The Republicans call the legislation that they’re trying desperately to rush through Congress the Tax Cuts and Jobs Act. If truth in labeling rules applied to legislation, however, it would be called the Chutzpah Act, Part I. And if the tax plan is approved, the “welfare reform” legislation Republicans say they will try to pass next year would be Chutzpah, Part II.
Let me explain.
Chutzpah — it’s pronounced KHOOTS-pah and rhymes with “foot spa” — is a Yiddish word that means “gall.” Not “daring,” as many people believe, but “gall.”
And when it comes to gall, it’s hard even for a congenital fault-finder like me to find something to top the combination that (most) congressional Republicans and President Trump are trying to inflict on our country.
Why do I say this? Read on.
The tax-cut plan would increase the federal budget deficit by at least $1 trillion over 10 years, according to numerous honest analyses. And — get this! — Republicans now say with perfectly straight faces that next year, they’ll pursue cuts in programs such as Social Security, Medicare and Medicaid because we need to get the deficit under control.
No, I’m not making this up.
In “The Joys of Yiddish,” the source of my pronunciation guide, Leo Rosten defines chutzpah as “that quality enshrined in a man who, having killed his mother and father, throws himself on the mercy of the court because he is an orphan.”
Adding to the deficit by cutting taxes on corporations and the very well-off and then seeking to reduce the deficit by cutting programs that help the not-so-well-off meets that definition. In spades.
Look, I’m not saying that the current 35 percent corporate income tax rate shouldn’t be touched. Or that Social Security, whose cash shortfalls I’ve written about for years, doesn’t need to be tweaked.
But there are rational, prudent ways to fix these problems. But in their haste to claim a “victory” by passing tax cuts that benefit the fortunate and corporations, and then following it up with what I suspect will be sharp cuts to Social Security and other programs on which millions of non-fortunates depend, Republicans wouldn’t make things better for most of the country. They’d make them worse.
The tax plan would badly hurt middle-income and upper-middle-income taxpayers in my home state of New Jersey and in other Democratic-leaning places where there are high state and local taxes and high-priced residential real estate.
That’s because the legislation, as it currently stands, would sharply cut back federal deductions for state and local income and real estate taxes and reduce the maximum mortgage loan on which interest can be deducted to $750,000 from the current $1 million.
But the legislation would eliminate or reduce the estate tax, which currently affects only about 5,000 estates because about $5.5 million of assets ($11 million for a married couple) are exempt from tax.
The very well-off — I don’t like the term “rich” — are also the major beneficiaries of a lower corporate tax rate. That’s because the prospective cuts have been a major driver of the sharp stock market run-up, and stock ownership is heavily concentrated among upper-income types. In addition, some high-income business owners would get to pay the lower corporate rate rather than the personal rate.
Now to Social Security, which seems financially solid because of the huge Social Security trust fund, but that is running substantial and growing cash deficits. (I parse the situation here.)
With the virtual disappearance of corporate pension plans and the inevitable erosion of many government plans, Social Security is likely to be even more important to future retirees than it is now.
And it’s plenty important now. Social Security currently accounts for at least half the income of half the married couples and 71 percent of singles drawing retirement benefits, according to the Social Security Administration. It accounts for at least 90 percent of income for 23 percent of couples and 43 percent of singles.
Now to fairness. Not only is Social Security a major source of retirement income for tens of millions of people, but Social Security is also the biggest tax on income for most people with salaries and other “earned income.”
About 5 of 6 such taxpayers — 82.9 percent — pay more Social Security tax (including the employer’s half) than federal income tax, according to an estimate the Center for Economic and Policy Research put together at my request. The break-even point at which income tax exceeds Social Security tax is $87,723 for single taxpayers and $124,800 for married couples, the CEPR estimates.
So unless Social Security is trimmed very carefully — carefulness hasn’t been the hallmark of congressional Republicans or Trump — we could see rampant unfairness as millions of middle- and lower-middle-income people get reduced retirement income for which they’ve paid dearly for their entire working lives.
Trimming the growth of benefits for maximum recipients like me or somewhat increasing the wage base on which Social Security tax is collected (currently $127,200) strikes me as perfectly okay.
But a substantial across-the-board cut for future retirees, which is what I expect congressional Republicans and Trump will propose, would be really nasty. I’m sure this legislation would be called “reform.” But it would really be Chutzpah, Part II.
Correction: I wrote recently that the highest federal tax rate on earned income is 40.5 percent, including the 0.9 percent Obamacare surcharge. Oops. I forgot to include the 2.9 percent Medicare tax, which is split 50-50 by employer and employee. Apologies for my mistake.