tag:theconversation.com,2011:/africa/topics/gop-tax-bill-2017-48001/articlesGOP tax bill 2017 – The Conversation2018-04-13T15:14:47Ztag:theconversation.com,2011:article/948792018-04-13T15:14:47Z2018-04-13T15:14:47ZHow the new estate tax rules could reduce charitable giving by billions<figure><img src="https://images.theconversation.com/files/214364/original/file-20180411-540-1jkhcdm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What people decide to bequeath to charity depends on many factors, including tax laws.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/photo-elderly-woman-who-writing-letter-262437872?src=x_wVwiVgi5au3O7ZTWrh2Q-1-43">Ocskay Bence/Shutterstock.com</a></span></figcaption></figure><p>Congress and the Trump administration scaled back <a href="https://theconversation.com/how-closing-the-door-on-the-estate-tax-could-reduce-american-giving-85166">the estate tax</a> when they enacted the new tax law.</p>
<p>Although the government didn’t do away with this tax altogether, as many conservatives had long called for, trimming the tax incentives the wealthy have to give could mean that some nonprofits will soon see their budgets pinched by a decline in charitable giving.</p>
<p>As an economist and a scholar of philanthropy, I anticipate that bequests from estates could decline by about US$7 billion a year. </p>
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<h2>The first $11 million</h2>
<p>The estate tax encourages giving with a dollar-for-dollar deduction from estate and gift tax liabilities matching any amount of money bequeathed to charities after death. In other words, wealthy estates save $1 in taxes for every $1 they give to charity.</p>
<p>Once a significant moneymaker that generated 10 percent of federal tax revenue, the estate tax was responsible for only <a href="https://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax">about 1 percent</a> of those funds prior to 2018.</p>
<p>Now, the first approximately $11 million in wealth one person leaves to their heirs will be entirely tax-free. That level doubles for couples. This new cutoff, which is <a href="https://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax">twice as high as the old one</a>, will rise over time as the government automatically adjusts these exemption levels for inflation. The rate to be paid after meeting the cutoff, however, remains unchanged at <a href="https://taxfoundation.org/state-estate-tax-inheritance-tax-2018/">40 percent</a>.</p>
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<p>In practice, here’s how that works. If a couple passes on an estate valued at $25 million and they leave $3 million or more to charitable causes in their will, under the new rules their heirs would owe no tax at all on this inheritance. That is because the value of the estate would be under the $22 million threshold. </p>
<p>Most people don’t leave anywhere near that much money behind, so the number of families this tax actually applies to is tiny. Only 1 in 500 estates in a given year owed any federal inheritance taxes, before the government doubled exemption levels as part of the new tax law. That share will get even smaller now.</p>
<p>And rich families use loopholes to <a href="https://www.bloomberg.com/view/articles/2014-01-30/only-idiots-pay-the-45-estate-tax">reduce the tax’s impact</a> or get out of paying it at all.</p>
<h2>Bequest incentives</h2>
<p>When the government weakens the estate tax, there are two likely scenarios in terms of giving. The people inheriting a larger share of great fortunes might leave more of their windfalls to charity. Alternatively, they could keep more of the money to invest, enjoy or share with their families and friends.</p>
<p>When the price of anything rises – whether it be bacon or tennis balls – economists expect demand for that product or service to fall. Without an estate tax, there’s nothing to be gained, accounting-wise, from rich people writing posthumous charitable gifts into their wills.</p>
<p>The question is, do fewer multimillionaires write charities into their wills when this incentive goes away or becomes smaller?</p>
<p>The money at stake is significant. Bequest giving has more than tripled in inflation-adjusted dollars over the last 40 years, rising to more than $30 billion in 2016 from less than $10 billion in 1976, according to the <a href="https://givingusa.org/">Giving USA report</a>, which the Indiana University Lilly Family School of Philanthropy researches and writes in partnership with the Giving USA Foundation.</p>
<p>To be clear, the volume of bequests is often unpredictable over the short term and does not purely track tax policy changes. Frequent adjustments to the estate tax rate and exemption level, as well as market swings – which alter the value of assets like stocks, bonds and fine art – affect what happens in a given year. </p>
<p>So do some deaths.</p>
<p><a href="https://www.npr.org/sections/thetwo-way/2017/03/20/520841767/david-rockefeller-philanthropist-banker-and-collector-dies-at-101">David Rockefeller</a>, the successful banker and heir to a great fortune, had a net worth in excess of $3 billion despite giving $2 billion away during his lifetime when he died in 2017 at 101.</p>
<p>As his estate auctions off European ceramics, Chinese porcelain, paintings, furniture and other items from his assorted collections, <a href="https://www.marketwatch.com/story/will-the-rockefeller-art-auction-of-picacco-matisse-hopper-and-okeeffe-be-the-first-to-top-1-billion-2018-04-11">hundreds of millions of dollars are going to charity</a>, bumping up the total for bequests. </p>
<p>But I have found in my own research that, controlling for various factors, a 10 percent increase in the estate tax rate is associated with a nearly 7 percent <a href="http://hdl.handle.net/1805/14225">increase in charitable bequest giving</a>.</p>
<p>Conversely, requiring estates to be larger before they are subject to the tax is associated with decreases in bequest giving. That is especially true when the exemption level is at or above $3 million, well below the new cutoff.</p>
<p>What I saw indicates that when more wealthy people were exempted from the estate tax altogether, fewer of them wrote charities into their wills. Alternatively, those who did leave money for a cause tended to make smaller donations.</p>
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<h2>Encouraging donors</h2>
<p>It’s important to remember that people give for many different reasons and that bequests are different from other kinds of donations because they are truly a last chance to support a charity or cause. As such, people usually don’t give just because of a tax deduction.</p>
<p>Doubling the exemption level will make the estate tax irrelevant for nearly all Americans – making it only apply to about <a href="https://www.forbes.com/sites/ashleaebeling/2017/12/21/final-tax-bill-includes-huge-estate-tax-win-for-the-rich-the-22-4-million-exemption/">1,800 estates per year</a>, according to one estimate.</p>
<p>What’s more, research also suggests that estate taxes can encourage donors to give more during their lifetimes. That’s because when rich people know that more of their money will be spent on taxes after they die, they are likely to give more of it away to charities they choose before that day comes. <a href="https://www.researchgate.net/publication/222174663_Bequest_taxes_and_capital_gains_realizations">Several researchers</a> <a href="http://lawdigitalcommons.bc.edu/cgi/viewcontent.cgi?article=3511&context=bclr">have estimated</a> that eliminating the estate tax would usher in a decline of non-bequest giving in the 6 percent to 12 percent range <a href="http://www.taxpolicycenter.org/publications/effects-estate-tax-reform-charitable-giving">or more</a>.</p>
<p>In other words, curbing the estate tax’s scope will probably reduce giving to charity both during donors’ lifetimes and after their deaths too.</p>
<p><em>Editor’s note: This article includes information from articles The Conversation published on <a href="https://theconversation.com/how-closing-the-door-on-the-estate-tax-could-reduce-american-giving-85166">Oct. 11, 2017</a> and <a href="https://theconversation.com/the-pall-that-the-tax-law-is-casting-over-charities-89440">Dec. 23, 2017</a>.</em></p><img src="https://counter.theconversation.com/content/94879/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Rooney is affiliated with the public policy advisory committees for Independent Sector and The Philanthropy Roundtable. The author and the IU Lilly Family School of Philanthropy have received grants, contracts, and donations from many foundations, corporations, charities, and individuals. However, none of them funded this research. The views expressed in this essay are strictly my own and do not reflect policy stances of Indiana University or the Lilly Family School of Philanthropy.</span></em></p>Philanthropists give for many different reasons, but bequests could decline by about $7 billion a year.Patrick Rooney, Executive Associate Dean for Academic Programs, Professor of Economics and Philanthropic Studies, IUPUILicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/917102018-03-06T11:39:09Z2018-03-06T11:39:09ZGOP tax law snubs US expats and ‘accidental Americans’<figure><img src="https://images.theconversation.com/files/208528/original/file-20180301-152593-7ifm9y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It may opens doors but follows wherever you go.</span> <span class="attribution"><span class="source">AP Photo/Benny Snyder</span></span></figcaption></figure><p>Since Congress began taxing incomes, American citizens have been unable to escape the reach of Uncle Sam: They must report their income, no matter where they live or where it’s earned. It’s known as a worldwide citizenship-based tax system. </p>
<p><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1578272">Most other countries</a>, however, have a residence-based system. That means their citizens are only taxed where they live or where their income is earned. The U.S. income of a British expat living in New York, for example, is off limits to <a href="https://www.gov.uk/government/organisations/hm-treasury">Her Majesty’s Treasury</a>. </p>
<p>The <a href="https://www.congress.gov/bill/115th-congress/house-bill/1">Tax Cuts and Jobs Act</a>, passed in December, <a href="https://www.ft.com/content/4909d804-b9a1-11e7-8c12-5661783e5589">was supposed to change how the U.S. treats Americans abroad</a>. Instead, it only addressed a similar issue faced by American multinational corporations by allowing their foreign subsidiaries to send home certain profits without paying U.S. taxes on them. </p>
<p>Meanwhile, Congress left U.S. citizens living overseas under the old, punitive system even though, as my research shows, it puts them at a <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3097931">significant disadvantage</a>.</p>
<p>Fortunately, there’s a chance to fix this. The new law <a href="https://www.bloomberg.com/view/articles/2017-12-28/the-next-step-in-tax-reform-is-tax-repair">included</a> many inadvertent errors and omissions, and lawmakers <a href="https://www.politico.com/story/2018/02/24/tax-law-glitches-gop-423434">are working on legislation</a> to fix them. In my view, switching the individual income tax to a residence-based system should be part of any repair effort. </p>
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<img alt="" src="https://images.theconversation.com/files/209153/original/file-20180306-146694-1xfjkek.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/209153/original/file-20180306-146694-1xfjkek.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=475&fit=crop&dpr=1 600w, https://images.theconversation.com/files/209153/original/file-20180306-146694-1xfjkek.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=475&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/209153/original/file-20180306-146694-1xfjkek.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=475&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/209153/original/file-20180306-146694-1xfjkek.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=597&fit=crop&dpr=1 754w, https://images.theconversation.com/files/209153/original/file-20180306-146694-1xfjkek.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=597&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/209153/original/file-20180306-146694-1xfjkek.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=597&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The 1040 is a familiar sight to Americans, and bulldogs too.</span>
<span class="attribution"><span class="source">AP Photo</span></span>
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</figure>
<h2>Birth of the income tax</h2>
<p>Since <a href="http://memory.loc.gov/cgi-bin/ampage?collId=llsl&fileName=012/llsl012.db&recNum=504">first taxing individual incomes</a> during the Civil War, the U.S. has targeted its citizens’ income regardless where they live. </p>
<p>By at least 1914, a year after states ratified the <a href="https://constitutioncenter.org/interactive-constitution/amendments/amendment-xvi">16th Amendment</a>, which made the income tax constitutional, <a href="http://query.nytimes.com/mem/archive-free/pdf?res=9A0CEFDE163AE633A25754C0A9659C946596D6CF">Americans abroad were complaining of double taxation</a> and renouncing their citizenship as a result. </p>
<p>While current law offers <a href="https://www.irs.gov/publications/p54#en_US_2017_publink100047498">exclusions</a> and <a href="https://www.irs.gov/publications/p514">credits</a> to prevent double taxation for most Americans, many other provisions are punitive to long-term expats by targeting foreign <a href="https://www.irs.gov/instructions/i8621#idm139845798808528">investments</a>, <a href="https://www.irs.gov/instructions/i5471">businesses</a> and <a href="https://www.irs.gov/businesses/the-taxation-of-foreign-pension-and-annuity-distributions">retirement savings</a>. </p>
<p>The reporting requirements and <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3097931">incompatibility with local tax laws</a> create significant compliance costs for nonresident Americans that often greatly exceed the amount of U.S. tax they owe, which is zero for most expats.</p>
<p>In 2010, the U.S. further complicated their financial lives by enacting the <a href="https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca">Foreign Account Tax Compliance Act</a>, which required banks to report to the IRS on all accounts held by U.S. taxpayers.</p>
<p>The act had two consequences: First, many banks <a href="http://money.cnn.com/2013/09/15/news/banks-americans-lockout/">closed accounts held by U.S. citizens</a> because the <a href="https://www.wsj.com/articles/the-law-that-makes-u-s-expats-toxic-1444330827">banks were scared</a> of the significant penalties for noncompliance. And second, many people learned for the first time that they were subject to U.S. taxation. </p>
<p>This resulted in a <a href="http://intltax.typepad.com/intltax_blog/2018/02/2017-fourth-quarter-published-expatriates-first-annual-decrease-in-five-years.html">spike</a> in the rate of U.S. citizenship renunciations, from under 800 per year before 2010 to over 5,000 in both 2016 and 2017. </p>
<p>The GOP <a href="https://republicansoverseas.com/timeline/gop-includes-anti-fatca-language-2016-platform/">even included</a> a provision to repeal the act in its 2016 election platform, which also supported moving to a residence-based system of taxation for individuals and a territorial system for corporations. </p>
<h2>‘Accidental Americans’</h2>
<p>The main problem with a citizenship-based taxation is that the U.S. is taxing the foreign income of an American or a dual citizen working, living and paying tax in another country, without a dime going through any entity under U.S. jurisdiction. </p>
<p>Currently, the U.S. is the <a href="http://heinonline.org/HOL/Page?handle=hein.journals/scal89&div=11&g_sent=1&casa_token=16xrVaFmaCMAAAAA:915EU3zdgv6S7WoFvstb5OYA2YPUt5_ZksGdRoOIpiT6FsiZ9fN0fNJNGTA9vxxt7KyKy7iV&collection=journals">only country</a> – apart from Eritrea – to do this. </p>
<p>In addition, many of the American nonresidents being taxed are “<a href="https://www.americains-accidentels.fr">Accidental Americans</a>,” who have few or no ties to the United States but are U.S. citizens due to an accident of birth. Accidental Americans exist because <a href="http://heinonline.org/HOL/Page?handle=hein.journals/mjil38&div=12&g_sent=1&casa_token=HWDd4thBHhMAAAAA:EenC6gTNFSxmeulMtlgUW_4frPK3_Idj0zvHY9mXhg--Dj3CbbPpe-Cwg2TyBPMqozosni72&collection=journals">the U.S. grants citizenship broadly</a>, based on both <a href="https://www.law.cornell.edu/constitution/amendmentxiv">place of birth</a> and <a href="https://travel.state.gov/content/travel/en/legal/travel-legal-considerations/us-citizenship/Acquisition-US-Citizenship-Child-Born-Abroad.html">parentage</a>. </p>
<p>They have all the tax responsibilities of U.S. citizenship but often <a href="http://heinonline.org/HOL/Page?handle=hein.journals/mjil38&div=13&g_sent=1&casa_token=&collection=journals">don’t even know it</a>. </p>
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<img alt="" src="https://images.theconversation.com/files/209156/original/file-20180306-146703-carql6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/209156/original/file-20180306-146703-carql6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=359&fit=crop&dpr=1 600w, https://images.theconversation.com/files/209156/original/file-20180306-146703-carql6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=359&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/209156/original/file-20180306-146703-carql6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=359&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/209156/original/file-20180306-146703-carql6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=451&fit=crop&dpr=1 754w, https://images.theconversation.com/files/209156/original/file-20180306-146703-carql6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=451&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/209156/original/file-20180306-146703-carql6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=451&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">If you’re an American looking for a home in Sydney, count on Uncle Sam tagging along.</span>
<span class="attribution"><span class="source">siwawut/Shutterstock.com</span></span>
</figcaption>
</figure>
<h2>Kate’s situation</h2>
<p><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3097931">My own research</a> focuses on tax issues faced by Americans and dual nationals living in Australia. </p>
<p>To illustrate the impact of the U.S. tax system, let’s take the situation of “Kate,” a U.S.-Australia dual citizen living in Sydney. She earns AU$70,000 (US$54,900) per year as a marketing manager at a locally owned company. Fortunately for her, she’s able to exclude this income from U.S. taxation, yet she still must file a 1040 every year and report the AU$20,000 in her local bank account to the <a href="https://www.fincen.gov/resources/filing-information">Financial Crimes Enforcement Network</a> or face a hefty fine. </p>
<p>Most of Kate’s problems emerge when she tries to take part in a variety of other normal aspects of living somewhere for any significant period of time, from saving for retirement to buying a home. And in general, the exclusions and credits intended to prevent double taxation won’t be sufficient.</p>
<p>For example, Australia has one of the <a href="https://www.globalpensionindex.com/country-summaries-2/australia/">best retirement systems in the world</a> available to all residents, with mandatory employer contributions and low taxes. Withdrawals after age 60 are tax-free in Australia. </p>
<p>Unfortunately, Kate will face lots of <a href="http://fixthetaxtreaty.org/problem/superannuation/">complexity</a> and <a href="https://globenewswire.com/news-release/2016/04/04/825555/0/en/Brager-Tax-Law-Group-Finally-Receives-IRS-Documents-under-FOIA-for-Foreign-Retirement-Account.html">uncertainty</a> when it comes to the U.S. treatment of her Australian retirement savings. If she chooses to contribute more to her retirement fund than her employer, the U.S. could tax some of the income accumulating inside her account, even though she has no access to that income. And when she eventually retires, a portion of her withdrawals will also be subject to U.S. taxation. </p>
<p>Let’s say Kate buys a home. She’ll confront the U.S. taxman again if she eventually wants to sell, depending on fluctuations of the exchange rate between the purchase and sale. If the Australian dollar falls, that will mean the mortgage will be smaller in U.S. dollars, triggering a <a href="http://isaacbrocksociety.ca/2015/05/31/congress-knew-about-diaspora-phantom-gains-problem-1986-refused-fix/">taxable gain</a> upon repayment. If the Australian dollar appreciates, it increases the likelihood Kate will have to pay U.S. tax on any gain from the sale itself. (The U.S. excludes only the first $250,000.) Either way, Kate will likely lose. </p>
<p>Kate will face similar complexity and potential tax liability if she <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2321349">simply wants to invest</a> in a local <a href="https://www.irs.gov/instructions/i8621#idm139845801047392">mutual fund</a> or <a href="https://www.irs.gov/instructions/i5471">start a business</a> in Sydney. </p>
<p>Essentially, every transaction that Kate enters into will be seen as a cross-border transaction by the IRS, even though all parties may be Australian citizens resident in Australia.</p>
<h2>Seeking redress</h2>
<p>Kate’s situation is not unique. A survey of U.S. expats <a href="http://www.tandfonline.com/doi/abs/10.1080/1369183X.2017.1409173">shows</a> that about one-third of respondents were actively considering renouncing their U.S. citizenship, with open-ended responses indicating that tax compliance- and bank-related issues were major factors. </p>
<p>These tax and reporting obligations have cost them the <a href="https://www.theguardian.com/money/2014/sep/24/americans-chased-by-irs-give-up-citizenship-after-being-forced-out-of-bank-accounts">ability to bank and invest</a>, the <a href="http://fixthetaxtreaty.org/about/our-stories/shauns-story/">ability to save for retirement</a> and <a href="http://isaacbrocksociety.ca/2015/10/25/how-the-fatca-iga-has-made-u-s-citizenship-a-disability-in-canada-and-highlighted-the-issue-of-law-firm-trust-accounts/">even jobs</a>, when employers and potential business partners are not willing to allow their accounts to be reported to the IRS.</p>
<p>That’s a shame because overseas Americans are important business, trade and cultural representatives for the U.S. </p>
<p>Now that Congress has recognized the problems of worldwide taxation for U.S. corporations, I hope lawmakers take this opportunity to address the unintended consequences of U.S. tax policy toward American citizens living abroad as well. The likelihood of positive action appears to be growing with increased <a href="https://www.c-span.org/video/?c4692161/congressman-holdings-comment-rbt">recognition of this problem</a>.</p><img src="https://counter.theconversation.com/content/91710/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Karen Alpert is a founding member of Fix The Tax Treaty. She renounced her U.S. citizenship in 2016.</span></em></p>Congress changed the tax system to benefit companies with overseas operations but failed to help Americans actually living abroad, who still face punitive taxation.Karen Alpert, Lecturer in Finance, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/895122018-02-01T11:39:08Z2018-02-01T11:39:08ZCharity and taxes: 4 questions answered<figure><img src="https://images.theconversation.com/files/203479/original/file-20180125-100923-5s2l0y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">About 1 in 20 taxpayers may fill out this part of their returns beginning with the 2018 tax year.
