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Tax reform trick or treat?

The GOP tax plan could benefit some Americans but discourage charity—and would add to a growing mountain of debt

Tax reform trick or treat?

White House counselor Kellyanne Conway, flanked by GOP senators and Treasury Secretary Steven Mnuchin, speaks during a news conference on tax reform at the Capitol.(Olivier Douliery/Abaca Press/Sipa via AP)

Oct. 31, the 500th anniversary of the beginning of the Protestant Reformation, was a public holiday this year in Berlin, which 75 years ago was a witch’s cauldron of Nazi-led hatred. Meanwhile, it was Halloween as usual in Washington, D.C., with Republicans on the verge of introducing a tax reform plan they called a treat and Democrats deemed a trick.

The formal unveiling of the plan on Nov. 2 showed both descriptions to be partly right. Reduction of corporate tax rates may turn out to be a treat for the American economy and for those who are unemployed or underemployed. Movement conservatives were heavily promoting the plan, and they may be right. Movement liberals were attacking it, and they usually have been wrong.

The plan certainly showed how far the GOP has moved in 20 years from the principles of “compassionate conservatism” that Gov. George W. Bush started talking about in 1997. He wanted government policies that promoted charitable giving and adoption. The plan also showed how quickly the GOP has distanced itself from decades of Republican rhetoric about budget deficits and national debt.

The GOP plan as of Nov. 7 includes some tax bracket simplification that will make little difference to most taxpayers. The big change for individual taxpayers is elimination of personal exemptions of $4,050 each. The plan makes up for that takeaway by doubling the standard deduction from $12,000 to $24,000 per married couple, and by increasing the child tax credit from $1,000 to $1,600.

While sitting in an airport early in November, I used my calculator app and saw how those changes may roughly balance out—but a plethora of nuances make precise Person A vs. Person B comparisons tricky. I did see how some changes could affect the behavior of four imaginary couples, each with an annual income of $100,000 and current deductions of $14,000 for property taxes and mortgage interest on their middle-class home:

  1. Mr. and Mrs. Watchtaxes have four children and donate $5,000 each year to churches and charities. By itemizing, they currently cut their tax bill by $750. Under the GOP plan they will start using the standard deduction and will contribute $500 less, since they won’t get any tax benefit by doing so—and their kids need new clothes.
  2. Mr. and Mrs. Kuyper have no children and donate $10,000 each year to churches and charities. They will also take the standard deduction but despite losing the tax benefit will continue to contribute that $10,000, and may even add to it since their tax bill will be a little lower and the economy is good.
  3. Mr. and Mrs. Selfish are big winners: They have no children and donate nothing. They will benefit more from the GOP plan than the Watchtaxes or Kuyper families, because the now-doubled standard deduction gives them the same tax status as those with bigger families or bigger hearts.
  4. Mr. and Mrs. Compassion are big losers. In 2014 they used their savings to adopt a child—and received a $4,800 adoption tax credit, the average amount that year. They were thankful for that credit, one of the few lasting results of the GOP’s partial 1995-2001 compassion push. They had planned to adopt another child in 2018 but are surprised that the new GOP plan eliminates the adoption tax credit.

Analysts say the GOP plan, if enacted, will probably reduce the percentage of itemizers from 33 percent to 5 percent. One study predicted a 5 percent decline in contributions to religious organizations, but only God knows what will happen. The Universal Charitable Giving Act of 2017 is still up for congressional consideration: It would expand the charitable deduction to all Americans rather than knock it out for all but a few.

Meanwhile, GOP concern about federal deficits and debt seems mostly dead. In 2012 Senate Majority Leader Mitch McConnell, now blithely pushing to add $1.5 trillion to our national ball-and-chain, called debt “the nation’s most serious long-term problem.” Early last year the Republican National Committee blamed Barack Obama for burying the United States under a “mountain of debt.”

We are buried, and Debt Hill has become the Big Rock Candy Mountain, to bipartisan praise. Congress is singing the 1928 song by that name: “In the Big Rock Candy Mountain / There’s a land that’s fair and bright / Where the handouts grow on bushes / And you sleep out every night.”

Few Christian leaders are speaking out about our new cross of gold. During the Obama administration, the National Association of Evangelicals called for “the President and Congress to demonstrate moral leadership and fiscal integrity in addressing the national debt. This will require extraordinary political courage, bipartisan cooperation and shared sacrifice.”

