Budgets, it is frequently said, are an embodiment of our moral ideals and commitments. If so, the tax plan adopted by the Senate on Friday represents an extreme moral failure on the part of the senators from the Republican Party who voted for it. At a time when incomes are becoming ever more unequal, the Republican tax plan will ultimately make the rich richer and the poor and middle class poorer. Not only will working people and the middle class suffer, but so will our whole country.
And not only that: one has to wonder what kind of democracy America has, when our government acts in such utter disregard of a majority of the country and the common good.
Many of the features of this bill that work to help the rich and harm everyone else are now well known. So let’s quickly review them with links to the hard evidence that supports our claims.
To begin with, there are all the ways the tax cuts benefit the wealthy and upper middle class while doing little in the first few years to reduce taxes for the poor. And ultimately, by 2027, the bill actually increases taxes on working people and the middle class.
- The benefits of the tax cuts flow largely to the rich. According to the Joint Committee on Taxation, the official scorekeeper of Congress, under the Senate bill only 15.9% of all households will see a tax cut as a result of this law in 2027. Households with income at or below $75,000—which make up a bit more than 65% of all households—will, on average, see their taxes go up. But in that same year, 60.1% of households with incomes above $1 million will get a tax cut. All told, 87 million Americans will see their taxes go up as a result of this bill.
- The rich do so well, in part, because they own the American corporations that receive a deep cut in their tax rate even though they currently pay no more than corporations in other countries because of corporate tax loopholes. (Foreign owners of these corporations will receive about 35% of corporate tax cuts, too.) And yet those loopholes are expanded under the bill. Multi-national corporations are the biggest beneficiaries. Corporations that currently have huge overseas profits will be allowed to pay only a portion of what they owe. The bill also creates a new loophole that will lead to even larger corporate tax avoidance while encouraging corporations to move jobs overseas. These corporate tax cuts will cost the American treasury $1.35 trillion.
- The wealthy also benefit because, under the guise of helping small businesses, the bill gives deep cuts to pass-through businesses, such as S-corporations, limited liability corporations, and partnerships. About 60% of the tax cuts to pass-through businesses — benefit goes to the top 1% who own large businesses, hedge funds, the wealthiest professional partnerships, and real estate companies. The bottom 60% of households, with incomes less than $93,000, will receive only 2% of the benefit in 2027. This tax cut costs the treasury $362 billion. And it opens up new possibilities for tax avoidance by unfairly allowing people to lower their taxes if they are paid as independent contractors instead of employees.
- Heirs and heiresses in the top 1% benefit by a doubling of the estate tax exemption to $11 million.
- Wealthy and upper middle-class people who send their kids to private school will benefit from a new provision that allows them to use money put aside in a 529 account, which is allowed to grow tax free, to pay for private K-12 education as well as higher education.
- And then there is the impact of the new inflation measure called the chained consumer price index, which will replace the more familiar consumer price index in adjusting various tax provisions. Because chained CPI tends to show lower rates of inflation than the usual CPI, low-income Americans will be hurt immediately because the Earned Income Tax Credit, which helps working Americans, will grow more slowly. And eventually, chained CPI will increase taxes for all but the very rich because chained CPI will show lower estimates of the extent to which inflation increases the standard deduction and pushes us into higher tax brackets. Those adjustments will take place more slowly and our taxes will go up more quickly compared to what would happen with the conventional measure of inflation. Of course, the value of these adjustments are far less to the top 1% given how small a share of their income is affected by the standard deduction and how large a share of their income is already in the top tax bracket.
Then there are all the other provisions — both tax and non-tax — that will undermine government support for working people and the middle class.
- About 13 million Americans — 500,000 in Pennsylvania — will no longer have health insurance through Medicaid, the individual market or their employer as a result of a repeal of the individual mandate according to analyses based on a Congressional Budget Office report. That will lead to 1,000 to 2,000 premature deaths in our state alone. By 2027, most Pennsylvanians who purchase insurance on the individual market will see their insurance premiums go up more than their taxes are cut.
- Federal spending on Medicare will be cut by $25 billion next year and $400 billion over ten years according to the Congressional Budget Office (CBO) because of the impact of the PAYGO provisions already in federal law, which require mandatory cuts when deficits increase. The same law will lead to mandatory reductions in the Social Services Block Grant program and student loans.
- People who suffer from chronic and debilitating medical conditions or disabilities that are very expensive to treat will suffer because the legislation eventually eliminates the provision that allows people to deduct medical expenses that are more than 10% of adjusted gross income. (The threshold amount temporarily drops to 7.5% for two years and then the provision is eliminated entirely.)
