UNT tax expert weighs pros/cons of Congress’ tax reform bill

Monday, December 4, 2017 - 20:12

DENTON (UNT), Texas — As Congress moves toward the final stages of passing a tax reform bill, University of North Texas tax expert Govind Iyer is available for interviews on what the plan means for taxpayers. Iyer has studied tax reform, income distribution via taxation, and polarization of inequality for 21 years, and is an endowed professor of taxation in UNT’s Department of Accounting.  


What is the central issue?

  • Inequality would worsen. “This tax bill does nothing to mitigate income inequality. The middle class is shrinking while the ranks of the poor are becoming bigger. Meanwhile, the rich stays stable. This is classic polarization, and this bill would only exaggerate that.”


What works well in Congress’ tax reform efforts?  

  • Potential for good. “For whatever reason, the party in power doesn’t care about the deficit until they are out of power. Still, tax cuts done properly and allowing a deficit increase can be good if the money is used for long-term growth.”
  • The corporate tax rate is reduced. “Although the effective tax rate corporations pay is already rather low because of tax breaks, tax cuts are still generally good.”
  • Tax cut for small companies. “The good thing for small businesses would be the tax cap of 21 percent. That rate cut will help small businesses move from being corporations into entities where they would then have a single level of taxation at 25 percent.”


What does not work well?

  • Increased deficit. “This bill is likely to balloon the deficit to $1 trillion (even when accounting for economic growth). When you reduce taxes, you have to reduce expenses, increase the deficit or both. The question is what gets touched? A lot of expenses are earmarked in the budget and cannot be touched. Then you cut money for the neediest in our society. Still, you won’t find much money there, so next is the ballooning of the deficit.”
  • Not everyone gets the same cuts. “The term winners and losers is very good here. For example, people living in high-tax states, the housing industry, individuals who pay high property taxes will be losers.”
  • Possible repeal of the Affordable Care Act mandate. “One of the biggest items people think about before investing in a business or getting a new job is health care. If I’m covered by employer insurance, I have to factor in the cost of losing that should I leave. By making health care available to fewer people and more expensive, Congress will hurt growth.”
  • Lower income households pay more taxes. “The House passed a new measure for indexing tax brackets. A lot of people will face higher tax rates than they would have otherwise.”


What could be improved?  

  • Spend carefully. “It’s not so much how you tax but also how you spend. Even if the top five percent of the rich were taxed at 100 percent, the tax code still could not completely mitigate income distribution. Instead, the government has to also ensure that funds are spent on the right initiatives – things like education and training, small business loans and infrastructure.”
  • Give tax cuts to the poor and middle classes. “For economic growth, it’s better to put money in the hands of groups who will spend it right away – rather than people who will invest in a 401K or fund where it will lie for years. That’s what creates opportunity for businesses and investors.”
  • Give a payroll tax cut to small business employers. “They are likely to hire immediately.”
  • Keep the home mortgage deduction. Iyer notes that for decades “it’s been an American dream to own a home. When Congress talks about removing it, I wonder if homeownership is no longer an American dream?”


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