This year, with a Republican in the White House, I’m not hearing many evangelical admonitions like that about federal debt. Maybe hoped-for economic growth will pull an elephant out of a hat, but political courage, cooperation, and sacrifice now seem as rare as a Halloween trick-or-treater in the costume of an angel.

Marvin Olasky

Marvin Olasky

Marvin is editor in chief of WORLD News Group and the author of more than 20 books, including The Tragedy of American Compassion. His latest book is World View: Seeking Grace and Truth in Our Common Life. Follow Marvin on Twitter @MarvinOlasky.

Comments

  • JOHN B STONE DMIN's picture
    JOHN B STONE DMIN
    Posted: Thu, 11/09/2017 01:05 pm

    Whatever happened to shrinking the size of govt and govt spending as part of a tax plan? I agree with you Dr. Olasky. I would add, I remember well when Steve Forbes promoted a flat tax. What's wrong with that idea?

     

  • Brendan Bossard's picture
    Brendan Bossard
    Posted: Thu, 11/09/2017 07:50 pm

    Charity is a fruit of the Spirit, not of the tax plan.  Most people who already give will continue to give at the same level.  Some people may give more or less with changes in their wallet sizes.  The Selfishes will never give.  Let each of us give according to what God gives him, without turning a green eye to the less charitable.

  • HeJets's picture
    HeJets
    Posted: Fri, 11/10/2017 03:19 am

    I just wrote to my US Representative about this little debt thingie. There are a few corrupting issues that are intent on downing our country; the debt is one of them. Without a plan to cut our debt, our country lives on borrowed time.

    With respect to BB's comment, I tithe. I also give beyond that. A tax deduction is an absolute consideration! I constantly seek out ways to route gifts through charities. In my view, that's good, practical stewardship. For example, my tax bracket is 33%. Giving AND deducting affects giving alone. Here's another: Donating to our charter school produces a decent federal tax deduction but the state is far more: to the total tune of over 90%!!! 

    Man is corrupt. Our nations capital IS a swamp full of corruption. The Reps are just as bad as the Dems, just not as overt about it.

  • PAUL BIZEAU
    Posted: Fri, 11/10/2017 10:24 am

    The theory of the GOP tax plan is sound in the macro.  That is, by reducing the tax burden and repatriating corporate dollars, the economy improves, more jobs are created, finally resulting in more tax revenue.  The argument that we increase national debt arises from the zero-sum formula of the CBO in scoring this legislation.  They don't take into consideration the effect of "all boats rising" and creating more tax payers.  That's not to say our debt problem goes away.  We are still spending irresponsibly and recklessly.  There needs to be serious spending cuts from the federal budget.

    As regards itemizing deductions, only a small percentage of Americans do that now.  I can see the proposed legislation affecting charitable giving for those who make large donations, but not for most people.

  • AlanE
    Posted: Fri, 11/10/2017 09:41 pm

    For a very large number of American families right now, it makes no sense whatsoever from a taxation perspective to give to charity--at least not in the conventional way. If your household's itemized deductions don't exceed the standard deduction, any money you give to your church or other charities has zero tax benefit for you, yet will be taxed the moment it goes toward anyone's salary. Increasing the standard deduction will only put more people under this tent. Honestly, I'd rather hand my pastor (or church secretary, or...) $100 than put it in the offering and have him get taxed on it. In short, the government turns a tidy profit any time I tithe in the conventional manner.

    While this tax scenario might not apply to the high rollers (my apologies if that term is seen as pejorative) in any given congregation, I dare say it applies to better than half of the families in your typical church.

    A real flat tax has, among other advantages, the advantage of neatly resolving this issue. Let's stop picking winners and losers in the ecomony via the tax code.

  • JOAN MELILLO
    Posted: Tue, 11/14/2017 08:51 pm

    I'm sure I'm not typical, but the details of this plan will cause me to have to cut back on giving.  I'm in that group whose charitable giving is far enough above a tithe that the new increase in deduction on the 1040 will not replace the Schedule A deduction, but the loss of $8000 (for the two of us) in exemptions will mean a tax hike of $2600 under the new plan.  Our income is not far from the $100K example used in the magazine article.  Thank you to World, I'd not been following, till I got the latest issue today.  But I'm not sure how to protest this, that only those who don't give will win under this plan.

     

     

  • James Creasman
    Posted: Fri, 11/17/2017 01:36 pm

    THANK YOU for providing this clear context and spelling out the concrete ramifications for normal taxpayers. 

    That gives helpful perspective in understanding what is happening, and fresh disappointment in the trends of our society's values and government's decisions.