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/taxes-focus-on-tax-form-line-184904708?src=g3Txu-dDJU_p-qKMgFIiJA-1-0">Sean Locke Photography/Shutterstock.com</a></span></figcaption></figure><p><em>Editor’s note: Patrick Rooney, associate dean for academic affairs and research at Indiana University Lilly Family School of Philanthropy, weighs in on why Americans who have lost incentives to give to charity through the new tax law may donate less from now on. The answers are based partly on questions he fielded from fundraising consultant and blogger <a href="https://michaelrosensays.wordpress.com/">Michael Rosen</a>.</em> </p>
<h2>1. What will affect giving the most?</h2>
<p>The biggest change is indirect: By roughly doubling the standard deduction, the tax code changes make giving to charity less of a bargain.</p>
<p>Only Americans who itemize their tax returns are eligible for the <a href="https://theconversation.com/why-congress-should-let-everyone-deduct-charitable-gifts-from-their-taxes-78323">charitable deduction</a>, a dollar-for-dollar reduction in their taxable income that lowers what they owe the IRS. </p>
<p>Researchers like me believe that the share of taxpayers who can take advantage of this tax break will <a href="https://theconversation.com/the-pall-that-the-tax-law-is-casting-over-charities-89440">plummet to about 5 percent</a> from roughly 30 percent.</p>
<p>That will make a big difference because most people who can take advantage of this tax break do. More than <a href="http://generosityforlife.org/wp-content/uploads/2017/10/Overall-Giving-10.5.17-jb-CJC.pdf">55 percent of U.S. households</a> said they made charitable gifts in 2014. But for those who itemize, my colleagues and I found that 82.4 reported having taken advantage of the charitable deduction. </p>
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<figcaption><span class="caption">Stacy Palmer, an editor with The Chronicle of Philanthropy, explains in a PBS NewsHour interview why nonprofits fear that the new tax law will depress charitable giving.</span></figcaption>
</figure>
<p>This hypothetical example shows how this could play out: Pharmacist “Josephine Doe” paid a 25 percent marginal tax rate on her US$100,000 income as a joint filer (under the old tax law). Because her family itemized, her $100 annual donation to a local animal shelter only cost $75, while Uncle Sam basically paid the rest through a tax break. </p>
<p>Under the new law, her family will take the standard deduction, making her charitable contribution no longer tax deductible. Giving $100 will cost $100.</p>
<p>We anticipate that the tax code changes will lead Americans and U.S. companies to donate roughly <a href="https://theconversation.com/the-pall-that-the-tax-law-is-casting-over-charities-89440">$21 billion</a> less per year to charity based on changes in the tax incentives.</p>
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<h2>2. Will economic growth make up the difference?</h2>
<p>Economic growth is unambiguously good for philanthropy because it tends to lead to more money in people’s pockets. Economists, including <a href="https://doi.org/10.1016/j.econlet.2010.10.016">John List</a> at the University of Chicago, have found that people give more when they have more money to give.</p>
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<p>But it’s hard to estimate how the changes in the tax law will affect growth, and we know that the changes will affect households differently based on their sources of income, number of children, the size of their mortgage and how high their state and local taxes are.</p>
<p>The University of Pennsylvania economists responsible for what’s known as the <a href="http://budgetmodel.wharton.upenn.edu/issues/2017/12/18/the-tax-cuts-and-jobs-act-reported-by-conference-committee-121517-preliminary-static-and-dynamic-effects-on-the-budget-and-the-economy">Penn Wharton model</a> and others forecast that the new law will boost growth by relatively small amounts – as little as <a href="https://www.morningstar.com/news/dow-jones/TDJNDN_201801259064/the-tax-law-just-one-month-old-is-roaring-through-us-companies.html">0.1 percentage point</a> – per year over the next decade, following a slightly larger boost in 2018.</p>
<p>In January, after mulling the tax law’s likely ramifications, the <a href="https://www.reuters.com/article/us-imf-economy-outlook/imf-raises-global-growth-forecast-sees-trump-tax-boost-idUSKBN1FB1TK">International Monetary Fund</a> raised its 2018 forecast for U.S. growth to 2.7 percent rate from a prior 2.3 projection.</p>
<p>Given the uncertainty about the impact of the new tax law on growth and the uneven effects anticipated, my colleagues and I have not factored a growth dividend from the tax law into our expectations.</p>
<h2>3. Won’t taxpayers give some of the money they save on taxes to charity?</h2>
<p>The average individual taxpayer will get a <a href="http://www.taxpolicycenter.org/taxvox/tcja-would-cut-taxes-average-1600-2018-most-benefits-going-those-making-300000-plus">$1,600 tax cut</a> in 2018, and a 1.6 percent after-tax income boost in 2019. </p>
<p>Typically, itemizing donors give about <a href="https://doi.org/10.1257/jep.25.2.157">3 percent of their income</a> to charity, and, as I noted earlier, people usually give more when they have more. But the tax changes’ effects will vary widely.</p>
<p>About <a href="http://www.taxpolicycenter.org/taxvox">80 percent</a> of households will initially get a tax cut, while 5 percent will face a tax increase, according to the <a href="http://www.taxpolicycenter.org/taxvox/tcja-would-cut-taxes-average-1600-2018-most-benefits-going-those-making-300000-plus">Tax Policy Center</a>. The rest will see their lot unchanged.</p>
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<p>The federal government has gotten rid of <a href="https://www.cnbc.com/2017/12/20/families-will-feel-the-pain-of-losing-this-tax-break.html">personal exemptions</a>, which will cause many Americans to pay <a href="https://www.jct.gov/publications.html?func=startdown&id=5054">higher tax bills</a>. Many families will <a href="https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/">lose more through that change</a> than <a href="http://www.christianitytoday.com/news/2017/december/big-families-gop-tax-reform-bill-child-tax-credit.html">they will gain</a> from taking the bigger standard deduction.</p>
<p>Plus, the millions whose <a href="https://www.curbed.com/2017/12/20/16797590/tax-bill-salt-real-estate-mortgage">state, local and property taxes or mortgage interest</a> payments exceed the maximum level for which deductibility is now allowed will have less after-tax income. They will surely consider giving less.</p>
<p>But since many of the tax code’s changes are temporary, even fewer Americans will probably be paying a smaller federal income tax bill than they would have without the new law by 2027.</p>
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<p>It’s a different story for companies, which will benefit tremendously as their top marginal rate declines from 35 percent to 21 percent. </p>
<p>Businesses, like people, give for many reasons, including tax incentives, so there’s no reason to expect corporate giving to decline in proportion with this <a href="https://www.thebalance.com/corporate-income-tax-definition-history-effective-rate-3306024">tax cut</a>.</p>
<p>Indeed, some corporations may actually make a point of donating more. However, based on past patterns, I expect corporate giving to decline by $1 billion a year in response to the tax rate cuts – not adjusting for possible growth.</p>
<h2>4. How will taxpayers react?</h2>
<p>Tax policies may not affect how some people give at all – especially <a href="https://theconversation.com/why-it-can-make-sense-to-believe-in-the-kindness-of-strangers-86271">extreme altruists</a> or <a href="https://www.oddee.com/item_99238.aspx">misers</a>. But the <a href="https://finance.yahoo.com/news/complete-guide-2018-tax-changes-115200441.html">new law</a> will probably affect most typical donors.</p>
<p>Seeing what happens may take years, however.</p>
<p>Because Congress passed the law in December, some <a href="https://www.cnbc.com/2017/11/28/boost-your-charitable-giving-this-year-in-case-the-gop-tax-bill-becomes-law.html">Americans front-loaded</a> their giving for 2018 and beyond. They wanted to itemize their deductions in 2017 for the next year or more if they expected to lose their tax break. </p>
<p><a href="http://www.nber.org/papers/w3273.pdf">That’s what happened in the mid-1980s</a>, the last time that Congress passed a sweeping tax package. Anticipating cuts, some households and businesses gave more to charity than they usually did beforehand. </p>
<p>Giving by the rich spiked, <a href="https://www.ntanet.org/NTJ/45/3/ntj-v45n03p267-90-effects-tax-reform-charitable.pdf">then declined</a> once those changes took effect. </p>
<p>There’s another sign that giving is bunching up: a spike in the number of <a href="https://theconversation.com/donor-advised-funds-charities-with-benefits-74516">donor-advised funds</a>, privately managed accounts that operate in many ways like personal foundations. Itemizers may deduct what they put in these accounts from their taxable income right away, even if they don’t give it to a charity for years.</p>
<p>Taxpayers who otherwise won’t be able to itemize can do so by stowing, say, the money they plan to give away over the next few years in one of these accounts in a single year and allocating those funds over the next several years to their favorite nonprofits. </p>
<p>Indeed, Schwab Charitable, a leading provider of this philanthropic service, says that the number of accounts it opened <a href="https://www.businesswire.com/news/home/20180123005666/en/Schwab-Charitable-Reports-Record-Grants-2017-Unique">spiked 91 percent</a> in the second half of 2017 due to stock gains and tax concerns. </p>
<p>Employees of some of these financial institutions told me that they were working 20-hour days in the last two weeks of December to keep up with new clients who wanted to open donor-advised fund accounts before the tax rules changed to front-load some of their giving. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/203481/original/file-20180125-100896-1k20xay.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Only the very richest Americans leave behind estates that are subject to an inheritance tax.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/man-suit-showing-where-testator-must-197605481?src=BkhVsbdFgJp0xphLXFU1Fg-1-29">nito/Shutterstock.com</a></span>
</figcaption>
</figure>
<p>Finally, the new law changes rules governing the estate tax, a levy on inheritance, by <a href="http://money.cnn.com/2018/01/09/pf/taxes/estate-tax/index.html">doubling exemption levels</a>. For the next decade, estates left by deceased individuals worth $11 million or less will pay no taxes for the next decade, along with those left behind by couples who possessed up to $22 million. An unchanged <a href="https://www.law.com/thelegalintelligencer/sites/thelegalintelligencer/2018/01/09/the-impact-of-tax-cuts-and-jobs-act-of-2017-on-estate-planning/?slreturn=20180024074515">40 percent marginal rate</a> applies to fortunes that are bigger than than the cutoffs.</p>
<p>The Joint Committee on Taxation, a congressional committee charged with estimating the <a href="https://www.jct.gov/publications.html?func=startdown&id=5060">impact of fiscal legislation</a>, estimates that <a href="https://www.forbes.com/sites/ashleaebeling/2017/12/21/final-tax-bill-includes-huge-estate-tax-win-for-the-rich-the-22-4-million-exemption/#6fe888e61d54">1,800 estates will pay</a> the estate tax in 2018, a steep drop from the approximately 5,000 estates it says would have had to pay it without the new tax law. I expect this change to reduce the incentive for wealthy Americans to bequeath money to charity, sparking a roughly $7 billion annual decline in giving through bequests.</p><img src="https://counter.theconversation.com/content/89512/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Rooney and his employer, the Indiana University Lilly Family School of Philanthropy, receive funding from many foundations and charities. Similarly, Rooney and other Lilly School faculty and staff members are affiliated with legal and advisory boards for many charities.</span></em></p>The lost incentives to give are likely to make a bigger difference than the small uptick in economic growth expected from the new law.Patrick Rooney, Executive Associate Dean for Academic Programs, Professor of Economics and Philanthropic Studies, IUPUILicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/904162018-01-23T11:19:39Z2018-01-23T11:19:39ZAnother continuing resolution won’t solve the real problem within the Republican Party<figure><img src="https://images.theconversation.com/files/202895/original/file-20180122-182938-dv5nj6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Senator Mitch McConnell walks to the chamber on the first morning of a government shutdown.</span> <span class="attribution"><span class="source">AP Photo/J. Scott Applewhite</span></span></figcaption></figure><p>Republicans can’t agree on a budget. </p>
<p>That lack of agreement has made it necessary for Congress to pass a series of continuing resolutions to keep the government open. </p>
<p>There’s no budget agreement because factions within the GOP hold contradictory policy positions on almost every issue. James Madison, an author of the <a href="http://www.let.rug.nl/usa/documents/1786-1800/the-federalist-papers/">Federalist Papers</a> might have framed the problem this way: The party draws on votes from – and is accountable to – diverse groups of citizens with conflicting interests. That conflict within the Republicans’ voting base means that any policy they propose would hurt at least some of the members’ key constituents. </p>
<p>In an era of <a href="https://scholar.google.com/scholar?oi=bibs&cluster=3897805199941787636&btnI=1&hl=en">hyperaccountability</a>, swift electoral punishment from any negatively impacted constituency is all but inevitable. Every vote and utterance by a political incumbent is scrutinized on Facebook and Twitter. The personal electoral costs of following the party line are prohibitive for enough to break down compromise within the party and preclude any significant policy change. </p>
<p>The <a href="http://fortune.com/2017/12/20/gop-tax-bill-cuts-start/">recent tax bill</a> was a happy exception for the Republicans. It lowered – or, at least, did not raise – federal taxes for practically <a href="https://www.nytimes.com/interactive/2017/11/28/upshot/what-the-tax-bill-would-look-like-for-25000-middle-class-families.html">everyone who mattered to Republicans</a>. In essence, it handed out money to majorities in all categories of supporters without specifying who would bear the costs. </p>
<p>Now with the budget, the time has come to clarify – to agree on where and for whom to cut expenditures. It is no surprise that there is about as much internal consensus within the GOP as they had on cutting expenditures on Obamacare – none. It is the practical reality of unified Democratic opposition that in order to legislate, the Republicans would have to agree on something.</p>
<p>What once was, arguably, a party united by fiscal responsibility and economic and social laissez-faire is now committed to a wide variety of causes. Disparities among constituencies that vote Republican across the country have been growing since the mid-1990s. Because this lack of unity is electoral in nature, the inability to formulate policies will remain a problem for the long run. </p>
<p>When key decision-makers disagree, the result is that they <a href="https://scholar.google.com/scholar?oi=bibs&cluster=9917263476729135576&btnI=1&hl=en">cannot change the policy status quo</a>. Republican failure to move the policy status quo on health care, or to reach a consensus on the budget is caused not by poor Republican strategies. It is caused by contradictions within Republican rank-and-file members because of who their voters are and what they want.</p><img src="https://counter.theconversation.com/content/90416/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The party’s promise to be all things to all people has hit a wall.William B. Heller, Associate Professor of Political Science, Binghamton University, State University of New YorkOlga Shvetsova, Professor of Political Science and Economics, Binghamton University, State University of New YorkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/896772018-01-08T03:58:17Z2018-01-08T03:58:17ZWhy states may get away with creative income tax maneuvers<figure><img src="https://images.theconversation.com/files/201026/original/file-20180105-26169-1r17m2k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">New York Gov. Andrew Cuomo vows he will fight to protect his state from fallout from the new tax law.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/State-of-the-State-Cuomo/67246e55677e4081ad9fff951b4d5650/2/0">AP Photo/Hans Pennink</a></span></figcaption></figure><p>Fearing that the new tax law will make it harder for them to raise enough revenue for public schools and other vital services, high-tax states such as <a href="https://www.bloomberg.com/news/articles/2018-01-05/new-jersey-s-murphy-joins-tax-fight-as-cohn-hints-at-pushback">California, New Jersey and New York</a> are wasting no time in <a href="https://taxfoundation.org/state-strategies-preserve-state-and-local-tax-deduction/">fighting back</a>. </p>
<p>Other states are likely to follow suit as the benefits of these actions become clear, setting the stage for a bitter legal dispute over federal and state taxation.</p>
<p>As a tax law professor who researches the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2943713">interactions between federal and state tax systems</a>, I believe these initiatives are likely to succeed in softening the impact of the new tax law on residents of high-tax states. </p>
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<h2>Bypass the SALT</h2>
