Federal Tax Reform Provides a Teachable Moment

By Sue McMurray

Never was there a more opportune time to offer WSU students an opportunity to learn about the economic and political issues affecting major federal tax reform than in late November 2017, a few weeks before Congress passed the most sweeping tax overhaul in the past three decades.

Charged with the mission of promoting the importance and understanding of tax theory and current tax issues, the Hoops Institute of Taxation Research and Policy hosted guest speaker Thomas Neubig, founding member of the Tax Sage Network, to discuss economic and political issues and tradeoffs involved in tax reform.

“What you’re seeing in this tax reform legislation is a reflection of our country’s social and economic priorities and values,” Neubig said. “Elections really matter.”

Tradeoffs of tax reform

While there are many benefits to the tax reform plans, there are always tradeoffs, Neubig said, and economic principles (growth, fairness, simplicity, certainty) should be carefully considered. For every positive, such economic growth that would result in an immediate stimulus, there is a potential negative, such as larger deficits. While individuals and small businesses—in particular—would have lower taxes, some feel tax cuts could be unfairly skewed to the well-to-do. Taxes may be simpler to file, but there may be different rates for pass-through business owners (those who do not pay corporate income tax) versus workers. And the security of “tax certainty” could be rocked by “sunsets”—tax cuts that expire at a given date (most in 2025).

Implications for students

Critical decisions are being made that will affect students’ futures, including job opportunities, salaries, interest rates for borrowing, and government programs such as Medicare and Social Security. While students had the unique opportunity to actually witness history being made as the tax reform bill was signed into law, there was much uncertainty surrounding the outcome.

For example, if the House bill went through, taxes would have increased by $65 billion over 10 years by removing education related tax breaks. One of the big issues is the exemption of tuition waivers, Neubig said. In the House bill, waivers could be dropped entirely. If there was a $20,000 tuition waiver with a 15 percent tax rate, graduate students would have owed an additional $3,000 per year.

Ultimately, however, in December the main issues affecting graduate students largely vanished when the Joint Tax Committee removed the tax increases that would have hurt them. But, as the next generation, students will face higher government debt: the tax bill increases the federal debt by nearly $1.8 trillion by 2027, according to the Congressional Budget Office.

“It’s important for you to understand the tradeoffs policy makers must consider in every tax system decision,” Neubig said. “This will affect your future careers and the future of the U.S. economy. I strongly encourage you to form your own assessments.”

Watch video of Neubig’s presentation, “Federal Tax Reform: Why is it Needed, Why so Difficult?”

About Thomas Neubig

For the past 20 years, Neubig served as the director of quantitative economics and statistics for Ernst & Young. He led the U.S. Treasury’s Office of Tax Analysis as its director and chief economist for 10 years. He also served as president of the National Tax Association, and most recently served in Paris as an official with the Organization for Economic Cooperation and Development (OECD). He was responsible for producing the OECD’s report on measuring and monitoring base erosion and profit shifting. With his doctorate in economics from the University of Michigan, Neubig recently returned as a research affiliate to the University of Michigan’s Office of Tax Policy Research.