As Republican senators begin tax reform negotiations to cut taxes for the wealthy and well-connected, Republican Sen. Jeff Flake (AZ) stood on the floor of the Senate to bring attention to alpacas.
In a rousing, pun-riddled speech, Flake called alpacas a “serious threat” to reforming the tax code. According to Flake, through clever accounting, some are able to claim alpacas as livestock on their taxes and receive a write-off.
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“Earlier this year I issued an oversight report entitled ‘Tax rackets: Outlandish loopholes to lower tax liabilities.’ That report demonstrated how clever accounting allows nearly anything imaginable to become a write-off, including alpacas,” said Flake. “To illustrate the point, the report outlined how local and federal tax bills can be sheared by claiming exotic pets — these exotic pets as livestock and turning backyards into barnyards. And that’s when the fur really started to fly. Alpaca owner associations that once brazenly touted tax fleece as a key selling point for the animals now feigned outrage at the suggestion.”
Flake used the “alpaca loophole” as a way to address the “200 tax loopholes buried throughout the tax code that cost the country $123 trillion annually,” and pointed to this as an example of why Republican tax simplification is necessary.
As part of their effort to “simplify” the tax code, Republicans plan to reduce the number of tax brackets to just three. They claim that, under their plan, an individual would be able to file their taxes on a postcard. Both of these proposals are massive gimmicks that do not actually simplify the tax code.
One loophole Flake failed to mention is the one created from the GOP-Trump plan that will benefit some of the wealthiest Americans.
The plan creates a preferential tax rate for income from “pass through” businesses. This includes entities like partnerships and limited liability corporations (LLCs). These business do not pay the corporate tax rate (which would be lowered to 20 percent under the GOP-Trump plan), but rather their owners pay taxes on their share of the profit at their own individual rate. The top individual rate under President Obama was 39.6 percent; Trump’s plan would bring that down to 35 percent.
But this special provision would cap the rate on pass through income at only 25 percent. Through this loophole, lawyers, hedge fund managers, lobbyists, and consultants have the possibility to re-characterize their salary as “business income” to receive that 25 percent rate.
A big beneficiary of this new provision would be Trump himself, as he owns more than 500 pass through businesses. According to Forbes, this loophole would slash the tax rate on profits from pass throughs by more than a third.
Meanwhile, lower and middle income families won’t be seeing tax cuts like that. A Tax Policy Center analysis of the Trump-GOP plan found that taxpayers in the top one percent (which includes incomes of above $730,000), would receive roughly 53 percent of the total tax benefit and that their after-tax income would increase an average of 8.5 percent in 2018. Meanwhile, taxpayers in the bottom 95 percent would see average after-tax incomes increase between 0.5 and 1.2 percent.