California Screaming

After a weekend of Thanksgiving gobbling and gorging, most of us are more interested in waist cuts than tax cuts, but the Senate is about to make its move on tax reform… and Californians are nervous.

Voter registration in the State of California runs 44% Democrat versus 29% Republican; California is definitely a dark-blue state, especially along the coast. Both of California’s U.S. Senators and 39 of 53 House members are Democrats.

In Santa Barbara County District 1, which includes Carpinteria, Summerland, Montecito, a large swath of Santa Barbara, and Cuyama Valley, the party count is 50% registered Democrat voters and only 20% registered Republicans. Independent voters along the coast tend to support Democrats.

On tax relief, California voters are a little closer, according to research from the Public Policy Institute of California: 43% say they prefer paying lower taxes and receiving fewer government services, while 48% say they are willing to pay higher taxes for more government services.

We wonder how many of those 48% pay any taxes at all, or if they are saying they’d be happy to raise your taxes to pay for their services?

Nancy Pelosi says…

Nancy Pelosi (D-CA) has been in Congress for 30 years representing San Francisco’s 12th District. During her years in public service, she has accumulated a colossal net worth of well over $200 million, making her the ninth-wealthiest member of Congress. She can well afford higher taxes without compromising her lifestyle.

As speaker of the House, Ms Pelosi demanded her own government jet to commute from Washington to her Bay Area home. She now says this about GOP Tax Reform: “The Republican Tax Plan gives away the store to the wealthiest, while sticking the middle class with the bill… 36 million middle-class families will see a tax hike under Speaker Ryan’s GOP tax scam.”

Chuck Schumer adds…

Never shy, senator Chuck Schumer (D-New York) joins in the class-warfare cry with this tidy tidbit: “The Republican Tax Plan is little more than an across-the-board tax cut for America’s millionaires and billionaires.” Neo-socialist Bernie Sanders adds, “The Republican Tax Plan is morally repugnant and bad economic policy.”

Let’s look at the GOP Plans in the House and Senate.

Myth #1

GOP Tax Cuts Will Only Benefit Millionaires and Billionaires.

The House plan contains $228 billion in tax relief for individual taxpayers. It will reduce the current number of tax brackets from seven to four, but the top rate remains at 39.6%. There would be a net reduction in taxes across all income groups, including middle- and low-income filers. A family of four people with the an average household income of $72,641 would save $1,200 on their tax bill.

According to the liberal Chicago Tribune, the House tax reform plan, if it becomes law, will result in nearly 81 million federal income-tax filers (or 47.5% of all filers) paying nothing (zippo, zilch, not a penny) in 2018 in federal taxes. That number will be up from 2017, when an estimated 44% of filers will pay no federal income taxes.

The new plan nearly doubles the standard deduction from $12,600 to $24,000 for married taxpayers filing jointly, and half that for single payers.

Here’s how a married couple with $50,000 or with $100,000 in adjusted gross income would fare under the current tax plan (2017) and under the proposed House-approved plan (2018).

Adj. Gross Income Standard Deduction Taxable Income Taxes Owed House Plan Tax Savings

$50,000 $12,600 (2017) $38,400 $4,827

$50,000 $24,000 (2018) $26,000 $3,120 $1,707 (35%)

$100,000 $12,600 (2017) $87,400 $12,178

$100,00 $24,000 (2028) $76,000 $9,120 $3,058 (25%)

In addition, under the House Plan, the child credit exemption will be boosted from $1,000 per child to $1,600, favoring lower- and middle-income families in their early years that tend to have larger families with young children. Mortgage interest would be deductible, but only up to a $500,000 mortgage, again penalizing the rich and the two-home owners.

Myth #2

Tax Simplification is No Big Deal

It has been more than 30 years since Washington, D.C., has passed significant tax reform. For 30 years, tassel-toed lobbyists have inserted exemption after exemption for clients who pay for privileged treatment in our tax system.