- An increase in the child care tax credit (CTC) in the tax law is heavily touted by Republicans. Families with higher incomes than in the past will benefit from the program. Yet because it limits how much of the tax credit is refundable to those who owe payroll taxes but not income taxes, the full benefits of the program will not be available to 26 million children in very low-income families nation-wide, including 1.4 million in Pennsylvania. In addition, the Senate tax bill denies children of immigrants, including those who are American citizens, benefits under both the Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC).
- Access to higher education for those who are not wealthy will be undermined because of new taxes on the university endowments that provide scholarships for low-income students and also because the free tuition and other benefits now given to graduate students will be taxed under the bill.
- Another provision of the tax law will undermine the ability of the states to fund education and human services. Most pre-K, K-12, and higher education spending; about half of Medicaid spending for senior care and health care for those with low incomes; and a great deal of the human services provided to those who are disabled or suffer from problems like opioid addiction comes from state and local governments not the federal government. The Senate tax bill, however, will no longer allow taxpayers to deduct state and local income and / or sales taxes from their federal taxes and will limit property tax deductions as well. The result will be that states with high levels of state and local taxation, and even states like Pennsylvania with moderate tax levels, will feel pressure to cut taxes. And raising taxes for education, health care, human services, and infrastructure improvements will become far more difficult.
And then there is the deficit and the consequences of it for not just our economy but the future of of public life.
Republican senators such as Marco Rubio and Pennsylvania’s Pat Toomey already admit what those of us who follow their strategy already know: the additional $1 to $1.5 billion in deficits created by this legislation will soon lead Republicans to again propose deep cuts to Medicaid as well as bring back the cuts to Medicare and Social Security they have proposed in the past. In the middle of the debate Senator Orrin Hatch said that it is difficult to continue the CHIP program because “we don’t have money anymore.” A reduction of Medicare by $500 billion and Medicaid by $1 trillion is already allowed under the budget resolution passed this year. And we know that their strategy has long been to cut taxes and create deficits in order to justify deep reduction to the programs that help working people and the middle class. There is no mystery about why this is their goal. On the one hand, they simply do not believe that the rich owners of American business — as the prime beneficiaries of not only good fortune but of our history of public investments in research and development, infrastructure, and education — have a responsibility to ensure that the benefits of our prosperity are broadly shared. Nor do they recognize or care that equality of opportunity — the basic notion that every child deserves the same opportunity to make the best use of his or her talents and abilities and that the community benefits when this happens — as well as political equality is undermined when economic inequality becomes too severe.
These lawmakers attempt to defend their policies by saying that everyone will benefit from the economic growth created by tax cuts. But this claim is a sham in two different ways.
First, reputable economic analysts, including the Joint Committee on Taxation (JCT) staff, conclude that the Republicans are far overstating the economic benefit of tax cuts.According to the JCT, the $1.4 billion increase in deficits over ten years will only be reduced by about $400 million of additional economic growth.
This conclusion should come as no surprise. The American economy continues to grow as the effects of the Great Recession move into the past. While additional investment might lead to faster growth, there is little reason to think that tax cuts for businesses will spur a great deal of new investment. Business profits are near record highs, as are corporate savings, while interest rates are near record lows, which means that businesses have little trouble finding funds to make additional investments.
And even if one does believe that we need to spur investment, the real barrier to additional business investment is not access to money to invest but slow growth in consumer demand. Even very large tax cuts for the richest Americans are not likely to increase consumer demand as the rich are likely to save much of their additional income. If we want to spur investment we should be increasing wages for people who will spend their additional earnings by increasing the minimum wage, restoring the Obama overtime rules, and creating new jobs by investing in infrastructure and education.
So we come back to where we started: the dispute about the Senate GOP tax bill is fundamentally not about different economic theories but about our morality, about whether we believe the benefits of our economy — that is, of the work we all do — should be broadly shared among the American people or whether it should be concentrated in the hands of the owners of corporations and other large businesses.
Thinking about that question raises an even deeper one: should Senate approval of this bill lead us to wonder whether our democracy itself is at risk? How could legislation that is so heavily weighted towards the top 1% of households and is so harmful to 60% to 70% of American families even get a hearing, let alone a majority in a democratically elected Congress?
The most plausible answer is disturbing. It appears that our democracy is being distorted by many factors that give the rich too much sway over public policy — from the Citizens United decision that allows them to make unlimited political contributions, to laws that suppress the vote of those with low incomes to the gerrymandering of political districts to favor Republicans. And of course, the very inequality that has been growing so rapidly in the last forty years gives the very rich a greater capacity to skew our politics to serve them.
The consequences of a political system that is tilted to the corporate elite is seen in this tax bill, which should shock the conscience of anyone who believes in caring for those who need a hand, in equality of opportunity, and in democracy.We should all be fearful that this tax bill will make our country so much more economically unequal that it will be difficult to restore democratic control over our government and. among other things, repeal this utterly immoral piece of legislation.