EVAN HOROWITZ | QUICK STUDY
J. Scott Applewhite/Associated Press
Step by hasty step, Republicans are turning their tax plans into reality. Into the evening Thursday, Senate leaders were working frantically to win over the few remaining dissenters, every discussion bringing them closer to passing this plan that would dramatically reduce corporate taxes, provide a sudden windfall for investors, and offer temporary benefits to middle-class families, including a more generous child tax credit.
That’s just the beginning, however. The tax overhaul actually has much broader aims: transforming the US economy, resetting the whole system of international taxation, and removing a key pillar of our health insurance system.
With great ambition, however, comes great risk. And the risks are still piling up, from personal bankruptcies caused by medical bills to rising inequality.
Behind the Republican plan lies a grand, but contentious, idea: If we lower the tax rate for businesses, we can turbocharge the economy and ultimately help all Americans.
Think of it this way. Every dollar businesses keep from the IRS is one they can put to productive use: buying new machines, opening new locations, hiring more people, even raising wages. Plus, a lower US tax rate should also make it more appealing for businesses to expand and hire in the United States, as opposed to seeking out lower-tax havens overseas.
If this pans out, the stimulative effect wouldn’t be felt just next month or next year, but for decades to come because it would make the US economy as a whole more productive, and thus capable of faster growth.
Before you get too excited, the evidence for this is mixed at best. Corporate tax cuts in other countries don’t seem to have produced anywhere near this effect, and on Thursday Congress’s own Joint Committee on Taxation released an analysis showing that the tax plan would make the economy a little bit larger, but not that much — about 0.8 percent growth over the first 10 years.
Even if these numbers sound small, the effect would still be to make the country as a whole somewhat richer for decades to come.
A lot has been made of the fact that some families will indeed see their taxes increase under the plan before the Senate — particularly after 2025, when the tax benefits for individuals expire. But in general we’re talking about small amounts.
The average cut for people earning $40,000-$50,000 is $190 in 2025. But by 2027 they would be paying $280 more in taxes. That might be cause for a quick fist-pump, followed by a longer-run grimace. But those probably aren’t make or break sums — certainly not compared with what people in that income group might expect in the form of a potential raise, or higher expense such as rents, which can have a far bigger effect on the family budget.
Elsewhere, though, the potential costs of this bill are more dire. Particularly if you focus on health insurance rather than tax rates.
The Senate bill eliminates the legal requirement that everyone purchase health care coverage, which would cause 13 million people to drop insurance by 2027, according to the Congressional Budget Office.
Whether they give up coverage because they feel healthy enough to do without or because they’re scared off by rising sticker prices, some of those newly uninsured will inevitably get sick, need expensive care, and end up spending tens of thousands of their own hard-earned dollars on hospital bills.
Nor is the risk limited to those who forego coverage. Seniors with Medicare face their own insurance problem because, as currently written, the tax bills would trigger an automatic cut in government spending on Medicare — with little guidance as to whether this would mean lower reimbursements to doctors, higher fees of consumers, or something else. Last time this happened, cancer clinics turned away chemotherapy patients.
Another overlooked risk: alcohol-related deaths. By reducing excise taxes on alcohol producers, the Senate bill would ultimately lower the cost of alcohol. And cheaper alcohol means more consumption. One researcher from the centrist Brookings Institution estimates that would translate into 1,550 additional alcohol-related deaths every year.
Less tangible, but as worrying is the overwhelming likelihood this bill will make income inequality worse. For decades now, the highest-earning Americans have been amassing a larger share of income and wealth. And while there are fierce debates about the best ways to change that, the International Monetary Fund has warned that trickle-down tax cuts for the wealthy only deepen the problem.
In the struggle to win over wavering senators, Republican leaders have been making some costly promises, including changes that could alter the final bill without time for more thorough vetting.
One possibility was an ill-defined plan for a “trigger” that would automatically raise taxes or cut spending if the deficit grows too fast. The plan got a new push Thursday, after JCT reported that the tax cuts would increase the deficit by roughly $1 trillion, even after accounting for the additional economic growth.
The problem with this approach, however, is that deficits generally spike when the economy stumbles, and that’s often the moment when more government spending is needed, not less. So a trigger could end up doing more harm than good, turning a mere economic hiccup into a full-blown recession by paring back spending — or boosting taxes — at precisely the wrong time.
However, after the trigger mechanism was ruled out by the Senate’s official rule-checker Thursday night, GOP leaders were working on alternatives to mollify the deficit hawks, which could including shrinking a portion of the tax cut.
Risky and untested ideas are particularly tempting in these final stages, when success is within reach and people are willing to do whatever it takes to grasp it. One Republican senator, John Kennedy of Louisiana, even joked Wednesday that he “may have to get drunk to vote for the bill.”
In a bill already filled with far-reaching risks, it seems there may still be room for more.
“This was a major breach of trust, and I’m really sorry that this happened,” he said in a rare live interview on CNN Wednesday night.Continue reading »
Toy company executive Isaac Larian says he and other investors hope to bid for up to 400 of the Toys ‘R’ Us stores being liquidated in bankruptcy.Continue reading »
The Fed’s moves will push up the cost of mortgages, car payments, government debt, student loans, and even credit card borrowing.Continue reading »
Excel Center for Nursing and Rehabilitation in Lexington received state approval last week to shut down in May, and to lay off 110 employees.Continue reading »
The Federal Reserve is signaling confidence in the US economy’s durability but plans to continue a gradual approach to rate hikes for 2018.Continue reading »
A new MassHousing program would let qualifying homebuyers finance their entire purchase.Continue reading »
Ellia Kassoff wants to be the person who saves the toy industry. And he wants to do it by bringing KB Toys back from the dead.Continue reading »
The company’s CEO said the decision hinged on available skilled workforce combined with state and local tax incentives.Continue reading »
Ten stories you may have missed Tuesday from the world of business.Continue reading »