<p>At issue is a new <a href="http://money.cnn.com/2017/12/20/pf/salt-deductions-new-tax-plan/index.html">US$10,000 cap</a> on the amount of money Americans may deduct on their federal income tax returns for what they pay in state and local taxes.</p>
<p>What’s more, because the new law <a href="https://www.bustle.com/p/does-the-tax-bill-eliminate-the-personal-exemption-the-change-will-hit-families-most-7651167">rolls all personal exemptions</a> into an enlarged standard deduction, millions of households will stop itemizing on their returns. Consequently, the number of taxpayers claiming the “SALT” deduction is likely to fall by <a href="http://www.taxpolicycenter.org/publications/distributional-analysis-tax-cuts-and-jobs-act-passed-senate/full">around two-thirds</a>.</p>
<p><a href="https://theconversation.com/the-gop-tax-plan-state-and-local-taxes-deductions-and-you-88526">This SALT constraint</a> will take the <a href="https://taxfoundation.org/state-and-local-tax-deduction-primer/">biggest toll</a> on residents of states where residents are most reliant on the current deduction. New York, New Jersey, Connecticut and California top that list.</p>
<p>As a result, experts predict that voters in those states will become <a href="https://www.cbpp.org/blog/house-tax-bills-changes-to-state-and-local-tax-deductions-would-hurt-states">more resistant to existing taxes and more apt to oppose future increases</a>. That could be particularly problematic for states – like Illinois and New Jersey – with <a href="https://www.bloomberg.com/graphics/2017-state-pension-funding-ratios/">severely underfunded pension plans</a>. </p>
<p>The new limitations on the SALT deduction may even make it harder for high-tax states to <a href="https://www.nytimes.com/2017/12/04/business/economy/tax-bill-new-york.html">attract talented, high-earning and mobile workers</a>, leading to less dynamic state and local economies. </p>
<h2>Two switcheroos</h2>
<p>Two main strategies to bypass this constraint are taking shape.</p>
<p>First, New York is considering a proposal to shift some of its revenue-raising from personal income taxes to <a href="https://www.fa-mag.com/news/state-governments-are-already-gaming-the-republican-tax-overhaul-36477.html">payroll taxes</a>. The reason it would want to do that is because payroll taxes charged to employers – unlike personal income taxes – remain fully deductible under the new federal tax law.</p>
<p>Second, <a href="http://sd24.senate.ca.gov/news/2018-01-04-senate-leader-de-leon-introduces-legislation-protect-california-taxpayers">California</a> and <a href="http://www.northjersey.com/story/news/new-jersey/2018/01/05/charity-workaround-new-federal-cap-could-save-new-jersey-residents-money-new-federal-cap-tax-deducti/1006589001/">New Jersey</a>, as well as New York, are considering plans to grant tax credits to taxpayers who donate to state-affiliated institutions, such as public schools, hospitals and parks.</p>
<p>These donations would be voluntary, and the resulting credits could be used to offset state and local income and property tax liabilities.</p>
<p>This is feasible because the tax overhaul left the <a href="https://theconversation.com/the-pall-that-the-tax-law-is-casting-over-charities-89440">charitable contribution deduction intact</a> and the <a href="https://turbotax.intuit.com/tax-tips/charitable-contributions/are-contributions-to-school-district-programs-tax-deductible/L6YhGgwPA">IRS has already indicated</a> that donations to state charitable credit programs should be treated for federal tax purposes as charitable contributions rather than state and local tax payments.</p>
<p>Anyone who hits the US$10,000 SALT cap could benefit from programs of this sort. Those taxpayers could replace some or all of their nondeductible state tax payments with deductible charitable contributions.</p>
<p>Not only would these initiatives alleviate the added federal burden for some taxpayers, they could make it easier for state and local governments to raise revenue in the future because residents could pay for public schools and other services with tax-deductible dollars. </p>
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<h2>Payroll please</h2>
<p>Here’s how the payroll tax change, which New York Gov. Andrew Cuomo mentioned his <a href="https://www.newsday.com/news/region-state/cuomo-payroll-tax-1.15794578">State of the State speech</a>, would work.</p>
<p>Let’s say your employer pays you $100,000 a year and you pay $5,000 in state personal income taxes, leaving $95,000 before federal taxes and other charges.</p>
<p>What if instead your employer paid you $95,000 in wages and also paid a $5,000 payroll tax to the state? Your employer would be no worse off, with its out-of-pocket cost still totaling $100,000, and the new tax law preserves an employer’s ability to deduct payroll taxes from their own tax bills. </p>
<p>And you generally would be no worse off either, as you would still have $95,000 before dealing with your federal tax bill. </p>
<p>Indeed, you would most likely fare better financially once federal taxes are factored in. The federal government would tax you on $95,000, whereas you would be taxed on the full $100,000 if the state did not adopt the payroll tax workaround and if you could not claim a SALT deduction.</p>
<p>That would be the case if you claim the standard deduction – as <a href="http://thehill.com/opinion/finance/366773-nonprofits-are-the-unintended-victims-of-new-tax-bill">at least nine-tenths of taxpayers</a> will – or if you hit the $10,000 SALT cap based on property taxes alone. Depending on your federal tax bracket, the savings could increase your after-tax income by anywhere from 0.6 percent to 3.1 percent. </p>
<p>States adopting this approach do not need to repeal their personal income taxes entirely. Their income taxes still would apply to earnings from sources other than wages, such as investment or self-employment income. But they would not tax workers on wages that already have been subject to an employer-side payroll tax.</p>
<p>Implementing this change would be relatively straightforward in states like Illinois, Massachusetts and Pennsylvania, which have <a href="https://www.thebalance.com/which-states-have-a-flat-income-tax-rate-3193306">flat personal income tax rates</a>. It would be somewhat more complicated to pull this off in states such as <a href="https://www.tax.ny.gov/pdf/current_forms/it/it201i_tax_rate_schedule.pdf">New York</a> and <a href="https://www.ftb.ca.gov/forms/2017-California-Tax-Rates-and-Exemptions.shtml">California</a>, which have highly progressive rate structures.</p>
<p>But this can almost certainly be done through a <a href="https://medium.com/whatever-source-derived/implementing-a-state-level-payroll-tax-in-response-to-the-rollback-of-salt-9ca712e30cf3">system of refundable credits</a>, and the potential savings for state residents would be dramatic. In New York, for example, an average household might <a href="https://medium.com/whatever-source-derived/implementing-a-state-level-payroll-tax-in-response-to-the-rollback-of-salt-9ca712e30cf3">save around $1,200 per year</a> on its federal taxes.</p>
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<a href="https://images.theconversation.com/files/201022/original/file-20180105-26157-1xgq3ab.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/201022/original/file-20180105-26157-1xgq3ab.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/201022/original/file-20180105-26157-1xgq3ab.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/201022/original/file-20180105-26157-1xgq3ab.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/201022/original/file-20180105-26157-1xgq3ab.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/201022/original/file-20180105-26157-1xgq3ab.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/201022/original/file-20180105-26157-1xgq3ab.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/201022/original/file-20180105-26157-1xgq3ab.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Senate Minority Leader Chuck Schumer of New York and House Minority Leader Nancy Pelosi of California, like every single Democratic lawmaker, opposed the tax law – partly due to its impact on high-tax states.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Congress-Taxes/93f341e8cc7c428fad3b91f069658f7c/14/0">AP Photo/Andrew Harnik</a></span>
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<h2>Charity begins at home</h2>
<p>And here’s how the charitable credit idea would work: Say your state offers you a 90-cent credit against state taxes for every dollar you give to an in-state university or local community college. The IRS determined in a <a href="https://www.irs.gov/pub/irs-wd/1105010.pdf">memo in 2011</a> addressing a similar program in Missouri that the full $1 donation would be a deductible charitable contribution, notwithstanding the state tax credit you get in return.</p>
<p>For someone in the 37 percent federal income tax bracket, this means their $1 donation would generate 90 cents in state tax benefits and 37 cents in federal tax benefits. That’s a $1.27 after-tax return on a $1 investment.</p>
<p><a href="https://www.edchoice.org/school-choice/school-choice-in-america/">More than a dozen states</a> already have implemented tax credit programs like this to finance <a href="https://theconversation.com/tax-credits-school-choice-and-neovouchers-what-you-need-to-know-74808">private school vouchers</a>. Nothing would stop them from extending these programs to finance state universities, community colleges, K-12 public schools, hospitals, parks and more.</p>
<p>Indeed, California Senate President <a href="http://www.washingtonexaminer.com/california-state-senate-leader-introduces-workaround-for-tax-laws-salt-limit/article/2645026">Kevin de León already has introduced</a> a bill along these lines. New York’s Gov. Cuomo has expressed interest in the idea too, as has New Jersey Gov.-elect <a href="https://www.bloomberg.com/news/articles/2018-01-05/new-jersey-s-murphy-joins-tax-fight-as-cohn-hints-at-pushback">Phil Murphy</a>.</p>
<h2>Lingering questions</h2>
<p>The payroll tax idea would work best for the majority of workers who earn wage income and who will claim the standard deduction under the new federal tax law. The charitable contribution credit, in contrast, would be more likely to benefit higher-income households who continue to itemize deductions for federal purposes.</p>
<p>States can adopt both because the two approaches are not mutually exclusive. </p>
<p>Theoretically, the IRS could challenge either approach. But a well-designed state plan should hold up in court. With respect to the payroll tax workaround, Congress has explicitly said that taxes paid by employers should remain deductible, and nothing requires states to tax the wage income of their residents.</p>
<p><a href="https://www.bankrate.com/finance/taxes/state-with-no-income-tax-better-or-worse-1.aspx">Seven states</a> already have no state income tax, and two more have income taxes that exclude wages. There is <a href="https://medium.com/whatever-source-derived/state-payroll-tax-shift-stands-on-solid-legal-ground-fe769d8ab309">no legal obstacle</a> preventing additional states from reducing their reliance on income tax revenue and shifting toward employer-side payroll taxes.</p>
<p>The IRS of course could revoke its 2011 memo that blessed the charitable arrangements already out there. But decades of judicial precedent, which the agency on its own can’t undo, supported that memo. Moreover, with similar <a href="https://www.usnews.com/news/politics/articles/2017-08-11/school-choice-program-raises-questions-about-accountability">tax credit programs</a> that finance private school vouchers popular among the Republican Party’s base, GOP lawmakers may resist moves to end such credit arrangements.</p>
<p>How many states will ultimately adopt proposals along these lines? It’s too soon to say, but for now, it looks like states that choose to fight back against the SALT rollback will have the upper hand.</p><img src="https://counter.theconversation.com/content/89677/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel Hemel has provided advice, on a volunteer basis, to state officials in California, Illinois, Maryland, and New York who have inquired about potential responses to the new tax law.</span></em></p>New York, California and other high-tax states are angling to use the charitable deduction and state payroll taxes as workarounds to shield both their residents and their revenue.Daniel Hemel, Assistant Professor of Law, University of ChicagoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/894272017-12-21T11:20:27Z2017-12-21T11:20:27ZWill Americans finally start fighting back against tax cuts for the rich?<p>The <a href="http://maristpoll.marist.edu/1212-majority-views-tax-bill-as-adding-financial-injury-potus-favors-wealthy-say-americans/">60 percent of Americans</a> who believe that the <a href="https://www.bloomberg.com/news/articles/2017-12-20/senate-sends-gop-s-1-5-trillion-tax-cut-to-house-for-final-vote">GOP tax package</a> will mostly <a href="https://apnews.com/c59140758e824054a9c26c1eb5b02e5e/AP-FACT-CHECK:-Trump's-truth-warp-on-taxes;-Dems-drift,-too">help the wealthiest</a> among us are right, according to an analysis by the Tax Policy Center.</p>
<p>But will widespread disapproval translate into political costs or electoral losses for Republicans? Will Americans decide they are finally fed up with over half a century of <a href="https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality">soaring economic inequality</a> and <a href="https://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf">declining tax rates on the rich</a> as income and wealth for everyone else but the wealthiest stagnate?</p>
<p>My students and I have spent this semester reviewing the history of tax reform. It gives us several reasons to be skeptical that voters will punish politicians for the tax plan.</p>
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<h2>Polling poorly</h2>
<p>The tax bill may cost taxpayers up to <a href="http://www.crfb.org/blogs/final-tax-bill-could-end-costing-22-trillion">US$2.2 trillion</a>, according to the Committee for a Responsible Federal Budget, and the Joint Committee on Taxation estimates it will only <a href="https://www.jct.gov/publications.html?func=startdown&id=5050">modestly enhance</a> economic growth.</p>
<p>So it should be no big surprise that <a href="http://maristpoll.marist.edu/1212-majority-views-tax-bill-as-adding-financial-injury-potus-favors-wealthy-say-americans/">poll</a> after <a href="http://thehill.com/policy/finance/365684-poll-24-percent-of-americans-think-gop-tax-plan-is-a-good-idea">poll</a> has shown that voters strongly disapprove of this Republican initiative. It is even <a href="https://www.cnbc.com/2017/12/18/nearly-half-of-americans-oppose-gop-tax-bill-monmouth-poll-says.html">notably less popular</a> than the last major revision of the tax code – which Congress passed and President Ronald Reagan signed into law three decades ago.</p>
<p>In fact, this is the <a href="https://fivethirtyeight.com/features/will-passing-the-tax-bill-help-the-gop-in-2018-probably-not/">least popular</a> tax cut in at least a generation.</p>
<p>Only 26 percent of Americans approved of the tax overhaul legislation passed by the House and the Senate, according to a <a href="https://www.monmouth.edu/polling-institute/reports/MonmouthPoll_US_121817/">Monmouth University</a> poll taken about a week before both chambers approved a compromise version.</p>
<p>When <a href="http://www.people-press.org/2017/04/14/top-frustrations-with-tax-system-sense-that-corporations-wealthy-dont-pay-fair-share/">Pew</a> asked Americans what bothers them the most about taxes, the top two answers were that corporations and the wealthy don’t pay their fair share. Nevertheless, tax rates on the rich keep going down, not up.</p>
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<h2>Homer’s tax cut</h2>
<p>Much of the academic research about why Americans tolerate tax cuts for the rich revolves around versions of the “wishful thinking hypothesis.” </p>
<p>The less charitable version of the hypothesis is that Americans are ignorant. For example, in a paper that references the buffoonish cartoon dad from “The Simpsons” TV show, political scientist Larry Bartels tries to explain widespread public support for the Bush tax cuts of 2001 and 2003, which also primarily benefited higher-income Americans. In “<a href="http://web.mit.edu/berinsky/www/homer.pdf">Homer Gets a Tax Cut</a>,” he finds that Americans were ill-informed and simply did not make connections between tax policy and inequality.</p>
<p>As Bartels argues, “Notwithstanding the vastness of the stakes, public thinking about this issue seems to have been remarkably superficial.”</p>
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<span class="caption">Visitors to the Universal Studios Hollywood amusement park can board The Simpsons virtual-reality roller-coaster ride. Homer is the bald father figure shown here.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/los-angeles-hollywood-usa-july-16-530484742?src=eLr3n5BUnNlxJELulSobWQ-1-30">Pack-Shot/Shutterstock.com</a></span>
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<p>Sociologist <a href="https://www.nytimes.com/2017/12/18/opinion/republicans-tax-cuts-rich.html?_r=0">Isaac Martin</a> recently wrote in the New York Times op-ed section that American ignorance about tax policy isn’t all our fault. His essay describes a decadeslong grassroots campaign begun by banker and philanthropist Andrew Mellon, who served as treasury secretary after World War I, to convince the public that tax cuts for the rich pay for themselves through economic growth – a claim mainstream economists have <a href="http://www.crfb.org/papers/tax-cuts-dont-pay-themselves">debunked</a>.</p>
<p>Martin argues that the public needs to re-engage in the tax debate and “reclaim their own populist roots.”</p>
<h2>Wishful thinking</h2>
<p>The more charitable version of the wishful thinking hypothesis is that Americans aren’t necessarily ignorant or easily fooled. They are just overly optimistic about their own financial future.</p>
