RICHARD L. KAPLAN, rkaplan at illinois.edu
Kaplan holds a chair at the University of Illinois School of Law and is a leading expert on taxation. Kaplan’s books include Advanced Taxation and Elder Law.

He said today: “A leading principle of these tax ‘reform’ bills — both the House and Senate versions — is clearly to reward donors to the Republican party. It lessens taxes on businesses, especially capital intensive rather than labor intensive business.

“The corporate income tax cut from 35 to 20 percent is steep, but through a series of mechanisms — some call them loopholes — corporations are now paying about 19 percent. Those leakages are mostly staying in place, so the effective rate after this act will be much lower.

“Significantly — and this is too rarely discussed — this keeps in place the system of taxing capital gains at substantially lower rate than labor. Warren Buffett and Mitt Romney get taxed at a lower rate on their investments than people do for their actual work. This legislation is effectively doubling down on a war on work.

“The one major innovation is creating a new tax-favored category of income called ‘pass-through’ income received from partnerships and personal businesses. This change will set up very serious compliance challenges for the IRS to demarcate wage-like income from profits received as business-owners.

“The cuts to the estate and gift taxes are huge, as is the complete write-off for depreciation.

“In contrast, people who work for a living are not seeing much benefit, in some cases, they may see increases, especially because of the end of state and local taxes write-offs.

“Medicare and Medicaid could get cut down the line as a result of this proposed law because of the resulting federal deficits and might trigger existing provisions that require reductions of Medicare’s expenditures.

“Workers are also hurt by how medical expenses are treated in the House version and how educational assistance is handled. There’s been some attention to how graduate school assistants would have a dramatic rise in taxes, but it’s more widespread than that. The legislation effectively disincentivizes educating workers generally.”