By former USDA Secretary John R. Block
Tax reform is a hot topic here in the nation’s capital. That doesn’t mean that Congress will be able to pass the legislation. On paper, the planned tax overhaul will increase the national debt by $1.5 trillion (over the next ten years).
Larry Summers, who served as economic advisor to President Obama, argues that there is no rationale for adding to our debt. President Reagan’s Chairman of the Council of Economic Advisors, Martin Feldstein, is 100% behind the Republican tax reform bill. He had this to say: “The most important reform is to cut the corporate tax rate from 35% (the highest among industrial countries) to 20%.” I agree. We have to compete with other countries. Our big corporations will move to Ireland or some other nation with a very low rate. We already have companies, such as Apple, with trillions of dollars sitting in other countries. They are not going to bring that money home unless we have a more competitive rate.
The new tax plan brings down the tax rate for individuals except for those that make more than $1 million. Individuals earning less than $24,000 will not pay any taxes. There will be a limit of $500,000 mortgage interest deduction for newly purchased homes. The housing industry is complaining about dropping the deduction down from $1 million to $500,000. Why should we allow the rich to write off interest paid on a $2 million home or maybe two or three expensive homes?
On the plus side, small businesses will be allowed to deduct interest on business loans. That is appropriate. Farms borrow a lot of money for seed, fertilizer, and crop protection. Those are legitimate business expenses.
Small businesses are also excited that the “death tax” may be about to breathe its last. Assets exempt from the tax will double and after six years the tax will be gone.
There will be a limit of $10,000 of state and property taxes that can be deducted. Farmers and ranchers that own a lot of property pay a lot of property tax. That tax has always been an acceptable write-off. This provision could be costly to some.
Our Tax Code is too complex. Loopholes need to be closed and the Code needs to be simplified. Tax cuts should strengthen the economy and create jobs. The tax reform process is just starting. It could change. It could fail. I hope we get it done.
John Block was Secretary of the U.S. Department of Agriculture from 1981-1985, where he played a key role in the development of the 1985 Farm Bill. If you would like to review his radio shows going back more than 20 years, visit johnblockreports.com.