<p>One reason why Americans don’t fight very hard against tax cuts for the rich is that they believe that someday they too might be rich. A <a href="http://thehill.com/polls/237987-the-hill-poll-voters-say-wealth-is-now-an-impossible-dream">2012 poll</a> by The Hill found that 37 percent of voters think they can become wealthy in the course of their lives, and they may not be far off. <a href="http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0116370">Longitudinal income data</a> reveal that 36.4 percent of Americans will likely experience at least one year in the top 5 percent of the income distribution between the ages of 25 and 60 – with an 11.1 percent chance of being in the top one percent.</p>
<p>However, their chances of reaching the top percentiles and staying there are much lower. Only 3 percent of Americans reach the top 1 percent and <a href="http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0116370">remain that rich</a> for three or more years.</p>
<p><a href="http://journals.sagepub.com/doi/abs/10.1177/1745691614562005">Studies</a> also <a href="http://www.sciencedirect.com/science/article/pii/S0022103115000062">show</a> that Americans overestimate economic upward mobility and underestimate the extent of downward mobility. Psychologists Shai Davidai and Thomas Gilovich, the authors of one of the studies, argue that a belief in the system’s fairness and the rewards of hard work may make it possible to accept inequality as a “side effect of a well-functioning economic system that offers more equality of opportunity than equality of outcome.”</p>
<p>Every version of the “wishful thinking hypothesis” posits that Americans fail to grasp fundamental truths about tax policy, the economy and their own self-interest – whether they are being superficial, misinformed, misled or overly optimistic.</p>
<h2>Equal sacrifice</h2>
<p>Political scientists Kenneth Scheve and David Stasavage offer an alternative hypothesis in their book “<a href="https://press.princeton.edu/titles/10674.html">Taxing the Rich: A History of Fiscal Fairness in the United States and Europe</a>. ”</p>
<p>Surveying the history of U.S. and European taxation, they find that political support for taxing the rich is the strongest when people believe that higher taxes compensate for some other benefit or sacrifice government imposes on others.</p>
<p>For example, several countries raised taxes on the rich during WWI and WWII. This “<a href="https://web.stanford.edu/group/scheve-research/cgi-bin/wordpress/wp-content/uploads/2013/08/ScheveStasavage_IO_2010.pdf">conscription of wealth</a>” compensated for the military conscription of the middle and lower classes to fight the wars and helped offset the benefits of wartime profiteering by the rich.</p>
<p>As Scheve and Stasavage explain, history shows that high inequality isn’t enough to trigger tax increases for the rich. They argue that “the rich are taxed when people believe not just that inequality is high but also that it is fundamentally unfair because the deck is stacked in favor of the rich, and the government did the stacking.”</p>
<p>The military draft is a clear-cut example of mandatory unequal sacrifice on the part of middle and lower-income people. Few of the involuntary recruits who <a href="https://www.uncpress.org/book/9780807855621/rich-mans-war-poor-mans-fight/">fought in World War I</a>, for example, were wealthy. Today’s environment of political favors for the rich and growing income and wealth inequality is far less clear-cut.</p>
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<p>While both the “wishful thinking” and “compensatory” hypotheses may help explain the public’s historical ambivalence about tax cuts for the rich, one point the research underscores is that opinions on taxation are formed not just by self-interest or the distribution of “winners” and “losers” but by moral judgments of fairness and procedural justice.</p>
<p>Most <a href="http://www.cnn.com/2017/12/19/politics/cnn-poll-tax-bill-opposition-grows/index.html">Americans may disapprove</a> of this tax plan now, but the coming years will show whether they acquiesce or decide they’ve finally had enough of tax cuts for the rich.</p><img src="https://counter.theconversation.com/content/89427/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephanie Leiser does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Historically, wishful thinking has blunted pushback.Stephanie Leiser, Lecturer in Public Policy, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/894402017-12-21T11:13:58Z2017-12-21T11:13:58ZThe pall that the tax law is casting over charities<figure><img src="https://images.theconversation.com/files/200271/original/file-20171220-4954-1pdt0dc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Changes to the tax code may strike a blow to the charitable world.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/broken-piggy-bank-white-background-328130237?src=pnNWsy6ss8SLAkvR_INGgA-1-17">Shutter OK/Shutterstock.com</a></span></figcaption></figure><p>The tax-code overhaul that <a href="http://money.cnn.com/2017/12/15/news/economy/gop-tax-plan-details/index.html">Republican lawmakers approved</a> and <a href="http://www.cnn.com/2017/12/22/politics/trump-sign-tax-bill-mar-a-lago/index.html">Trump signed</a> into law will raise the price of charitable giving for millions of Americans, surely reducing how much money the nation gives. </p>
<p>As an economist and a scholar of philanthropy who researches how public policies shape charitable giving, I anticipate that the tax tweaks will lead Americans and U.S. companies to donate roughly US$21 billion less per year to charity.</p>
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<h2>Standard deduction and tax rates</h2>
<p>My colleagues and I expect giving to be reduced chiefly through two of the tax plan’s key features – significantly boosting the standard deduction and cutting the top marginal tax rate. </p>
<p>Research I co-led based on an earlier tax proposal showed that these changes would reduce household charitable giving by <a href="https://theconversation.com/why-congress-should-let-everyone-deduct-charitable-gifts-from-their-taxes-78323">$13.1 billion</a> per year. That would mark a 4.6 percent decline from the <a href="https://theconversation.com/what-influences-american-giving-78800">$282 billion</a> American households gave in 2016. </p>
<p>We also determined that the share of households that itemize their tax returns would fall to approximately 5 percent from the current 30 percent. </p>
<p>While we based our estimates on a reduction in the top rate from 39.6 percent to 35 percent, the new tax law would reduce the <a href="https://www.theatlantic.com/politics/archive/2017/12/republican-tax-bill-house-senate-wealthy/548342/">top marginal tax rate</a> to 37 percent – and there are other differences both in terms of marginal tax rates and where they kick in for different income levels. </p>
<p>This difference in the top marginal tax rate would reduce the impact on philanthropy somewhat from what we originally estimated.</p>
<p>Conversely, the new law increases the standard deduction by 90.5 percent for married couples compared to the 75 percent boost we were expecting when we estimated these repercussions. This change would magnify the toll taken on philanthropy compared to our base model. </p>
<p>That means the share of filers who get a tax break – a built-in incentive – for their charitable gifts will be falling even further than my team had estimated. This result is further exacerbated by the loss in <a href="https://www.investopedia.com/terms/p/personal-exemption.asp">personal exemptions</a> of more than $4,000 per person <a href="https://www.investopedia.com/news/trumps-tax-reform-what-can-be-done/">through 2025</a>.</p>
<p>This means that even with the near doubling of the standard deduction under the new tax laws, a married couple with one child would basically break even. Married couples with two kids would be paying federal income tax on more of their income in the future than they have until now.</p>
<p>For example, a family of four prior to the tax changes would have had a standard deduction of $12,700 and four exemptions worth $16,200 combined, so their first $28,900 would be tax-free. Under the new tax law, they would just get the $24,000 standard deduction, making an additional $4,900 subject to income taxes. </p>
<p>These lost personal exemptions will reduce the after-tax income that millions of Americans will have on hand to give to charities. And the GOP tax package does not create any incentives to give for the vast majority of households, some 95 percent of which will not be itemizing their returns. </p>
<p>In short, I expect the loss to charitable giving from the tax-code changes to top the $13.1 billion decline we previously estimated just for households. </p>
<h2>Estate tax</h2>
<p>The tax package also trims incentives the wealthy have to give due to changes in the tax levied on estates after the rich die.</p>
<p>The <a href="https://theconversation.com/how-closing-the-door-on-the-estate-tax-could-reduce-american-giving-85166">estate tax</a> encourages giving with a dollar-for-dollar deduction from estate and gift tax liabilities matching any amount of money bequeathed to charities after death.</p>
<p>For example, under the new law, beginning in 2018 the first approximately $11 million in wealth one person leaves to their heirs will be entirely tax-free. That level doubles for couples and the government will automatically adjust these exemptions for inflation.</p>
<p>In practice that means if a couple passes on an estate valued at $25 million and they leave $3 million or more to charitable causes in their will from their estate, their heirs would pay no tax at all on this inheritance. </p>
<p>The number of families this tax actually applies to is tiny. Only 1 in 500 estates belonging to the people who die in any given year owed anything, after Congress sharply increased the threshold under which estates are exempt from the tax, before the doubling of the exemption levels brought about by the new tax package. Through the end of 2017, <a href="https://www.cbpp.org/research/federal-tax/ten-facts-you-should-know-about-the-federal-estate-tax">estates worth up to $5.5 million</a> are exempt for taxpayers filing as individuals, as are estates twice that size for couples.</p>
<p>And rich families rely on loopholes to get out of it or <a href="https://www.bloomberg.com/view/articles/2014-01-30/only-idiots-pay-the-45-estate-tax">reduce the tax’s impact</a>.</p>
<p>Estimates regarding the effects of repeal range widely. However, there is complete consensus among estate tax experts that doing away with this levy would reduce charitable bequests and donations wealthy Americans make during their lifetimes.</p>
<p>Levying this tax on an even smaller share of the very wealthiest households will surely reduce the money left to charities from current levels. But it is hard to extrapolate the approximate impact of this change because no researchers have modeled estimates with these levels of exemptions and tax rates.</p>
<p>Most likely it will be in the billions of dollars, though, potentially amounting to a reduction in charitable bequests totaling $7 billion or more, based on prior findings. </p>
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<h2>Corporate giving</h2>
<p>Companies and corporate foundations donated $18.6 billion in both cash and in-kind goods and services to U.S. charities in 2016, according to the <a href="https://theconversation.com/what-influences-american-giving-78800">Giving USA report</a>, which the Indiana University Lilly Family School of Philanthropy researches and writes in partnership with the Giving USA Foundation. </p>
<p>My colleagues and I have not yet thoroughly studied how the pending reductions in corporate marginal tax rates might affect how much money businesses give to charity. But our models do show that the proposed reductions in the <a href="https://www.npr.org/2017/12/15/571257526/final-version-of-gop-tax-bill-cuts-corporate-tax-rate-to-21-percent">top corporate tax rate</a> from 35 percent to 21 percent would reduce the incentives for corporations to give. </p>
<p>Businesses give for many reasons. Nevertheless, it is reasonable to expect that dramatically cutting the top corporate tax rate will reduce corporate donations by an estimated $1.3 billion – a 7 percent decline from the amount businesses gave in 2016.</p>
<h2>Universal charitable tax deduction</h2>
<p>For now, people like me are watching to see whether many current givers find they have <a href="https://www.independentsector.org/wp-content/uploads/2017/05/tax-policy-charitable-giving-finalmay2017-1.pdf">less disposable income to devote to charity</a> or less inclination, due to the loss of a longstanding tax break.</p>
<p>We are also wondering whether charities will be stretched thin should looming budget cuts related to social services leave them scrambling to do more with less money.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"943152663838982144"}"></div></p>
<p>So what could lawmakers do if they wanted to avert this outcome?</p>
<p>The most straightforward way to prevent the tax code overhaul from reducing charitable giving would be to let <a href="https://theconversation.com/why-congress-should-let-everyone-deduct-charitable-gifts-from-their-taxes-78323">all taxpayers deduct</a> donations from their taxable income. </p>
<p>My team and I have modeled the effects of this approach, which many <a href="https://www.councilofnonprofits.org/article/national-council-of-nonprofits-statement-the-universal-charitable-giving-act-hr-3988">nonprofit leaders</a> are urging Congress to adopt.</p>
<p>New bills that would do that are pending in both the <a href="https://www.congress.gov/bill/115th-congress/house-bill/3988">House</a> and the <a href="https://www.lankford.senate.gov/imo/media/doc/UniversalCharitableGiving_Lankford.pdf">Senate</a>. Both would create a universal deduction for non-itemizers, and both of them would cap this tax break at gifts equal to one-third of the standard deduction. </p>
<p>But the best way to go about this would have been to fold this kind of provision into the broader package in the first place.</p>
<p><em>Editor’s note: This is an updated version of an <a href="https://theconversation.com/how-the-tax-package-could-sap-the-flow-of-charitable-giving-88513">article</a> The Conversation published on Dec. 6, 2017.</em></p><img src="https://counter.theconversation.com/content/89440/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Rooney and the Indiana University Lilly Family School of Philanthropy have received millions of dollars of grants to fund research that benefits the philanthropic sector generally and many charities specifically. Rooney has consulted with and been affiliated with the advisory committees and legal boards for numerous charities and foundations over the years. None have funded this essay or have provided feedback on it in advance of its release. </span></em></p>Giving could decline by $21 billion or more per year.Patrick Rooney, Executive Associate Dean for Academic Programs, Professor of Economics and Philanthropic Studies, IUPUILicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/889922017-12-20T11:29:57Z2017-12-20T11:29:57ZWhy Americans will never agree on oil drilling in the Arctic National Wildlife Refuge<figure><img src="https://images.theconversation.com/files/200038/original/file-20171219-4948-1vg1m99.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Arctic National Wildlife Refuge is home to a great diversity of wildlife -- one reason environmentalists oppose oil and gas drilling. </span> <span class="attribution"><a class="source" href="https://digitalmedia.fws.gov/cdm/singleitem/collection/natdiglib/id/1433/rec/12">US Fish and Wildlife Service</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>After decades of bitter struggle, the Arctic National Wildlife Refuge seems on the verge of being opened to the oil industry. The consensus tax bill Republicans are trying to pass <a href="https://www.nytimes.com/2017/12/13/us/politics/tax-bill-republicans-deal.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=a-lede-package-region&region=top-news&WT.nav=top-news">retains this measure</a>, which was added to gain the key vote of Alaska Sen. Lisa Murkowski. </p>
<p>This bill, however, stands no chance of being the final word. ANWR has been called America’s Serengeti and the last petroleum frontier, terms I’ve seen used over <a href="https://pubs.geoscienceworld.org/aapgbull/article-abstract/89/3/291/40203">more than a decade studying this area</a> and the politics around it. But even these titles merely hint at the <a href="http://www.ogj.com/articles/print/volume-101/issue-15/exploration-development/anwr-1002-area-and-development-one-question-many-issues.html">multifold conflict</a> ANWR represents – spanning politics, economics, culture and philosophy.</p>
<h2>Differing views from the start</h2>
<p>Little of this debate, which stretches back decades, makes sense without some background. Let’s begin with wildlife, the core of why the refuge exists. </p>
<p>With 45 species of land and marine mammals and over 200 species of birds from six continents, ANWR <a href="https://www.amnh.org/explore/science-bulletins/earth/documentaries/reading-the-rocks-the-search-for-oil-in-anwr/essay-northern-alaska-rich-in-wildlife-and-oil/">is more biodiverse</a> than almost any area in the Arctic. This is especially true of <a href="https://www.fws.gov/refuge/arctic/wildlife_habitat.html">the coastal plain portion</a>, or 1002 Area, the area now being opened up to exploration and drilling. This has the largest number of polar bear dens in Alaska and supports muskoxen, Arctic wolves, foxes, hares and dozens of fish species. It also serves as temporary home for millions of migrating waterfowl and the Porcupine Caribou herd which has its calving ground there. </p>
