First off, I claim no expertise in tax policy. I’m an incompetent college kid whose parents manage the bulk of his finances. The closest I ever get to the federal tax code is the byzantine W-9 form I fill out whenever I take on another part-time gig, or otherwise that little number on my receipts that subsidizes megabanks and makes F-35s fly. Like the Force, tax policy is all around us, flowing through everything we do; but most of us, including me, are nowhere near being fiscal Jedi (probably more a function of the blissful ignorance of middle-class privilege than anything else.)
However, there’s a major tax plan under debate in Congress right now, and as an opinion columnist, it’s my duty and purpose to explain it to my fellow college students on the cusp of adulting, and tell them what bodes if it passes. So here goes nothing.
The two most important functions of this multifaceted and nebulous plan are the lowering of the corporate tax by almost half, and the simplification of personal tax rates from seven income brackets to four.
More controversial are some of the plan’s less central features — namely, the removal of the state and local income tax deductions, and (of interest to college students) the removal of the student loan interest and medical expenses deductions. (Deductions are benefits that reduce an individual’s personal tax rate based on specific conditions they face — such as high state and local taxes, student loans and medical expenses.)
The removal of the state and local tax deduction and the student loans deduction would particularly hit college students and recent graduates, because a) many major universities and post-graduation employment hubs, including USC and its surrounding communities, are in states or at least cities with comparatively higher tax rates than areas with a lower saturation of bachelor’s degrees; and b) for various reasons, a large percentage of college graduates graduate with student loans. Living in blue cities and having debts to pay formerly granted recent graduates somewhat lower taxes; if the current plan is signed into law, those protections go out the window, and there will be a direct effect on graduates’ pocketbooks.
Now, that’s not entirely a cause for alarm. As Julius Krein notes over at American Affairs, the student loans interest deduction is a pittance ($625, maximum) compared to the vast piles of debt we lug behind ourselves as we graduate. And the income brackets adversely affected by the removal of the state and local tax deduction are higher on the income scale, so recent graduates making starvation wages plus tips are affected as harshly as the lower-income residents of blue cities — that is, not as harshly as the lawyers and businessmen higher up the income chain in those same cities. (It’s a poorly hidden secret that this tax plan is in many ways a slam against the “liberal elites” who formed and continue to form much of the vocal opposition to the Trump administration. “The power to tax is the power to destroy,” politics really can be this petty).
One of the aforementioned primary effects of the plan — a lower corporate tax — might be helpful to college grads in the longer run. The lower corporate tax (yes, this does mean those big ugly corporations get to make more money) is largely a ploy to lure corporate investment toward American shores, so it seems. Our high corporate tax is one catalyst of the great offshoring of capital and operations that was such an issue in the 2016 campaign, which is now coming back to the fore with the Paradise Papers. More corporate investment usually means more capital and more job opportunities in regions previously left in the rain.
So the removal of various pro-student and graduate deductions is inconvenient and would hurt people. But the entirety of the tax plan, all things considered, doesn’t appear as bad as it’s occasionally been made out to be. And if we’re looking at the one aspect of “America First” that pretty much everyone can agree is a good thing — the onshoring of capital from the Cayman Islands back to Wall Street for reinvestment in Wheeling and Watts, two underprivileged cities — the dimmer sides of this tax plan fade in importance.
Again, I know nothing about tax policy beyond what I’ve picked up from thought journals and anecdotes. But the fact that most established political actors, left and right, are opposing it, tells me something might be good about it.
Luke Phillips is a senior majoring in policy, planning and development. “Point/Counterpoint” runs Wednesdays.