Under the House Plan, an estimated 94% of filers, will not itemize deductions, preferring to take the increased standard deduction and filing a postcard return. This would save a major portion of the $195 billion a year taxpayers spend on accountants and tax preparers. By filing for the standard deduction, taxpayers will no longer spend six billion hours per year of their own time, for tax record keeping, tax preparation, and compliance costs.

Myth #3

Removing the Federal Deduction for State and Local Taxes is Unfair to High-Tax States Such as California, New York, New Jersey, Connecticut, and Illinois.

Forgive me, but there is something deliciously different in finally punishing big tax, big spenders in Sacramento, Albany, Trenton, Hartford, and Springfield. These big-spender politicians, who are convinced they know best how to take money from working people and bestow it on nonworkers, have gleefully passed their high-tax burden onto other low-tax states’ taxpayers via their deductions of state and local taxes and property taxes. A radical solution would be to cut taxes and spending in these Democrat domains, making it more desirable for their residents to work, retire, and invest.

Myth #4

“We are kicking 13 million people off health insurance to give tax cuts to the wealthy,” says Chuck Schumer.

Senator Schuman can’t even formulate a good lie when he says, “The Republicans are paying for tax cuts with reductions in Medicare.” Changes to Medicare or Medicaid are not mentioned in either the House or Senate tax reform bill.

The truth is that nobody is being kicked off health insurance. Instead, 13 million taxpayers who have elected not to buy ObamaCare coverage would no longer be forced to pay an annual fine (or a “tax” according to Supreme Court justice John Roberts) for not purchasing mandatory government healthcare insurance. Over 10 years, an estimated $338 billion dollars would be taken out of the government’s pocket and put back where it belongs, in the taxpayers’ pocket, especially benefiting the young and healthy.

For 2018, Santa Barbara County will be down to one approved ACA (Affordable Care Act) insurance provider – Blue Shield – after Anthem Blue Cross pulled out of the market. For a family of four, annual ACA premium costs are expected to reach $30,000 a year, including an expensive $24,000 annual basic coverage package with a $7,000 deductible. Remember this old Obama promise: “On average, every family will save $2,500 on their health insurance premiums.”

Myth #5

Cutting the Corporate Tax Rate From 35% to 20% is a Bad Idea Because It Rewards Big Corporations, Millionaires, and Billionaires.

Cutting the corporate tax rate from 35% – the highest tax rate in the industrialized world – to 20% makes U.S. businesses more competitive, boosts economic growth, increases capital investment in the U.S. for new factories and businesses and stimulates job creation. The average corporate tax rate in the developed world is 25%; tax havens including Ireland (12.5%) or the Bahamas, Bermuda, and the Cayman Islands offer a zero corporate tax rate.

Small-business owners who do not choose to incorporate to gain personal liability protection will be allowed to reduce their taxes. The House bill reduces their top rate to 25% with some limitations. The Senate bill would allow them to claim a deduction equal to 17.4 % of their business income. Both plans address small-business tax relief.

According to The Wall Street Journal, “corporate tax reform is a serious attempt to fix a broken U.S. tax code that has festered for 30 years and made America increasingly uncompetitive as a destination for mobile global capital. The GOP reforms would help the economy and make it harder for corporations to cheat.”

U.S. companies such as Apple and Google would be able to repatriate their foreign income, creating an enormous pool of capital for new business creation, driving up the demand for U.S. workers and driving up wages. 

Potential Losers in GOP Tax Reform

There will be a small number of people, estimated at 8%, who may pay higher taxes even though tax rates will be reduced. Mostly they will be wealthy Americans in high-tax states who will lose their federal exemption for state and local taxes, and their exemption for property taxes above the $10,000 threshold. 

That would include me, but I am more than willing to pay higher taxes to demonstrate to tax-and-spend liberals in California how much we actually pay in taxes to deliver our substandard roads, humdrum schools, and runaway state, county, and teacher public pensions and healthcare costs.