<p>All of which merely suggests the unique concentration of life in ANWR and the opportunity it offers to scientific study. One part of the debate is therefore over how drilling might impact this diversity.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/199998/original/file-20171219-4968-1kwr1sr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/199998/original/file-20171219-4968-1kwr1sr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/199998/original/file-20171219-4968-1kwr1sr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=331&fit=crop&dpr=1 600w, https://images.theconversation.com/files/199998/original/file-20171219-4968-1kwr1sr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=331&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/199998/original/file-20171219-4968-1kwr1sr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=331&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/199998/original/file-20171219-4968-1kwr1sr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=416&fit=crop&dpr=1 754w, https://images.theconversation.com/files/199998/original/file-20171219-4968-1kwr1sr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=416&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/199998/original/file-20171219-4968-1kwr1sr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=416&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Map of northern Alaska showing locations of the Arctic National Wildlife Refuge, including.
the 1002 Area, which is slated to be opened for oil and gas drilling, and the National Petroleum Reserve–Alaska (NPRA).</span>
<span class="attribution"><a class="source" href="https://naturalresources.house.gov/anwr/">U.S. Geological Survey</a></span>
</figcaption>
</figure>
<p>At the same time, debate over this area’s mineral resources has existed <a href="http://www.ogj.com/articles/print/volume-101/issue-15/exploration-development/anwr-1002-area-and-development-one-question-many-issues.html">since even before Alaska’s founding.</a> An effort by the U.S. Fish and Wildlife Service to withdraw part of northeast Alaska from mining (later drilling) was eventually passed by the House in 1960 but then killed in the Senate, on the urging of both Alaska senators. It was resurrected by President Eisenhower through an executive order establishing a wildlife range (not refuge, which requires government protection and study). </p>
<p>ANWR thus began as a battleground over state versus federal control of resources. Change came with the oil crises of the 1970s. After much debate, Congress passed and President Carter signed the Alaska National Interest Lands Conservation Act in 1980, increasing the size of the area to 19.4 million acres and changing it to a “refuge.” ANILCA also mandated an evaluation of wildlife, oil and natural gas resources, and impacts if drilling occurred.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/200010/original/file-20171219-4973-1iaxutd.gif?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/200010/original/file-20171219-4973-1iaxutd.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/200010/original/file-20171219-4973-1iaxutd.gif?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=428&fit=crop&dpr=1 600w, https://images.theconversation.com/files/200010/original/file-20171219-4973-1iaxutd.gif?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=428&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/200010/original/file-20171219-4973-1iaxutd.gif?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=428&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/200010/original/file-20171219-4973-1iaxutd.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=537&fit=crop&dpr=1 754w, https://images.theconversation.com/files/200010/original/file-20171219-4973-1iaxutd.gif?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=537&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/200010/original/file-20171219-4973-1iaxutd.gif?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=537&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Map shows the 1002 Area, which will be opened up to oil and gas exploration, along with existing drilling sites in the region.</span>
<span class="attribution"><a class="source" href="https://pubs.usgs.gov/fs/fs-0028-01/fs-0028-01.htm">US Geological Survey</a></span>
</figcaption>
</figure>
<p>Such evaluation was delivered to Congress in 1987, with three principal conclusions. First, the 1.5 million-acre 1002 Area, had “outstanding wilderness values.” Second, it also had large hydrocarbon resources, likely tens of billions of barrels. Third, oil development would bring widespread changes in habit, but adequate protection for wildlife was achievable and leasing should proceed. </p>
<p>Made public, these results ignited major opposition from environmental groups. However, low oil prices meant that no companies would be interested in drilling so no action toward leasing was taken. Over the next 20 years, Congress and the President traded blows over drilling, with Republicans passing or proposing legislation in favor and Democrats voting down or vetoing or the relevant bills.</p>
<h2>Matters of wilderness</h2>
<p>These struggles added support to a larger view: that wilderness is incompatible with any level of development. The stance is often referenced to the <a href="https://wilderness.nps.gov/document/wildernessAct.pdf">1964 Wilderness Act</a>, a venerable law protecting wildlands but one whose definition of “wilderness” is ambiguous: “an area of undeveloped Federal land retaining its primeval character…[that] generally appears to have been affected primarily by the forces of nature, with the imprint of man’s work substantially unnoticeable.” The vagueness here allows for ANILCA’s position that drilling could happen so long as protection of wildlife and reclamation of land occurred.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/200039/original/file-20171219-4985-dtj621.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/200039/original/file-20171219-4985-dtj621.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/200039/original/file-20171219-4985-dtj621.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=388&fit=crop&dpr=1 600w, https://images.theconversation.com/files/200039/original/file-20171219-4985-dtj621.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=388&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/200039/original/file-20171219-4985-dtj621.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=388&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/200039/original/file-20171219-4985-dtj621.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=488&fit=crop&dpr=1 754w, https://images.theconversation.com/files/200039/original/file-20171219-4985-dtj621.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=488&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/200039/original/file-20171219-4985-dtj621.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=488&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Caribou grazing on the Arctic National Wildlife Refuge. The area is more diverse than any area on the Arctic.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/usfwshq/5124077710/">US Fish and Wildlife Service</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Today, however, <a href="http://wilderness.org/article/wilderness-act">no such allowance is accepted</a> by pro-wilderness organizations and the <a href="http://wilderness.org/article/wilderness-act">FWS</a>. “You can have the oil. Or you can have this pristine place. You can’t have both. No compromise,” as <a href="http://fortune.com/2017/09/15/donald-trump-big-oil-alaska-arctic-wildlife-refuge/">put by Robert Mrazek</a>, ex-chair of the Alaska Wilderness League. </p>
<p>Saving ANWR has thus become an effort to save the very idea of wilderness, culturally and philosophically.</p>
<h2>How much oil?</h2>
<p>The most recent <a href="https://energy.usgs.gov/RegionalStudies/Alaska/ANWR1002.aspx">comprehensive assessment</a> of oil and gas in the 1002 Area was by the U.S. Geological Survey in 1998. This work shows a mean estimate of 10.4 billion barrels of oil and 35 trillion cubic feet of natural gas, which at today’s prices ($57/bbl oil, $3/kcf) equals a total value of about $600 billion before drilling. </p>
<p>If well costs were $50 a barrel (low for onshore Arctic drilling today but possible with cost reductions spurred by 1002 development), the value after extraction would be $100 billion, from which a federal royalty of 12.5 percent must be subtracted, yielding $87.5 billion – a significant sum. Obviously if well costs are higher, this figure would be lower. Note that Alaska gets 90 percent of that federal royalty and pays a yearly dividend to every state resident – one reason many Alaskans favor drilling and reject the uncompromising wilderness position.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/200040/original/file-20171219-4968-tcmk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/200040/original/file-20171219-4968-tcmk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/200040/original/file-20171219-4968-tcmk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=366&fit=crop&dpr=1 600w, https://images.theconversation.com/files/200040/original/file-20171219-4968-tcmk5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=366&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/200040/original/file-20171219-4968-tcmk5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=366&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/200040/original/file-20171219-4968-tcmk5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=460&fit=crop&dpr=1 754w, https://images.theconversation.com/files/200040/original/file-20171219-4968-tcmk5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=460&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/200040/original/file-20171219-4968-tcmk5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=460&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">ConocoPhillips in October 2015 became the first to drill for oil in the National Petroleum Reserve-Alaska, which is adjacent to the area that Congress intends to open up for more drilling.</span>
<span class="attribution"><span class="source">AP Photo/Mark Thiessen</span></span>
</figcaption>
</figure>
<p>When considering how oil and gas is available, the USGS estimates should be considered low, even minimal. This is because they were made well before the current era of shale oil and gas and tight oil and gas development. <a href="https://theconversation.com/large-scale-fracking-comes-to-the-arctic-in-a-new-alaska-oil-boom-75683">New discoveries</a> and use of fracking to the west of ANWR suggest there is more accessible petroleum. How much more? It’s impossible to say, given the many uncertainties.</p>
<p>Though only one well has ever been drilled in the 1002 Area, dozens have been sited in surrounding onshore and offshore areas. These have resulted in a number of limited discoveries and one substantial field, Point Thomson, which is <a href="http://www.petroleumnews.com/pntruncate/18399962.shtml">estimated to have recoverable reserves</a> of up to 6 trillion cubic feet of gas and 850 million barrels of oil plus condensate. It <a href="http://www.ogj.com/articles/2016/04/production-begins-at-point-thomson-on-alaska-s-north-slope.html">began producing in 2016</a>, yet its reservoir is geologically complex, challenging and insufficiently understood, <a href="http://www.alaskajournal.com/2017-08-31/state-rejects-point-thomson-expansion-plan#.WjAVfbSFiXQ">causing difficulties and raising costs</a>. </p>
<p>But Point Thomson’s larger significance could stem from its location: Close to the northwestern margin of 1002, it has brought a pipeline connection to the Trans-Alaska Pipeline right to ANWR’s doorstep.</p>
<h2>But will they come?</h2>
<p>Given the substantial possible reserves and at least some pipeline access, how interested might energy companies actually be in ANWR? The answer for now seems to be: not very. This comes from my own discussions with industry personnel and from the <a href="http://www.naturalgasintel.com/articles/112681-alaska-npr-a-auction-nets-few-bids-conocophillips-tacks-on-acreage">results of a recent lease sale</a> in NPR-A, the National Petroleum Reserve in Alaska to the west of ANWR: Out of 900 tracts offered, only seven received bids (0.8 percent). A December 7, 2017 <a href="http://dog.dnr.alaska.gov/Documents/Leasing/SaleResults/NorthSlope/2017W/NS2017W_ResultsMap.pdf">lease sale on state lands</a> did not do well either (0.4 percent), with a single company bidding on tracts near the 1002 Area, adjacent to the Point Thomson field, and in the immediate area of two small, undeveloped discoveries (Sourdough and Yukon Gold) made by BP in 1994.</p>
<p>If this be any indication, another multiyear period of high oil prices – in a range, say, over $80 per barrel – needs to arrive before 1002 looks attractive. Leasing and drilling in an area with extreme weather, little detailed data on the subsurface geology, no discoveries or production, and no existing infrastructure is considered high risk, all the more so in an uncertain price environment like today’s.</p>
<p>My own guess is that the <a href="https://www.cbo.gov/system/files/115th-congress-2017-2018/costestimate/anwrreconciliation.pdf">estimated</a> $1.1 billion revenue from an ANWR leasing program has roughly the same probability of coming true as the discovery that <a href="https://twitter.com/realdonaldtrump/status/265895292191248385?lang=en">climate change is indeed a Chinese hoax</a>. Similarly, we should probably view with a dash of skepticism Sen. Murkowski’s <a href="https://www.washingtonpost.com/news/powerpost/paloma/the-energy-202/2017/11/16/the-energy-202-anwr-drilling-is-one-step-closer-to-happening/5a0cb93630fb045a2e003064/?utm_term=.7ed908bf3864">statements</a> that opening ANWR will “create thousands of good jobs … keep energy affordable for families and businesses … reduce the federal deficit, and strengthen our national security” by reducing foreign oil. Regardless of what claims are being made now, one can say the measure would undoubtedly deliver on a long-standing promise to Alaskan voters. </p>
<p>Meanwhile, from an environmental perspective, climate change continues to alter and damage the Arctic, even if no development happens. As such, it is hard not to hope that we will never need the oil that lies beneath the refuge.</p>
<p>In the end, whichever way we turn, no stable compromise exists in this conflict. Opening the area to leasing now will not prevent a closing or ban later on. Even native voices are divided on the issue: The <a href="http://juneauempire.com/opinion/2017-10-01/alaskans-say-yes-anwr-drilling">Inupiat who live in Kaktovik</a>, who depend on sea life for sustenance, would welcome the work that drilling could bring, while the Gwich’in to the south, who rely on the caribou, see development as <a href="https://www.adn.com/commentary/article/anwr-wilderness-vital-caribou-gwichin-people-alaska/2015/03/13/">jeopardizing their culture</a>. </p>
<p>Legal challenges to any level of leasing are certain, including those intended to slow the process until drilling opponents will win later elections, if they can. </p>
<p>The one truth all can agree on is that ANWR has never been a “refuge” in the landscape of American society.</p>
<p><em>This article has been updated on January 5, 2018 to correct the percentages of bids for leases.</em></p><img src="https://counter.theconversation.com/content/88992/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Scott L. Montgomery does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Alaska and oil proponents are cheering a move to open up an ecologically sensitive part of the Arctic National Wildlife Refuge to drilling – a position environment supporters can’t abide.Scott L. Montgomery, Lecturer, Jackson School of International Studies, University of WashingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/890472017-12-20T11:26:50Z2017-12-20T11:26:50ZGOP tax plan doubles down on policies that are crushing the middle class<figure><img src="https://images.theconversation.com/files/199951/original/file-20171219-4957-1g958w1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A big part of that check is being drawn from middle-class accounts.</span> <span class="attribution"><span class="source">AP Photo/Jacquelyn Martin</span></span></figcaption></figure><p>The U.S. middle class has always had a special mystique.</p>
<p>It is the heart of the American dream. A decent income and home, doing better than one’s parents, and retiring in comfort are all hallmarks of a middle-class lifestyle.</p>
<p>Contrary to what some may think, however, the U.S. has not always had a large middle class. <a href="https://www.kobo.com/us/en/ebook/the-american-middle-class">Only after World War II</a> was being middle class the national norm. Then, starting in the 1980s, it began to decline. </p>
<p>President Donald Trump <a href="https://www.nbcnews.com/politics/politics-news/trump-defends-gop-tax-bill-says-it-will-be-gift-n830441">has portrayed</a> the tax plan Congress is wrapping up as a boon for the middle class. The sad reality, however, is that it is more likely to be its final death knell. </p>
<p>To understand why, you need look no further than the history of the rise and decline of the American middle class, a group that I’ve been studying through the lens of <a href="https://theconversation.com/why-inequality-is-the-most-important-economic-challenge-facing-the-next-president-66806">inequality</a> for decades. </p>
<h2>The middle class rises</h2>
<p>The <a href="http://money.cnn.com/infographic/economy/what-is-middle-class-anyway/index.html">middle class</a>, which <a href="http://www.pewresearch.org/topics/middle-class/">Pew defines</a> as two-thirds to two times the national median income for a given household size, began to grow after World War II due to a surge in economic growth and because President Franklin Delano Roosevelt’s New Deal <a href="http://www2.ucsc.edu/whorulesamerica/power/history_of_labor_unions.html">gave workers more power</a>. Before that, <a href="https://press.princeton.edu/titles/10544.html">most Americans</a> were poor or nearly so.</p>
