More on Tax Reform

The House passed yesterday, 227-205, its version of tax reform, and the next milestone is in the Senate.  The Wall Street Journal is referencing some special interests who are expressing misgivings about it.

Both the House and Senate bills would cut the corporate tax rate to 20% from 35%. If that overall tax rate decreases, tax credits and deductions become less valuable.

Well, of course.  Credits and deductions get their value from how much they reduce taxes for the government-favored groups of Americans for whom those credits and deductions are targeted.  With lower overall tax rates, those credits and deductions have less tax value—as any graduate of 3rd grade arithmetic can see.

That alone would mean that nearly 300,000 fewer low-income units will be produced over 10 years, according to an analysis by Novogradac & Co, an accounting firm specializing in real estate.

That’s the claim of a special interest group. It’s also not entirely true. With the elimination of real estate-related credits and deductions, housing—and rental—prices would no longer be elevated to absorb for the realtor’s benefit those bennies.

The same logic applies to other bennies on the chopping block: preferential tax treatment for bonds used by developers to build “affordable” housing and private activity bonds, which fund hospitals, roads, nursing homes, and charter schools—and sports stadiums and other froo-froo.  These things, too, would no longer have their prices elevated to absorb for the developer’s benefit the monetary value of the bennies.

On top of that, the reduced value of deductions and credits under the plan just passed in one house and on offer in the other is a non sequitur.  Our tax code should not be used for social engineering, least of all in accordance with the personal imperatives of 535+1 politicians in DC.  The—our—tax code should be limited to funding our government; social engineering should be left to We the People in our local communities.

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