The bloom is coming off the tax “reform” rose — in a way that even Republicans are starting to see. The House this week passed its bill, but with a dozen Republicans from higher-income, higher-tax states, plus one other, voting against it because the legislation would pay for some of its tax cuts by limiting deductions for state and local taxes. Emphasis on the some of: The Tax Policy Center projects that the House proposal would still increase the national debt by $1.7 trillion over the next 10 years if not offset by spending cuts.
The Senate bill is equally problematic. To comply with the Senate’s budgetary rules, that bill would make individual rate cuts (as well as small-business breaks) temporary, but corporate reductions permanent. That means a future Congress will face a choice: Reauthorize the individual tax cuts or see taxes increase on the middle class, as well as on others, in 2026. Further, the Senate bill heads back down the undermine-the-Affordable-Care-Act rabbit hole by repealing the requirement that people not otherwise covered purchase health insurance. And it would completely eliminate federal deductions for state and local taxes, which would hurt higher-tax blue states. Over time, the effect of that legislation would be to hike taxes on middle earners in order to bestow tax cuts that would benefit corporations and upper earners.
Republicans, of course, see a corporate tax cut as essential for the US economy. They frequently point to the top US corporate rate of 35 percent — about 39 percent when federal and state taxes are combined — as something that makes US firms uncompetitive in the world. The more accurate metric, however, isn’t the nominal tax rate, but rather the actual or effective rate. And there the US rate of 18.6 percent is lower than Japan’s (21.7) and on par with the Britain (18.7), though somewhat higher than the corporate rates in Germany (15.5) and France (11.2).
One Republican — Ron Johnson of Wisconsin — has already come out against the Senate bill, saying it benefits corporations over small businesses. Some other GOP senators are on the fence, waiting to assess what its effects on deficit and debt will be. But we already know that, even with its gimmickry, the Senate plan will swell the national debt by at least $1.5 trillion over a decade.
All this comes in the same week when more than 400 higher earners have written Congress under the auspices of the Responsible Wealth project to say they don’t need a tax cut. “Under no circumstance should tax reform lose revenue, especially to provide tax cuts to the wealthy and corporations,” they write. This group actually calls on Congress to tax them more, to provide increased social spending.
What if a tax package actually did forgo tax cuts for corporations and the wealthy and instead targeted its benefits to lower- and middle-income earners? Well, then President Trump could actually deliver something to his supposed base — the beleaguered white working class — without handing something even bigger to higher earners.
Mind you, higher earners would still get a break, even if only rates for middle and modest earners were reduced. If families earning, say, $125,000 or less got a tax cut, families making many times that amount would still realize a tax reduction on their first $125,000 of income. What they wouldn’t get is an additional tax cut atop that initial reduction. But with so much of the economic gains of the last several decades having landed in their pockets, do they really need one?