<p>For example, legislation such as the <a href="https://www.britannica.com/topic/Wagner-Act">Wagner Act</a> established rights for workers, most critically for collective bargaining. The government also began new programs, such as Social Security and unemployment insurance, that helped older Americans avoid dying in poverty and supported families with children through tough times. The <a href="http://rooseveltinstitute.org/home-owners-loan-corporation/">Home Owners’ Loan Corporation</a>, set up in 1933, helped middle-class homeowners pay their mortgages and remain in their homes. </p>
<p>Together, these new policies helped fuel a strong postwar economic boom and ensured the gains were shared by a broad cross-section of society. This greatly expanded the U.S. middle class, which reached a peak of <a href="http://www.paecon.net/PAEReview/issue78/whole78.pdf">nearly 60 percent of the population</a> in the late ‘70s. Americans’ increased optimism about their economic future prompted businesses to invest more, creating a virtuous cycle of growth. </p>
<p>Government spending programs were paid for largely with <a href="https://www.cch.com/WBOT2013/029IncomeTaxRates.asp">individual income tax rates</a> of 70 percent (and more) on wealthy individuals and high taxes on corporate profits. <a href="http://www.taxpolicycenter.org/briefing-book/what-are-sources-revenue-federal-government">Companies paid more than one-quarter</a> of all federal government tax revenues in the 1950s (when the <a href="http://www.taxpolicycenter.org/statistics/corporate-top-tax-rate-and-bracket">top corporate tax</a> was 52 percent). Today they contribute just 5 percent of government tax revenues. </p>
<p>Despite high taxes on the rich and on corporations, median family income (after accounting for inflation) <a href="http://www.russellsage.org/sites/all/files/chartbook/Income%20and%20Earnings.pdf">more than doubled</a> in the three decades after World War II, rising from $27,255 in 1945 to nearly $60,000 in the late 1970s. </p>
<p><iframe id="ReMwV" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/ReMwV/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>The fall begins</h2>
<p>That’s when things started to change. </p>
<p>Rather than supporting workers – and balancing the interests of large corporations and the interests of average Americans – the federal government began taking the side of business over workers by lowering taxes on corporations and the rich, reducing regulations and allowing firms to grow through mergers and acquisitions. </p>
<p>Since the late 1980s, median household incomes (different from family incomes because members of a household live together but do not need to be related to each other) have increased very little – from $54,000 to $59,039 in 2016 – while inequality has risen sharply. As a result, the size of the middle class has shrunk significantly to 50 percent from nearly 60 percent. </p>
<p>One important reason for this is that starting in the 1980s the role of government changed. A key event in this process was when President Ronald Reagan <a href="http://www.nytimes.com/2011/08/03/opinion/reagan-vs-patco-the-strike-that-busted-unions.html">fired striking air-traffic control workers</a>. It marked the beginning of a <a href="https://theconversation.com/the-rise-and-fall-of-us-labor-unions-and-why-they-still-matter-38263">war against unions</a>.</p>
<p>The share of the <a href="http://dailysignal.com/2013/01/27/chart-of-the-week-union-membership-continues-to-decline/">labor force that is organized</a> has fallen from 35 percent in the mid-1950s to 10.7 percent today, with the <a href="https://www.bls.gov/opub/ted/2017/union-membership-rate-10-point-7-percent-in-2016.htm">largest drop</a> taking place in the 1980s. It is not a coincidence that the share of income <a href="http://junkcharts.typepad.com/.a/6a00d8341e992c53ef015392be7fad970b-pi">going to earners in the middle</a> fell at the same time. </p>
<p>In addition, <a href="http://www.taxpolicycenter.org/sites/default/files/legacy/taxfacts/content/PDF/toprate_historical.pdf">Reagan cut taxes</a> multiple times during his time in office, which led to less spending to support and sustain the poor and middle class, while <a href="https://www.chicagofed.org/publications/economic-perspectives/1985/september-october-evanoff-1">deregulation</a> allowed businesses to cut their wage costs at the expense of workers. This change is one reason workers have <a href="http://www.epi.org/productivity-pay-gap/">received only a small fraction</a> of their greater productivity in the form of higher wages since the 1980s. </p>
<p>Meanwhile, the real buying power of the minimum wage <a href="http://www.freeby50.com/2014/01/minimum-wage-history-adjusted-for.html">has been allowed to erode</a> since the 1980s due to inflation. </p>
<p>While the middle class got squeezed, the very rich have done very well. <a href="https://www.nytimes.com/interactive/2017/08/07/opinion/leonhardt-income-inequality.html">They have received nearly all income gains</a> since the 1980s.</p>
<p>In contrast, household median income in 2016 was only slightly above its level just before the Great Repression began in 2008. But according to new unpublished research I conducted with Monmouth University economist Robert Scott, the actual living standard for the median household fell as much as 7 percent due to greater interest payments on past debt and the fact that households are larger, so the same income does not go as far. </p>
<p>As a result, the middle class is actually closer to 45 percent of U.S. households. This is in <a href="http://www.paecon.net/PAEReview/issue78/Pressman78.pdf">stark contrast</a> to other developed countries such as France and Norway, where the middle class approaches nearly 70 percent of households and has held steady over several decades. </p>
<h2>The Republican tax plan</h2>
<p>So how will the tax plan change the picture? </p>
<p>France, Norway and other European countries have maintained policies, such as progressive taxes and generous government spending programs, that help the middle class. The Republican tax package doubles down on the policies that have caused its decline in the U.S.</p>
<p>Specifically, the plan will significantly reduce taxes on the wealthy and large <a href="https://theconversation.com/hot-potato-shows-why-workers-wont-benefit-from-trumps-corporate-tax-cut-86878">companies</a>, which will have to be paid for with large spending cuts in everything from children’s health and education to unemployment insurance and <a href="https://www.washingtonpost.com/news/wonk/wp/2017/12/01/gop-eyes-post-tax-cut-changes-to-welfare-medicare-and-social-security/">Social Security</a>. Tax cuts will require the government to borrow more money, which will push up interest rates and require middle-income households to pay more in interest on their credit cards or to buy a car or home.</p>
<p>The benefits of the Republican tax bill <a href="http://www.taxpolicycenter.org/publications/distributional-analysis-conference-agreement-tax-cuts-and-jobs-act">go primarily</a> to the very wealthy, who will get 83 percent of the gains by 2027, according to the Tax Policy Center, a nonpartisan think tank. </p>
<p>Meanwhile, more than half of poor and middle-income households will see their taxes rise over the next 10 years; the rest will receive only a small fraction of the total tax benefits.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/200018/original/file-20171219-4951-bgvxr2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/200018/original/file-20171219-4951-bgvxr2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/200018/original/file-20171219-4951-bgvxr2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/200018/original/file-20171219-4951-bgvxr2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/200018/original/file-20171219-4951-bgvxr2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/200018/original/file-20171219-4951-bgvxr2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/200018/original/file-20171219-4951-bgvxr2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Trump touts the GOP tax plan with a group of ‘middle-class families.’</span>
<span class="attribution"><span class="source">Reuters/Kevin Lamarque</span></span>
</figcaption>
</figure>
<h2>From virtuous to vicious</h2>
<p>While Republicans justify their tax plan by claiming corporations will <a href="https://theconversation.com/why-the-republican-tax-plan-can-help-put-american-youths-back-to-work-88845">invest more</a> and hire more workers, thereby raising wages, <a href="https://www.nytimes.com/2017/12/08/business/dealbook/focus-on-shareholders-holds-back-us-wage-growth.html">companies have already indicated</a> that they will mainly use their savings to buy back stock and pay more dividends, benefiting the wealthy owners of corporate stock. </p>
<p>So with most of the gains of the $1.5 trillion in net tax cuts going to the rich, the end result, in my view, is that most Americans will face falling living standards as government spending goes down, <a href="http://www.crfb.org/blogs/official-dynamic-score-shows-senate-tax-bill-will-still-cost-over-1-trillion">borrowing costs</a> go up, and their tax bill rises.</p>
<p>This will lead to less economic growth and a declining middle class. And unlike the virtuous circle the U.S. experienced in the ‘50s and '60s, Americans can expect a vicious cycle of decline instead.</p><img src="https://counter.theconversation.com/content/89047/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Pressman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The American middle class has been on a rocky ride during the 20th century, surging after World War II but falling since the 1980s. The Republican tax plan may be its death knell.Steven Pressman, Professor of Economics, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/887612017-12-14T03:56:14Z2017-12-14T03:56:14ZTrump’s right about one thing: The US Senate should end its 60-vote majority<p>As the <a href="https://uk.reuters.com/article/uk-global-poy-trump/trumps-first-year-in-office-marked-by-controversy-protests-idUKKBN1E01W5">dramatic and traumatic first year</a> of the Trump presidency nears the finish line, with major legislative struggles over <a href="https://www.washingtonpost.com/business/economy/johnson-to-back-senate-tax-bill-putting-gop-leaders-close-to-securing-passage/2017/12/01/0226ff98-d6a2-11e7-b62d-d9345ced896d_story.html">tax legislation</a> and the <a href="https://www.washingtonpost.com/news/the-fix/wp/2017/11/28/5-very-real-scenarios-that-could-lead-to-a-government-shutdown/">budget</a>, it is easy to overlook other important political events.</p>
<p>One such development is essential to both the tax reform package, which would be Trump’s only significant legislative achievement to date, and the less noted but spectacular success the president has had with <a href="https://www.nytimes.com/2017/11/11/us/politics/trump-judiciary-appeals-courts-conservatives.html">judicial nominations</a>.</p>
<p>In both cases success has depended on procedures created to negate the Senate filibuster, which is better thought of as minority obstruction.</p>
<p>The question now is, should the Senate move even further toward being a legislative body characterized by majority rule rather than minority obstruction?</p>
<p>Many Democrats, including me, might resist anything that helps President Donald Trump and his GOP congressional majority. Yet as a <a href="https://jhupbooks.press.jhu.edu/content/invention-united-states-senate">scholar of the Senate</a> and advocate of responsible government, I believe the end of the 60-vote Senate would nonetheless be a good thing for the country – and conform to what the founders intended.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/198582/original/file-20171211-27683-hb0m6a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/198582/original/file-20171211-27683-hb0m6a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=394&fit=crop&dpr=1 600w, https://images.theconversation.com/files/198582/original/file-20171211-27683-hb0m6a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=394&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/198582/original/file-20171211-27683-hb0m6a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=394&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/198582/original/file-20171211-27683-hb0m6a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=495&fit=crop&dpr=1 754w, https://images.theconversation.com/files/198582/original/file-20171211-27683-hb0m6a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=495&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/198582/original/file-20171211-27683-hb0m6a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=495&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Sen. Charles Schumer and former Senate Majority Leader Harry Reid defend their vote to weaken the filibuster.</span>
<span class="attribution"><span class="source">AP Photo/J. Scott Applewhite</span></span>
</figcaption>
</figure>
<h2>Limited nuclear warfare in the Senate</h2>
<p>On Nov. 21, 2013 the Senate, under Democratic control, <a href="https://www.washingtonpost.com/politics/senate-poised-to-limit-filibusters-in-party-line-vote-that-would-alter-centuries-of-precedent/2013/11/21/d065cfe8-52b6-11e3-9fe0-fd2ca728e67c_story.html?utm_term=.3b953842dea7">decided by a 52-48 vote</a> that the “vote on cloture under Rule XXII for all nominations other than for the Supreme Court of the United States is by majority vote.” </p>
<p>These few and perhaps obscure words embodied the most important change in Senate standing rules – or, to be precise, in their interpretation – since at least 1975.</p>
<p>Rule XXII is the Senate rule that defines <a href="https://www.senate.gov/reference/reference_index_subjects/Cloture_vrd.htm">cloture</a> – a motion to bring debate to a close – and requires a supermajority of at least 60 votes on most matters under consideration. The 60-vote threshold is what empowers filibusters or minority obstruction and can prevent a final vote on legislation. The 2013 decision eliminated that barrier for nearly all nominations to the executive and judicial branches. This allowed Democrats to confirm a <a href="https://www.degruyter.com/downloadpdf/j/for.2015.13.issue-4/for-2015-0042/for-2015-0042.pdf">significant number of nominations</a> after cloture was invoked with a simple majority vote.</p>
<p>Just over three years later, on April 6, 2017, the Senate, under GOP control and with exclusively Republican support, <a href="http://thehill.com/homenews/senate/327591-gop-triggers-nuclear-option-gutting-filibuster-in-gorsuch-fight">voted by the same margin</a> to apply the same interpretation to nominations to the Supreme Court. The immediate result, of course, was the <a href="https://www.nytimes.com/interactive/2017/04/07/us/politics/gorsuch-confirmation-vote.html">easy confirmation</a> of Neil Gorsuch. </p>
<h2>What this means</h2>
<p>These decisions are significant for four reasons.</p>
<p>First, an entire category of Senate business, its constitutional duty to give “advice and consent” on presidential nominations, was protected from obstruction by the minority.</p>
<p>Second, only a few years apart, a majority from each party voted to categorically restrict the filibuster.</p>
<p>Third, in each case the Democratic or Republican majority employed the same controversial method – often referred to as the <a href="https://www.senate.gov/CRSpubs/cc582238-01e2-41b2-b955-5fdb2ed7b778.pdf">“nuclear option”</a> or <a href="http://www.law.harvard.edu/students/orgs/jlpp/Gold_Gupta_JLPP_article.pdf">“constitutional option”</a> – to make these significant changes in a standing rule of the Senate.</p>
<p>Instead of amending the wording of the standing rule, the majority called for a parliamentary interpretation and ruling, which requires only a simple majority vote to sustain or overturn. </p>
<p>Finally, this change will likely endure now that it has been sustained by majorities of both Republicans and Democrats.</p>
<h2>Fast-tracking past the filibuster</h2>
<p>Use of the so-called nuclear option was spectacular, controversial and did bring significant change to the Senate. Yet these moves have also been complemented by a different type of limitation on minority obstruction. </p>
<p>Over several decades, Congress has forged and used dozens of legislative “carve-outs” or – to use congressional scholar <a href="https://www.brookings.edu/book/exceptions-to-the-rule/">Molly Reynold’s term</a> – “majoritarian exceptions” that protect specific categories of legislation from minority obstruction in the Senate.</p>
<p>Every legislative carve-out features a time limit on consideration that applies to both chambers. This quashes minority obstruction in the Senate because a simple majority vote will be held at the end of the time restriction. The term <a href="https://www.senate.gov/CRSpubs/445f5bac-e33d-403b-b78e-ab7d2610c421.pdf">“fast-track”</a> is often associated with these provisions that expedite congressional consideration. These include such specifics as approval of <a href="https://fas.org/sgp/crs/misc/R43491.pdf">trade agreements</a> and the <a href="https://fas.org/sgp/crs/natsec/R43102.pdf">military base closure process</a>. In each case, lawmakers used a “fast-track” procedure to prevent obstruction.</p>
