By Grover Norquist
President Donald Trump has been very clear that he wants a dramatic tax cut in 2017.
What are the tax cuts that he has endorsed, what will they mean for hotel owners and how likely are they to be enacted this year?
There are actually two large collections of tax cuts.
The first is found in the legislation that passed the House of Representatives to repeal Obamacare and reform health care. Obamacare imposed a collection of 20 different taxes that total $1 trillion over a decade. So what many view as health care repeal and reform legislation is also a significant tax cut.
Because repealing Obamacare also reduces federal spending by $1.2 trillion over the next decade, the repeal reduces the projected deficits for the next 50 years, and so the tax cuts will be made permanent.
Included in those Obamacare tax hikes that will now be repealed is the 3.8 percent increase in the capital gains tax that brought the capital gains tax to a total of 23.8 percent. When this tax is repealed, the capital gains tax will fall back to 20 percent.
Also slated to be repealed is the 0.9 percent surtax on incomes above $250,000, which hits many small businesses.
The other Obamacare taxes are a cacophony of taxes on insurance premiums, health savings accounts, flexible spending accounts, charitable hospitals, medical devices, tax penalties designed to force citizens and employers to buy government-imposed insurance, and even an income tax hike on Americans with high out-of-pocket medical expenses.
Donald Trump’s tax reform package was unveiled during the campaign and reintroduced in outline form alongside the House of Representatives legislation known as the House Blueprint.
Trump would make the following changes in the tax code:
The corporate income tax rate would fall from 35 percent to 15 percent. Today the United States has the world’s highest corporate income tax, which hurts our international competitiveness. The European average is 18 percent, Britain 19 percent and Ireland 12.5 percent. Immediately after the Tax Reform Act of 1986, the United States had one of the lower corporate income taxes in the world, but other countries realized that Reagan’s rate reductions were a powerful driver of American growth and they caught up with and surpassed us in the 1990s and 2000s.
The Trump plan would also reduce the business income tax on Subchapter S corporations or “pass-throughs” to 15 percent. Many smaller businesses run their business income through their personal income tax and pay personal income tax rates that run as high as 44 percent. Thus the top personal income tax rate that can run as high as 39.8 percent and 44 percent would be reduced for business income to 15 percent. This provision has not received much media attention, but it will have a big impact on any hotel owner and other businessmen and women.
One big question mark at present is Section 1031, the Like Kind Exchange provision, that allows businesses to defer capital gains taxes when they sell one hotel to buy a larger hotel (or new fleets of cars or land or buildings of any kind or farm equipment).
The House Blueprint for tax reform moved from long depreciation schedules to full and immediate expensing for business investment in buildings and equipment – but not land. Some on the Ways and Means Committee argue that this makes Section 1031 redundant and therefore unnecessary. Others argue that 1031 should be continued for land – as land purchases are not expensed in this legislation – but ended for buildings and equipment. Americans for Tax Reform believes 1031 should be included whether or not we move to full and immediate business expensing.
Both the Trump tax plan and the House Blueprint abolish the Death Tax. Immediately. Permanently.
The Death Tax was enacted to first pay for the Civil War and then returned to pay for the First World War. That war ended, but the Death Tax lived on. There have been multiple efforts to reduce it, but unless it is fully repealed it has and will grow back.
Both the Trump tax plan and the House Blueprint abolish the Alternative Minimum Tax, an idea cooked up by the Nixon administration and the late Sen. Ted Kennedy (D, Mass.) to hit 115 Americans who paid little or no federal income taxes because they invested in tax-free municipal bonds. The Alternative Minimum Tax now hits four million Americans.
One key decision yet to be made is whether the planned tax cuts in the Trump tax reform package will be permanent or temporary. Under the rules set up by the Budget Act of 1974, Congress can make temporary tax cuts last for as many years as they wish after which, to become permanent, the budget changes (tax cuts plus spending cuts) must be deficit-neutral or the tax cuts end. The Bush tax cuts of 2001 ended after 10 years. Congress could set the length of temporary tax cuts at 10 years or 25 years; its choice.
While the national mainstream media focuses on the coming federal tax cuts that will pass this year in Washington, D.C., there are good and bad changes throughout the nation in tax reduction (or increases) at the state and local level.
Americans for Tax Reform is focused on opposing state taxes on hotels, rental cars and telecommunications that discriminate against a particular industry and in many cases are designed to tax “the other” – citizens visiting from another state who, by definition, cannot vote against the mayor or state representative who enact such taxes.
Politicians like taxes on hotel stays – the customer who pays the tax cannot vote against the local or state politician who imposes the tax. The same is true with rental cars. People who rent cars at New York City airports do note vote in NYC.
Americans for Tax Reform supports federal legislation to prohibit such discriminatory taxes on hotel stays and car rentals as “taxation without representation.” The federal government has the power to ban such taxes as interference with interstate commerce. It is possible such an amendment could find its way into this year’s tax reform, but if not, it will eventually become federal law, and discriminatory taxes that tax across state lines will go into the dustbin of history… right along with Britain’s ability to tax American tea drinkers. ■