November 7, 2018
by Dean Zerbe for alliantgroup
Published in Forbes
The ballots are still being counted (or recounted) in Arizona and Florida U.S. Senate races and President Trump has churned the water on a possible tax deal – stating in the post-election press conference that he would be open to raising tax rates (including corporate) to pay for a middle-class tax cut.
Setting aside the more small-ball tax provisions that may be enacted in a lame duck that I’ve discussed earlier (with the chances of extension of energy tax provisions greatly improved with the election results) – is it possible to provide real benefit to middle class families?
I think the answer is yes. So what could be the deal? A good starting point is to look at not just directly what can be done on tax burdens for the middle class (and recognizing that the tax reform bill – despite the rhetoric – did provide some meaningful relief) – but more importantly look at what ways the tax code currently can be modified to provide meaningful benefit to working families. Here are three ideas that cost little to nothing and would make a big difference:
Lower Corporate Rates – But Only For Gold-Star Businesses
There is more bipartisan consensus in Washington than recognized on the benefits of lowering of the corporate rates – with the real fight being whether it should be 21% or closer to 25%. An easy way to split the baby, give everybody a win and provide greater certainty on the corporate rates would be to have a corporate rate set at 25% with a lower corporate rate (say from 25% down to 20%) for those corporations that are “gold-star” – defined as those businesses that provide: a) employee ownership; b) profit sharing; c) full matching of retirement savings; and/or d) robust health insurance.
Tying the lower corporate rates to those businesses that “share the wealth” will directly benefit the millions of middle and working class employees of these corporations. The Republicans after the tax reform bill trumpeted with hosannas every time a business announced that they were going to shower gold on their employees. Why not just build the love for the workers into the tax cut? Workers will then see that the tax cut for corporations directly benefits them in terms of pay and benefits – not just hoping that good things will happen. I would note that the “gold-star” standard would be a sliding scale (a company could partially qualify) – and the idea would be to make these attainable/achievable goals (i.e. best practices that some companies are already meeting). Make it possible for corporations to reach the brass ring of increased benefits to their employees and benefit from lower corporate rates. Pie-in-the-sky doesn’t benefit anyone.
A particularly note on encouraging greater employee ownership – as I’ve discussed previously, encouraging employee ownership brings about a host of positives – for employees as well as owners – including better wages; improved productivity and profits. As Henry Olsen of the Ethics and Public Policy Center in his recent book on The Working Class Republican noted – encouraging employee ownership is something that found support from conservatives such as President Reagan and Senator Goldwater. I think the others provisions underscore particularly important concerns – health and retirement – for families.
The bottom line – by having the deepest tax cuts reserved for qualifying gold-star businesses you would deliver significant benefits and relief to middle class families — at little to no loss of revenues (and actually depending on where you sent the benchmarks – it could potentially raise revenues).
Control Skyrocketing College Costs
The crushing cost of college is devastating for middle class families. Unfortunately – while the federal government throws billions of dollars at colleges – the cost of college climbs and the burden of college costs (tuition, fees, books, room and board) for middle class families (and really almost all families) remains mostly unaddressed. Families see the reality that they can never get ahead when it comes to college costs.
Just as Congress and the White House should consider lower corporate rates tied to “gold star” companies – similarly Washington should signal that the most significant government support (taxes and spending) will go to those colleges that limit increases in college costs – (and even more love for colleges that actually lower costs). Currently there is basically nothing substantive in the tax code or in federal spending that provides carrots to colleges that control costs or sticks for colleges that allow costs to skyrocket. Controlling college costs is something that President Trump campaigned on – to a great deal of applause – but there hasn’t been much done by the administration on the issue since taking office. Now is the chance.
The benefits to middle class families would be tremendous if tomorrow the administration announced that of the billions of dollars in grants (ex. National Science Foundation) provided to colleges – a scoring preference would be given to colleges that controlled skyrocketing tuition. Imagine if the billions in tax-benefits for the endowments of our most elite colleges was tied to making college affordable – and improved enrollment for working families (as the New York Times notes — currently many of our nation’s elite schools have more students from the top 1% than the bottom 60% aattending). With real carrots and sticks in place — overnight college administrators would spend more time looking at how to realize cost savings and less time worrying about what Halloween outfits students were wearing. Controlling skyrocketing tuition can be done –as shown by Purdue University President Mitch Daniels – but Washington has been mostly silent when it comes to encouraging colleges to ease the burden on families. (Note: while this is a brief overview — for more detail see my testimony before the Senate Finance Committee.
Working class families would benefit hugely from efforts that make college affordable – not only in terms of dollars but also in regards to encouraging their children to attend and finish college. Happily – tying tax benefits and federal grants to controlling (or lowering) college could be accomplished without a loss of revenue. In fact, it should be possible to draft the provision such that it would raise sufficient dollars to provide meaningful aid to those community colleges that are doing the most to help students from working families – such as creating tax credit bonds for community colleges (yes, free tuition at community colleges – imagine that). Controlling college costs would directly address one of the greatest financial burdens facing families.
It is troubling that the top recipients of charitable donations are donor advised funds run by for profit financial institutions. These commercial charities warehouse these funds (in the tens of billions of dollars) – taking nice fees – and the charities helping those in need are left rattling tin cups. I won’t get into all the details (I wrote an article on the issue for Nonprofit Quarterly — and read Professor Ray Madoff’s far more thoughtful piece in the same issue) – but suffice to say an effort to encourage the billions of dollars warehoused in commercial donor advised funds; endowments; etc. — to actually put in the hands of those charities helping those in need – would benefit families – and especially those who are struggling. And again – a practical note — the joy of all this (as well as the other proposals above) – it would not require any revenue raisers to accomplish.
Can this be done? I’ve learned long ago from years on the Finance Committee that the key to this questions is: “what does it cost?” Here the joy is the answer — “little to nothing.” You will likely have my old boss Senator Grassley (R-IA) — one of the best legislators in Congress — returning as Chairman of the Finance Committee. Grassley has a two-year window as Chairman and is a master at realizing bipartisan consensus for legislation. He will be looking to add to his accomplishment list. Incoming Chairman Neal (D-MA) is well respected and if given rein can certainly find common ground with Grassley and a Trump White House that is willing to deal. So yes, it’s possible to build on the current tax code and provide meaningful relief for middle class families – without breaking the bank.
Dean Zerbe is alliantgroup’s National Managing Director based in the firm’s Washington, D.C. office. Prior to joining alliantgroup, Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance. He worked closely with then-Chairman of the Finance Committee, Senator Charles Grassley, on tax legislation. During his tenure on the Finance Committee, Zerbe was intimately involved with nearly every major piece of tax legislation that was signed into law, including the 2001 and 2003 tax reconciliation bills, the JOBS bill in 2004 (corporate tax reform) and the Pension Protection Act. Zerbe is a frequent speaker and author on the outlook for short-term and long-term changes in tax policy, as well as ways accounting firms can help their clients lower their tax bill.
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