<p>Looming large in this category is the increased use of <a href="https://www.cbpp.org/research/federal-budget/introduction-to-budget-reconciliation">budget reconciliation</a> for <a href="https://www.politico.com/magazine/story/2017/10/15/how-budget-reconciliation-broke-congress-215706">major legislation</a>, such as the final work on passage of the Affordable Care Act, the 2017 attempt to repeal that law and the current Republican tax legislation. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/198591/original/file-20171211-27714-d6eb9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/198591/original/file-20171211-27714-d6eb9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=477&fit=crop&dpr=1 600w, https://images.theconversation.com/files/198591/original/file-20171211-27714-d6eb9k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=477&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/198591/original/file-20171211-27714-d6eb9k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=477&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/198591/original/file-20171211-27714-d6eb9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=599&fit=crop&dpr=1 754w, https://images.theconversation.com/files/198591/original/file-20171211-27714-d6eb9k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=599&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/198591/original/file-20171211-27714-d6eb9k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=599&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Former Sen. Strom Thurmond exits the Senate after he held a 24-hour filibuster – the longest ever – in hopes of stopping the Civil Rights Act of 1957. The bill easily passed two hours later.</span>
<span class="attribution"><span class="source">AP Photo</span></span>
</figcaption>
</figure>
<h2>Restoring the Senate’s important but limited role</h2>
<p>The 60-vote Senate remains powerful but circumscribed. This threshold for ending debate still applies to most legislation. This includes appropriations bills and most laws in areas such as military policy, the environment or civil rights.</p>
<p>Still, the combination of the legislative carve-outs with the entire category of nominations nevertheless constitutes a serious diminution of supermajority politics. </p>
<p>Following the second nuclear option in 2017, many senators and observers asked whether the Senate might be heading toward the elimination of supermajority cloture entirely. “Let us go no further on this path,” <a href="https://www.nytimes.com/2017/04/06/us/politics/filibuster-senate-republicans.html?_r=0">said</a> Minority Leader Chuck Schumer. </p>
<p><a href="http://www.politico.com/story/2017/04/senators-urge-save-filibuster-237014">A letter</a> signed by a bipartisan group of 61 Senators implored the majority and minority leaders to help them preserve 60 votes for most legislation. Sen. Lindsay Graham, who voted for the 2017 nuclear option, <a href="http://www.weeklystandard.com/read-lindsey-grahams-speech-on-the-court-filibuster-and-future-of-the-senate/article/2007549">warned</a> that if the Senate does away with the requirement, “that will be the end of the Senate.”</p>
<p>While most senators showed little appetite for further curtailment of supermajority cloture, President Donald Trump was ready to go all the way. Trump has more than once tweeted, with characteristic imprecision, his support for an end to all 60-vote thresholds in the Senate, the first time a president has taken such a stance. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"890931465885798400"}"></div></p>
<h2>Finish what it started</h2>
<p>In this rare instance, I agree with the president.</p>
<p>By creating these restrictions, the Senate has repeatedly recognized that the 60-vote threshold is often dysfunctional and that the costs to effective governance are too high. </p>
<p>The norms that support the supermajority Senate are eroding. And from a constitutional perspective, that’s just fine. Contrary to Graham’s all too common sentiment, a supermajority threshold is not what defines the Senate.</p>
<p>As <a href="https://www.brookings.edu/book/politics-or-principle/">political scientists</a> and historians have noted over and over again, supermajority cloture is not part of and cannot be derived from the Constitution or any original understanding of the Senate. Elements such as equal representation by the states, six-year terms and a higher age requirement <a href="https://jhupbooks.press.jhu.edu/content/invention-united-states-senate">are what distinguish</a> the Senate’s style of deliberation and decision-making from the House.</p>
<p>In fact, although it may seem like the 60-vote filibuster has been with us forever, <a href="https://www.senate.gov/reference/reference_index_subjects/Cloture_vrd.htm">it’s actually only been around</a> since 1917.</p>
<p>Moreover, the protection of minority interests, often cited as a justification for the filibuster, is a product of the system as a whole – the separate branches, the checks, federalism – not the self-appointed duty of the Senate.</p>
<p>To finish what it started, the Senate could change its rules to allow a simple majority to close debate on any bill, nomination or other matter, while also guaranteeing a minimum period of debate, which would allow the minority position to be voiced and debated. </p>
<p>In so doing the Senate would end its undemocratic pretensions and resume its prescribed and limited role in the system of checks and balances. That would be a good thing no matter which party controls the Senate and regardless of who is, or will be, president.</p><img src="https://counter.theconversation.com/content/88761/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel Wirls does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Republicans were able to push through a tax plan and a flurry of judicial nominees after the Senate curtailed use of the filibuster. It’s time to go all the way.Daniel Wirls, Professor of Politics, University of California, Santa CruzLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/890482017-12-13T11:22:37Z2017-12-13T11:22:37Z3 myths about the poor that Republicans are using to support slashing US safety net<figure><img src="https://images.theconversation.com/files/198817/original/file-20171212-9451-1baw0sz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Sen. Chuck Grassley recently seemed to suggest some poor people spend all their money on "booze or women or movies."</span> <span class="attribution"><span class="source">AP Photo/Charlie Neibergall</span></span></figcaption></figure><p>Republicans continue to use long-debunked myths about the poor as they defend <a href="https://www.forbes.com/sites/johntharvey/2017/12/02/economists-say-the-trump-tax-plan-will-have-disastrous-consequences/#207ea56c4209">lower taxes for the rich</a> and <a href="http://thehill.com/homenews/house/363642-ryan-pledges-entitlement-reform-in-2018">deep cuts to the social safety net</a> to pay for them. In so doing, they are essentially <a href="https://www.washingtonpost.com/blogs/plum-line/wp/2017/12/04/two-ugly-quotes-from-republicans-reveal-the-truth-about-their-tax-plan/?utm_term=.07ba3f41345c">expressing scorn</a> for working class and low-income Americans. </p>
<p>Sen. Chuck Grassley, for example, recently <a href="https://www.washingtonpost.com/news/morning-mix/wp/2017/12/04/grassley-explains-why-people-dont-invest-booze-or-women-or-movies/">justified</a> reducing the number of wealthy families exposed to the estate tax as a way to recognize “the people that are investing, as opposed to those that are just spending every darn penny they have, whether it’s on booze or women or movies.”</p>
<p>Similarly, Sen. Orrin Hatch <a href="http://www.politifact.com/truth-o-meter/article/2017/dec/05/context-orrin-hatchs-comments-about-chip-people-wh/">raised concerns</a> about funding certain entitlement programs. “I have a rough time wanting to spend billions and billions and trillions of dollars to help people who won’t help themselves, won’t lift a finger and expect the federal government to do everything,” he said.</p>
<p>These statements, the likes of which I expect we’ll all hear more of in coming months, reinforce three harmful narratives about low-income Americans: People who receive benefits don’t work, they don’t deserve help and the money spent on the social safety net is a waste of money. </p>
<p>Based on my <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2423540">research</a> and 20 years of experience as a clinical law professor representing low-income clients, I know that these statements are false and only serve to reinforce misconceptions about working class and poor Americans.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/198811/original/file-20171212-9451-1gx6e1w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/198811/original/file-20171212-9451-1gx6e1w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=404&fit=crop&dpr=1 600w, https://images.theconversation.com/files/198811/original/file-20171212-9451-1gx6e1w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=404&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/198811/original/file-20171212-9451-1gx6e1w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=404&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/198811/original/file-20171212-9451-1gx6e1w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=507&fit=crop&dpr=1 754w, https://images.theconversation.com/files/198811/original/file-20171212-9451-1gx6e1w.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=507&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/198811/original/file-20171212-9451-1gx6e1w.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=507&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Food participants get an average of $125 a month, hardly enough to feed a family without earning money as well.</span>
<span class="attribution"><span class="source">AP Photo/Robert F. Bukaty</span></span>
</figcaption>
</figure>
<h2>Most welfare recipients are makers not takers</h2>
<p>The first myth, that people who receive public benefits are “takers” rather than “makers,” is flatly untrue for the vast majority of working-age recipients.</p>
<p>Consider Supplemental Nutrition Assistance Program benefits, formerly known as food stamps, which currently serve about <a href="http://www.newsweek.com/people-food-stamps-snap-decline-participation-640500">42 million Americans</a>. At least one adult in more than half of SNAP-recipient households <a href="https://www.cbpp.org/research/policy-basics-introduction-to-the-supplemental-nutrition-assistance-program-snap">are working</a>. And the average SNAP subsidy is $125 per month, or $1.40 per meal – hardly enough to justify quitting a job.</p>
<p>As for Medicaid, nearly <a href="https://www.kff.org/medicaid/issue-brief/understanding-the-intersection-of-medicaid-and-work/">80 percent of adults</a> receiving Medicaid live in families where someone works, and more than half are working themselves.</p>
<p>In early December, House Speaker <a href="http://edition.cnn.com/2017/12/06/politics/paul-ryan-entitlement-reform/index.html">Paul Ryan said</a>, “We have a welfare system that’s trapping people in poverty and effectively paying people not to work.” </p>
<p>Not true. Welfare – officially called Temporary Assistance to Needy Families – has <a href="http://www.aphsa.org/content/dam/NASTA/PDF/CRS-RPT_R44751_2017-02-01.pdf">required work</a> as a condition of eligibility since then-President Bill Clinton signed welfare reform into law in 1996. And the <a href="https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/do-i-qualify-for-earned-income-tax-credit-eitc">earned income tax credit</a>, a tax credit for low- and moderate-income workers, by definition, supports only people who work.</p>
<p>Workers apply for public benefits because they need assistance to make ends meet. American workers are among <a href="http://time.com/4621185/worker-productivity-countries/">the most productive in the world</a>, but over the last 40 years the bottom half of income earners have seen <a href="http://equitablegrowth.org/research-analysis/republican-tax-plan-slams-workers-and-job-creators-in-favor-of-the-rich-and-inherited-wealth/">no income growth</a>. As a result, since 1973, worker productivity has <a href="http://www.epi.org/productivity-pay-gap/">grown almost six times</a> faster than wages. </p>
<p>In addition to wage stagnation, most Americans are spending more than <a href="https://www.bls.gov/news.release/cesan.nr0.htm">one-third of their income</a> on housing, which is increasingly unaffordable. There are 11 million renter households paying more than <a href="http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/harvard_jchs_state_of_the_nations_housing_2017_chap1.pdf.">half their income</a> on housing. And there is <a href="http://nlihc.org/oor">no county</a> in America where a minimum wage worker can afford a two-bedroom home. Still, only <a href="http://nlihc.org/sites/default/files/oor/OOR_2017.pdf">1 in 4</a> eligible households receive any form of government housing assistance.</p>
<p>To be sure, there are recipients of public benefits who do not work. They are primarily children, the disabled and the elderly – in other words, <a href="https://www.thoughtco.com/who-really-receives-welfare-4126592">people who cannot or should not work.</a> These groups constitute the majority of public benefits recipients.</p>
<p>Society should support these people out of basic decency, but there are self-interested reasons as well. To begin with, all working adults have been children, will someday be old and, at any time, might face calamities that take them out of the workforce. The safety net exists to rescue people during these vulnerable periods. Indeed, most people who receive public benefits leave the programs within <a href="https://www.census.gov/newsroom/press-releases/2015/cb15-97.html">three years</a>.</p>
<p>Moreover, many public benefits pay for themselves over time, as healthier and financially secure people are more productive and contribute to the overall economy. For example, <a href="https://www.cbpp.org/research/policy-basics-introduction-to-the-supplemental-nutrition-assistance-program-snap">every dollar in SNAP spending</a> is estimated to generate more than $1.70 in economic activity. </p>
<p>Similarly, Medicaid benefits are associated with enhancing <a href="https://www.kff.org/medicaid/issue-brief/understanding-the-intersection-of-medicaid-and-work/">work</a> opportunities. The <a href="https://www.cbpp.org/research/federal-tax/eitc-and-child-tax-credit-promote-work-reduce-poverty-and-support-childrens">earned income tax credit</a> contributes to work rates, improves the health of recipient families and has long-term educational and earnings benefits for children. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/199016/original/file-20171213-27588-15tfh1m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/199016/original/file-20171213-27588-15tfh1m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=412&fit=crop&dpr=1 600w, https://images.theconversation.com/files/199016/original/file-20171213-27588-15tfh1m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=412&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/199016/original/file-20171213-27588-15tfh1m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=412&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/199016/original/file-20171213-27588-15tfh1m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=517&fit=crop&dpr=1 754w, https://images.theconversation.com/files/199016/original/file-20171213-27588-15tfh1m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=517&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/199016/original/file-20171213-27588-15tfh1m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=517&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The current federal minimum wage is hardly enough to feed a family.</span>
<span class="attribution"><span class="source">AP Photo/Kiichiro Sato</span></span>
</figcaption>
</figure>
<h2>What the needy deserve</h2>
<p>The second myth is that low-income Americans do not deserve a helping hand. </p>
<p>This idea derives from our belief that the U.S. is a meritocracy where the most deserving rise to the top. Yet where a person ends up on the income ladder is tied to where they started out. </p>
<p>Indeed, America is not nearly as socially mobile as we like to think. Forty percent of Americans born into the bottom-income quintile – the poorest 20 percent – will stay there. And the same “<a href="https://www.washingtonpost.com/news/wonk/wp/2016/10/06/striking-new-research-on-inequality-whatever-you-thought-its-worse/?utm_term=.074d818b5336">stickiness</a>” exists in the top quintile. </p>
<p>As for people born into the middle class, only 20 percent will ascend to the top <a href="https://www.newyorker.com/magazine/2014/03/03/the-mobility-myth">quintile</a> in their lifetimes.</p>
<p>The third myth is that government assistance is a waste of money and doesn’t accomplish its goals. </p>
<p>In fact, poverty rates would <a href="https://www.cbpp.org/blog/safety-net-cut-poverty-nearly-in-half-last-year;">double</a> without the safety net, to say nothing of human suffering. Last year, the safety net lifted <a href="https://www.cbpp.org/research/poverty-and-inequality/chart-book-accomplishments-of-the-safety-net">38 million</a> people, including 8 million children, out of poverty.</p>
<h2>The facts of welfare</h2>
<p>In trotting out these myths, Republican lawmakers are also tapping into long-standing <a href="https://www.washingtonpost.com/news/posteverything/wp/2017/12/08/republicans-are-bringing-welfare-queen-politics-to-the-tax-cut-fight/?utm_term=.8d360a5ce417">racist stereotypes</a> about who receives support. For instance, the “<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2423540">welfare queen</a>” – a code word for an African-American woman with too many children who refuses to work – is a fiction.</p>
<p>The facts of welfare are that most recipients are white, families that receive aid are smaller on average than other families and the program requires recipients to work and is tiny in relation to the overall federal budget – <a href="http://econofact.org/welfare-and-the-federal-budget">about half a percent</a>. Yet, the welfare queen is an archetype invoked to generate public antagonism against the safety net. Expect her to make frequent appearances in the months to come.</p>
<p>Americans should demand fact-based justifications for tax and entitlement reforms. It is time to retire the welfare queen and related tropes that paint needy Americans as undeserving.</p><img src="https://counter.theconversation.com/content/89048/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michele Gilman is affiliated with the American Civil Liberties Union of Maryland and the Women's Law Center of Maryland.
