MAGA My A$$ How About “Make The Rich Richer” (MTRR): Tons of Breaks For Them

Tax Reform Bill Major Windfall Beneficiaries 

(In the Top 1%)

Harry Truman Would Turn Over in His Grave 
(Abuse of his Desk Sign)

From the LA TIMES: The all-GOP tax plan that Trump just signed into law “creates one of the largest new loopholes in decades – that is a 20% deduction for “pass-through income.”

What is “Pass-through income?” It is business income that is immediately “passed through” to the owner’s personal tax return, thereby allowing them to avoid the corporate income tax. Proponents of this part of the Republican tax plan claim the cut benefits small businesses, too, but that’s a red herring. In reality, the new deduction disproportionately benefits the wealthy, penalizes workers and, in part because it is so complex, will ultimately reward those who can afford the best tax advice

(I Note: I bet that is not your average Mom and Pop small business, um? Oops …).

* This new deduction could have profound effects on the American workplace over time and actually penalize workers – how?

This way: It essentially requires employees — most workers — to choose between benefits such as employer-based healthcare and the deduction. By creating a strong incentive for employees to give up these benefits and become independent contractors, it could further erode job, health and retirement security.

The basics of this loophole – or GOP tax gimmick (the better term I think):

1.  This new deduction allows people with pass-through income — e.g., profits from a partnership or sole proprietorship — to write off 20% of that income before calculating their taxes.

2.  The clearest winners are therefore owners of existing large pass-through businesses with many employees or lots of physical assets. The wealthy, in other words.

Note: Trump, for one stark example, stands to gain significantly. He reportedly owns more than 500 large, pass-through real estate firms — just the type of business that would qualify most easily.

FACT: Far more than most other types of income, pass-through business income is concentrated among the country’s highest earners: the top 1% currently earns less than 12% of labor income, but more than 50% of all pass-through business income. By slashing taxes for pass-through businesses, the deduction will exacerbate our widening income gaps.

Clear or not question from this article: Am I a chump if I don’t try to claim it? The short answer is “maybe,” but proceed with extreme caution. Why?

The law is so poorly drafted, and its objectives so unclear, that you probably won’t know for a while whether or how you can qualify. What’s more, the law creates traps for the unsuspecting that could make you worse off in the long term.

Let’s say a hypothetical worker wants to claim this 20% deduction – the hurdles and do’s and don’ts as it were:

1. They cannot claim the deduction if you they are an employee. This means the worker would probably need to give up all or most of their employee benefits — health insurance, retirement plan, vacation pay — in order to be considered an independent contractor, since benefits are one way the tax system determines who is an employee. They would also have to pay their employer’s share of the payroll tax.

2.  They could potentially convince their employer to pay them more in exchange for giving up their benefits, but many workers don’t have that kind of negotiating leverage. And even if they can, they may not fare better for it in the long run since health insurance for example typically costs much more when purchased independently rather than through an employer.

3.  They could forgo such benefits altogether, but that’s risky and inadvisable in the long term. Alternatively, they could band together with their fellow employees to purchase benefits, but that requires organization and resources.

4.  They can’t claim the deduction for “reasonable compensation” for services. So our hypothetical worker may get the deduction only to the extent that they argue they are getting paid too much.

5. They might be able to avoid this requirement by carefully choosing the type of pass-through entity they create or by striking out as an independent contractor. But the law is unclear. It could take the IRS and Treasury Department a while to clarify the issue. In the meantime, if they proceed, they risk incurring stiff penalties.

6.  They, no matter what route they choose, are going to need more tax advice.

Pitfalls:

1.  If they are in the middle class, the additional fees might exceed their relatively modest savings (more loss than gain).

2.  If they are single and earns more than $157,500 in taxable income, or married and earns more than $315,000, they might have to jump through more hoops.

Related from USA Today: These areas we will also see the Trump Empire, Inc. make out like an inside bank heist. Here’s how experts say the plan stands to benefit Trump's family/business/personal empire:

1.  Carves out privileges for real estate developers like the Trumps. Easy example: Some investors are able to set up deals so that technically show they are just ‘trading’ one property for another. Then they tell the IRS that it was just a trade, not a sale, so there is no income to tax. (This is called a like-kind exchange.)  The new law eliminates this break — except for real estate. Lawmakers made sure that their half-hearted attempts to close loopholes and special breaks did not touch wealthy real estate investors like the Trumps and the Kushner’s (neat, um).

2.  The new plan also lets larger inheritances out of the estate tax. Does that change the inheritance Trump leaves? Example: Instead of leaving behind $11 million tax free, Donald and Melania Trump could leave behind $22 million tax free. If Trump is being truthful about how rich he is, that might be a drop in the bucket in his fortune.

3.  Is there anything in this new plan that doesn’t leave Trump wealthier? No, not much. 

My B/L even if there is a bottom to all this: Those hoops I might have been nevertheless carefully written and I might add written by those who wrote this nightmare in their own favor – that sure comes to mind.

As stated, this could take the IRS and Treasury Department many years to clarify exactly how the pass-through loophole works. But, by then, the new deduction will be on the verge of expiring, creating further uncertainty and risks for regular employees, and that is exactly the point.

Impact: This new deduction could provide a small tax cut for some middle-class employees — but only if they give up their benefits, spend scarce resources on tax advice, and pretend not to be employees in the first place.

In the meantime, some of the richest Americans will get richer – many of who were involved in this massive scam under a phony name – guess who some of them are in the White House and Trump cabinet – yeah, the few billionaires and lots of multi-millionaires (e.g., Trump, Wilbur Ross, Betsy DeVos, Rex Tillerson, Steve Mnuchin, Andy Puzder, Ben Carson, Elaine Chao, just to name a few at the very top).

As I said: “Make The Rich Richer” (MTRR).

Wait until you get the tax bill in December 2018 – ouch comes to mind.

Thanks for stopping by.