, is also rife with apparent errors that will have to be corrected in due course, unless they just so happen to help some special interest. The Senate version of the bill, for example, had a $300 billion mistake in failing to adjust the corporate alternative minimum tax to keep pace with the general rate reduction. Who knows what other glitches may soon be discovered. If Corker, who claimed he hadn’t seen the real estate provision in the text before announcing his support of the bill, is any indication, we can expect many more surprises to come to light in due time.
Just like Corker did not see a last minute provision vastly benefiting him, we will likely never know about the myriad of deals brokered in darkness over the last few weeks in Washington. That’s the way swamps work. And they stink.
If Trump had been serious about keeping his promise to drain the swamp, he would have allowed senators enough time to read the bill before pressuring them to decide how to vote on it. But if he had done that, the President might have had to think of something other than tax cuts to get his family for Christmas. And who can beat giving their kids millions in extra cash – especially when others are picking up the tab?