</span></em></p>As the GOP prepares to slash spending to pay for tax cuts, lawmakers have been bringing up claims about the poor that don’t stand up to scrutiny.Michele Gilman, Venable Professor of Law, University of BaltimoreLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/885152017-12-04T18:55:19Z2017-12-04T18:55:19ZTwo little-known ways GOP tax bill would make chasm between rich and poor even wider<figure><img src="https://images.theconversation.com/files/197648/original/file-20171204-22989-w8y3g4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A Democratic aide carries a chart past the Senate chamber.</span> <span class="attribution"><span class="source">AP Photo/J. Scott Applewhite</span></span></figcaption></figure><p>The tax bill passed by the Senate in the wee hours of Dec. 2 will – if it becomes law – widen the gap between the rich and the poor at a time when income inequality is already <a href="https://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality">approaching</a> historic heights. </p>
<p>Initially, most U.S. households are <a href="https://www.jct.gov/publications.html?func=startdown&id=5044">likely</a> to experience a modest tax cut under the Senate plan. However by 2027, the average family earning less than US$50,000 would pay about $250 more in taxes under the Senate plan, while the average family earning more than $1 million would experience a tax cut topping $8,000 a year, <a href="https://docs.google.com/spreadsheets/d/11a5klmHGwjiRWli14wMOMyg4QPy5xBtr_ps9ly41Vi0/edit?usp=sharing">according to estimates</a> from Congress’s own Joint Committee on Taxation. </p>
<p>Yet even those stark statistics understate the full impact of the Senate bill on long-term inequality in the United States. </p>
<p>In my own research, I examine the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2828970">relationship</a> between the tax system and inequality. In my view, there are two significant reasons why the bill’s impact will be even more dramatic – and even more regressive – than the Joint Committee on Taxation’s estimates suggest.</p>
<h2>Painful triggers</h2>
<p>First, under a 2010 law known as the <a href="https://obamawhitehouse.archives.gov/omb/paygo_description/">Statutory Pay-As-You-Go Act</a>, or PAYGO, the revenue losses resulting from the Senate bill would trigger automatic cuts in federal spending. </p>
<p>The program that would be most affected by the automatic cuts is Medicare, whose budget would be <a href="https://www.nytimes.com/interactive/2017/11/29/upshot/paygo-medicare-cuts-tax-bill.html">slashed</a> by more than $25 billion a year. Other programs that would experience deep cuts <a href="https://www.americanprogress.org/issues/economy/news/2017/11/21/443207/senate-tax-bill-eliminate-programs-farmers-crime-victims-elderly-children/">include</a> vocational training for individuals with disabilities, block grants for foster care and Meals on Wheels and federal funding for historically black colleges and universities. </p>
<p><iframe id="repR6" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/repR6/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Because lower- and middle-income families rely more heavily on these programs than wealthier Americans, these spending cuts would amplify the regressive consequences of the tax-side changes.</p>
<p>In theory, Congress could forestall these cuts by passing legislation that <a href="https://www.vox.com/policy-and-politics/2017/12/1/16726452/republican-leaders-paygo-medicare-tax">waives</a> the PAYGO law. But such legislation would require 60 votes to overcome a Senate filibuster, and it is far from clear that the votes in favor of waiver are there. </p>
<p>And in any event, a PAYGO waiver would not change the fact that the tax bill increases the federal deficit by more than $1.4 trillion over the next decade. Spending cuts to social safety net programs would likely have to come at some point, and when they do, lower- and middle-income families are likely to bear the brunt.</p>
<p>Broadly similar legislation passed by the House last month would trigger automatic cuts as well. Because the House bill <a href="https://www.forbes.com/sites/anthonynitti/2017/12/02/winners-and-losers-of-the-senate-tax-bill/#285a0cc2254d">violates</a> Senate procedural rules, the final legislation is likely to resemble the Senate’s package more closely than the House’s version.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/197649/original/file-20171204-22989-s0j8v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/197649/original/file-20171204-22989-s0j8v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/197649/original/file-20171204-22989-s0j8v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/197649/original/file-20171204-22989-s0j8v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/197649/original/file-20171204-22989-s0j8v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/197649/original/file-20171204-22989-s0j8v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/197649/original/file-20171204-22989-s0j8v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Apples can help explain how tax bill would worsen inequality.</span>
<span class="attribution"><span class="source">Magnus Binnerstam/Shutterstock.com</span></span>
</figcaption>
</figure>
<h2>A long-term impact</h2>
<p>The second reason why the Joint Committee on Taxation’s estimates understate the full impact of the tax bill on inequality is a subtle but significant change made by the Senate bill that would hit lower- and middle-income families hard over the coming decades. Much of the impact would be felt after 2027, while the committee’s forecasts look only 10 years out. </p>
<p>The rather technical change is a shift in the inflation measure that would be used to determine certain deductions and tax bracket thresholds going forward.</p>
<p>Historically, the federal tax code has used a measure known as the fixed-weight consumer price index to calculate inflation. Fixed-weight CPI measures the change in the price of a fixed basket of goods over time. The Senate bill switches to a measure known as <a href="https://www.cbo.gov/publication/44088">chained CPI</a>, which accounts for the fact that as the prices of some goods rise, consumers shift toward cheaper substitutes. </p>
<p>One example often used to <a href="http://www.slate.com/articles/business/moneybox/2012/12/chained_cpi_a_sneaky_plan_to_cut_social_security_and_raise_taxes_by_changing.html">illustrate</a> the difference between fixed-weight and chained CPI involves Granny Smith and Red Delicious apples: If the price of Granny Smith apples rises, consumers will buy fewer of those and more of the Red Delicious variety. Fixed-weight CPI would continue to measure inflation based on Granny Smiths; chained CPI accounts for the fact that consumption patterns have changed.</p>
<p>From a practical perspective, the primary difference between fixed-weight CPI and chained CPI is that the former rises faster than the latter. According to the fixed-weight measure currently used by the federal government, prices have <a href="https://www.bloomberg.com/news/articles/2017-11-20/why-chained-cpi-has-links-to-u-s-tax-debate-quicktake-q-a">increased</a> by 45.7 percent since 2000. According to chained CPI, the increase was 39.7 percent. </p>
<p>The bottom line: For lower- and middle-income families, switching to chained CPI means that the standard deduction and the value of the <a href="https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit">earned income tax credit</a>, both of which are indexed to inflation, would be smaller than if the fixed-weight measure had been retained. This effect will become more dramatic with each succeeding decade.</p>
<p>To be sure, switching from fixed-weight to chained CPI saves the federal government money. The Senate bill uses this money to offset the long-term costs of corporate tax cuts. But because the change is so subtle, many Americans will not realize that they are – in effect – being asked to pay from their own pockets to pad corporate profits.</p>
<p>Rather than addressing the problem of rising income inequality, the Senate bill manages to speed up that trend while covering its own tracks.</p><img src="https://counter.theconversation.com/content/88515/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The author is affected by the Senate tax bill as a taxpayer, a participant in a 401(k) plan that owns shares of corporate stock, and an employee of a university that would face an excise tax on investment income under the Senate plan. The author previously served as visiting counsel at the Joint Committee on Taxation in 2013. The views expressed here are those of the author and do not reflect the opinions of the University of Chicago, the Joint Committee on Taxation, or any other entity.</span></em></p>While much has been written about why the GOP’s tax plan would exacerbate income inequality, there are two reasons it’s even worse than you think.Daniel Hemel, Assistant Professor of Law, University of ChicagoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/884282017-12-02T07:37:34Z2017-12-02T07:37:34ZTax bill’s attack on higher education undermines America’s economic vitality<p>With the <a href="https://mobile.nytimes.com/2017/12/01/us/politics/senate-tax-bill.html?action=click&module=Top%20Stories&pgtype=Homepage">Senate’s passage</a> of the “<a href="https://www.congress.gov/bill/115th-congress/house-bill/1">Tax Cuts and Jobs Act</a>,” President Donald Trump seems close to notching his first legislative victory – a huge tax cut for the 1 percent. All that remains is the need to reconcile the Senate bill with the <a href="https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf">version passed earlier</a> by the House of Representatives. </p>
<p>The bill is a travesty. Never have so many been forced to give up so much to benefit so few. The <a href="http://abcnews.go.com/Politics/wireStory/white-house-open-striking-health-provision-tax-bill-51270294">president’s claims to the contrary</a> notwithstanding, this is no wonderful Christmas present for the American people. It’s more like a grimy lump of coal – many lumps, in fact.</p>
<p>In a pair of bills that each runs to more than 400 pages, it is not hard to find objectionable provisions. As a long-time academic, I am particularly appalled by the <a href="https://theconversation.com/how-the-tax-package-would-slam-higher-ed-86913">treatment</a> of America’s colleges and universities, the widespread network of institutions charged with training America’s talent pool of the future. </p>
<p>The Republican plan undermines <a href="https://www.cnbc.com/video/2017/10/27/white-house-says-tax-plan-would-boost-long-term-economic-growth.html">what its backers claim</a> is their goal: boosting America’s economic vitality. Here’s why. </p>
<h2>Targeting higher ed</h2>
<p>For instance, as part of its effort to pay for <a href="http://www.businessinsider.com/trump-tax-plan-rich-people-benefits-2017-11">the generous tax cuts</a> for corporations and the wealthy, Republicans aim to impose a <a href="https://theconversation.com/gop-plan-to-tax-college-endowments-like-yales-and-harvards-would-be-neither-fair-nor-effective-86912">1.4 percent tax on investment income</a> at private schools with endowments worth at least US$250,000 per full-time student. This would affect as many as 70 schools and cost them an estimated $2.5 billion over a decade. </p>
<p>Not only will that shrink the resources available to support research, much of which <a href="https://theconversation.com/how-universities-boost-economic-growth-65017">helps to fuel</a> the nation’s economic growth. It will also make it more difficult to hold down rising tuition expenses, thus closing off educational opportunities for many students from lower- and middle-income families. </p>
<p>Public universities in states like New York and California can also expect to be hard hit by the bill’s elimination of the federal deduction for state and local taxes. Since this change <a href="https://www.vox.com/policy-and-politics/2017/10/30/16557554/the-state-and-local-tax-deduction-explained">will actually add</a> to residents’ overall tax bills, state governments are bound to come under voter pressure to offset them with tax cuts closer to home, which in turn will require corresponding expenditure reductions. Public universities, by definition, tend to be <a href="https://www.cbpp.org/research/state-budget-and-tax/funding-down-tuition-up">highly dependent</a> on the public purse for their revenues. That makes them particularly vulnerable targets when budgets are slashed at the state level.</p>
<p>Those of us who teach in the University of California system, for instance, still remember the pay cuts we all had to endure when Sacramento’s budget was hit by the Great Recession of 2008-2009. <a href="http://www.dof.ca.gov/budget/historical_budget_Publications/2009-10/FullBudgetSummary.pdf">Funding</a> for the system as a whole was cut by 40 percent, leading to an exodus of faculty, tight limits on new hires and severe limits on financial aid for students. It took years for support of instruction and research to return to pre-crisis levels.</p>
<p>And even more egregious are some “reforms” in the House version that might yet make it into law depending on how negotiations with the Senate turn out. The House bill is far stingier than the Senate’s when it comes to higher education. For example, House Republicans <a href="https://www.nytimes.com/interactive/2017/11/11/your-money/tax-student-debt.html">propose eliminating</a> a benefit that lets some taxpayers deduct student loan interest. That too will close off opportunities for many poorer students.</p>
<p>The House bill also takes aim at a break that presently makes graduate school more affordable by allowing students to work as research or teaching assistants for tuition waivers that don’t count as taxable income. Counting these waivers as income <a href="https://www.insidehighered.com/news/2017/11/07/grad-students-and-policy-experts-say-taxing-graduate-students-tuition-waivers-would">would make graduate school unaffordable</a> for tens of thousands of current and would-be students. </p>
<p>All in all, the House bill alone <a href="http://www.taxpolicycenter.org/taxvox/house-tax-bill-would-simplify-higher-ed-subsidies-price-would-be-higher-costs-many">would reduce tax incentives for higher education</a> by an estimated $64 billion over 10 years. </p>
<h2>Higher ed’s economic impact</h2>
<p>Whatever the final shape of the Tax Cuts and Jobs Act, the provisions targeting higher education will have adverse economic effects that will be both substantial and long-lasting. </p>
<p>Numerous studies have shown that a college education adds substantially to an individual’s lifetime earning potential. <a href="https://trends.collegeboard.org/sites/default/files/education-pays-2013-full-report.pdf">Research by the College Board</a>, a nonprofit that helps students prepare for college, shows that the median income of bachelor’s degree recipients with no advanced degree and working full time in 2011 was $56,500, some $21,100 more than median earnings of high school graduates. Put another way, the benefits of a four-year college degree <a href="https://www.brookings.edu/research/where-is-the-best-place-to-invest-102000-in-stocks-bonds-or-a-college-degree/">are equivalent to an investment</a> that returns 15.2 percent per year – over a lifetime. And the earnings premium grows even wider for additional years of study. </p>
<p>Furthermore, over time individual earnings tend to rise more rapidly for those with higher levels of education, and unemployment levels are significantly lower. The evidence is strong that these benefits bolster the overall economy as well. </p>
<p>Zvi Griliches, a Harvard economist who died in 1999 and was a specialist on the topic, <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674003439">found</a> that the historical growth of years devoted to higher education and other advanced training accounted for about a third of productivity growth in the U.S. economy over the 50-year period he examined.</p>
<p>These productivity gains, in turn, translated into higher output and incomes for the economy as a whole, adding substantially to America’s wealth. </p>
<p><a href="https://www.asu.edu/president/p3/Reports/EdValue.pdf">Evidence also suggests</a> that regions with a higher proportion of college graduates tend to have lower crime rates, higher levels of civic participation and improved performance across a number of other socioeconomic measures.</p>
<h2>Shattered dreams, stunted economy</h2>
<p>In its essence, the Tax Cuts and Jobs Act embodies a contemptuous disregard for intellectualism and expertise that over time can only erode the quality of the U.S. work force. </p>
<p>Many schools will see their budgets cut; faced with higher fees and tuition, many students will be forced to drop out – their dreams shattered, their earning potential stunted, their contribution to the American economy significantly curtailed. </p>
<p>America will not be made great again by attacking its system of higher education in such a mindless manner.</p><img src="https://counter.theconversation.com/content/88428/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Benjamin J. Cohen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Universities play a vital role in promoting economic growth, something the writers of the Republican tax plan have apparently forgotten.Benjamin J. Cohen, Professor of International Political Economy, University of California, Santa BarbaraLicensed as Creative Commons – attribution, no derivatives.