If You Liked Trumpcare You Will Love Trump’s Tax Plan

Increasingly desperate for a legislative victory after repeated failures to move healthcare, “the Wall,” infrastructure, or any other major legislation forward, the Trump administration and Republican congressional leadership have fixed on “big tax cuts” as their hope for a legislative victory. We will all suffer if this awful legislation passes.

After months of ever-changing “concepts,” details started to become clearer the first week of November as the House Republicans produced an actual legislative proposal. Some specifics are subject to change, but it seems certain that any GOP tax plan will contain several ideas.

First, the tax cut plan will be another “write it behind closed doors, spring it on people at the last minute, and try to win with only Republican votes” approach that infuriated Democrats and Independents and doomed the healthcare bill to failure. The bill was drafted in secrecy with no bipartisan input.

Second, the plan will give tax cuts to business and wealthy people, by, among other things, reducing corporate tax rates, eliminating the estate tax (which hits only wealthy people), repealing the alternative minimum tax (which requires that upper income people pay a minimal level of tax even if their deductions would otherwise wipe out all tax liability), and giving a tax break to the proprietors of law firms and other professional organizations that currently are taxed at the taxpayer’s individual rate. These changes all favor the wealthy and have been consistent across all versions of the “plan.”

Third, much of the “help” for middle- and lower-income people is contingent and based on dubious assumptions. During discussions of earlier versions of the legislation, analysts showed that the benefits from tax-bracket reductions would overwhelmingly go to upper-income taxpayers; in response, Administration economic officials invented the new claim that working families will receive secondary benefits because the corporate tax cuts will unleash a wave of new corporate investment, bring employers back from overseas, and raise the incomes of working families by $4,000 a year on average.

These claims are ludicrous. History clearly shows that business tax savings go primarily to stockholders. Wages have been flat for more than 30 years, regardless of corporate tax rates and profitability. Right now, corporations are booking record profits, their effective tax rates are much lower than the official ones, and they are awash in cash – but wage growth has barely begun to creep above the inflation rate. The idea that business will suddenly share this particular tax windfall with workers is simply laughable.

Taxpayers did make one gain in this latest version of the GOP tax proposal. An earlier proposal to severely restrict contributions to 401(k)’s was removed and taxpayers will be allowed to continue making tax-deferred contributions. However, individual taxpayers will experience many other steep reductions in the deductions they can take. The tax proposal introduced on November 2nd eliminated the deductibility of state and local income taxes (though it did restore the deduction for state and local property taxes, which earlier versions eliminated). The proposed bill also eliminates the deductibility of medical expenses and student loan expenses, eliminates the personal exemption, and puts limits on the home mortgage interest deduction.

Many more middle-class taxpayers will have so few deductions that using the standard deduction will make more sense, and the bill does make a significant increase in that deduction. While this will make the tax preparation job easier for many taxpayers, it is likely that for many middle-income taxpayers, their lost deductions will more than wipe out the modest savings achieved from tax-bracket reductions or the increase in the standard deduction.

These changes seem uniquely tailored to favor residents of red states (with lower property values and state and local taxes) and raise the tax bills of people from states with relatively high state income taxes and property values. Residents of states like Texas and Florida will reap a windfall while residents of Massachusetts, California, New York, New Jersey, and Pennsylvania will see steep increases in their taxes.

The overwhelming distributions of tax savings to high-income taxpayers may not even be the worst effect of the tax cut proposal. It may have an even worse effect on the economy and deficit. The Republican party acknowledges and happily accepts that this proposal will add $1.5 trillion to the deficit that they recently considered to be an example of “runaway Obama spending.” And that’s the target. The reality is likely to be far worse. The Tax Policy Center estimates the proposal will reduce federal receipts by $2.5 trillion over the next decade.

Such a massive increase in the deficit will inevitably put pressure on every single federal spending program. Disaster relief, social security, national parks, schools, veterans and every other program will be under more pressure for budget reductions. If this bill is passed, cutbacks in Social Security and Medicare are inevitable. (Notably, the recently passed budget act calls for an identical $1.5 trillion cut in Medicare and Medicaid.)

Republicans have traditionally justified their deficit-expanding votes by pretending they believe that “tax cuts pay for themselves in economic growth.” After 30 years, this slogan has become virtually the only fixed belief the GOP has. But it has been proven wrong every time it was tried at the state and federal level in the past 36 years. Reagan’s and Bush’s massive tax cuts led to recessions and exploding federal deficits, while Bill Clinton’s 1993 tax increase – which Republicans hysterically claimed would bring on a Great Depression – led to a decade of prosperity and federal budget surpluses. The clearest case of a supply side experiment – Governor Brownback’s Kansas budget experiment – resulted in a tide of red ink that virtually destroyed the state economy and school system.

Scott Perry and Pat Toomey have built their political careers around their supposed opposition to federal budget deficits. If they really meant it, they should both be sure “no” votes on this budget-buster. It’s time to call their bluff; they need to be challenged to show that they actually do oppose deficit increases.

Leon Reed is a retired Congressional Aide and Defense consultant.  Now a Gettysburg resident, he is a member of the Democracy for America Government Accountability Task Force.