Senate Republicans are forging their own path on the effort to overhaul the U.S. tax code, offering a plan Thursday that would delay an immediate corporate tax cut President Trump has demanded and blow up House Republicans’ carefully crafted compromise on a controversial tax deduction.
GOP Senate leaders unveiled a tax package that would delay cutting the corporate tax rate from 35 percent to 20 percent until 2019. That’s a major departure from Trump’s insistence on immediate tax cuts that he says are necessary to spur the economy.
The one-year delay would lower the cost of the Senate bill by more than $100 billion, giving negotiators more revenue for other changes. But it could also delay companies moving back to the United States from overseas or prompt them to hold off on other decisions as they wait for the corporate rate to fall.
Conservative groups immediately bashed the Senate plan for the delayed corporate tax cut. Democrats such as Senate Minority Leader Charles E. Schumer (N.Y.) bemoaned the Senate bill’s complete elimination of the state and local tax (SALT) deduction. (The mere reduction of the SALT deduction in the House bill set off a firestorm of protest from blue-state Republicans.)
In one major respect, however, the plans are similar: They both are fiscally reckless.
The Peterson Foundation comments on the Senate bill:
This bill passes the buck to the next generation. Like the House bill, the Senate proposal includes reforms that are neither permanent nor paid for, both of which impede the objective of growing the economy.
Budget gimmicks like arbitrary phase-ins and expirations prevent families and businesses from being able to plan and invest, which defeats the purpose of pro-growth reforms. Fiscally irresponsible reforms are counter-productive, because adding more to our national debt hurts the economy.
Instead of either the House or the Senate plan, the Peterson Foundation urges that Congress follow the 1986 tax reform model, namely using base broadening to cut tax rates.
Meanwhile, the White House is doing a miserable job of convincing voters that either the House or Senate plan is designed for the benefit of the little guy. Once again senior adviser Gary Cohn sounded disingenuous in selling the plan. His much-mocked interview with CNBC’s John Harwood had this sort of exchange:
Harwood: If you look at Joint Tax, $1 trillion in net cuts for business, $200 billion through the estate tax, and $300 billion for individuals. So, four times as much in business tax cuts and estate tax as for individuals.
Cohn: Yup. But, John, if you look at what we’re doing for middle-class taxpayers, the reality is kind of simple. The median-income family in the United States, the family that earns about $60,000 in the United States, the Speaker [Paul Ryan] talked about them getting a $1,182 tax cut. That family is now paying a marginal tax rate of less than 1 percent. They’re paying less than $500 of total taxes in the system. So a $60,000 earner, family of four, is paying less than $500. We have cut their taxes significantly. You can’t go much further in the tax system.
Harwood: You’re saying you can’t give middle-class taxpayers more of a tax break than you’ve done?
Cohn: Unless you want to start going negative tax rates and go into the negative world. So, when people score this, you’re scoring against the bound of zero.
Harwood: You have a tax bill that takes away deductions for high medical expenses; that preserves carried interest — I know they’re working on that; that takes away deductions for grad school tuition breaks; that takes away an adoption credit. And on a percentage basis, people in the top 1 percent get twice as much of a reduction in their effective tax rate as everyone else.cut
All Cohn could lamely do was insist they “weren’t done” with the bill. In truth, the bill treats the middle class as an afterthought on the premise that trickle-down economics (cuts of the rich) works and corporate tax cuts inure to the benefit of workers, not owners. Cohn fails to conceal this glaring flaw in the bill:
Harwood: The companies that benefit from pass-through rates are high income because if they were middle income they’d be paying at the 25 percent rate already. The vast majority of those benefits go to wealthy businesses.
Cohn: You’ve got to wait till the whole plan is done and see where we finally end up, and see what the plan comes out. Everything in our tax plan is meant to encourage investment.
Harwood: You’re not saying, as you did a few weeks ago, that the wealthy do not get a tax cut under your plan?
Cohn: No. I’m saying there’s unique situations to everyone out there. Everyone has their own story. It’s not our intention to give the wealthy a tax cut.
Harwood: But they’re getting one.
Cohn: I don’t believe that we’ve set out to create a tax cut for the wealthy. If someone’s getting a tax cut, I’m not upset that they’re getting a tax cut. I’m really not upset.
Hmm. In fact, there is plenty in both bills that has nothing to do with improving the lives of middle-class Americans. The change in the estate tax (either a reduction or outright elimination) doesn’t help people of modest means. The 25 percent pass-through rate is ill-designed to help small businesses, but rather good at delivering a tax break to rich investors such as the Trump clan.
Cohn was finally honest about whom the bill is really designed to please: “The most excited group out there are big CEOs, about our tax plan. They all tell me how excited they are to get a tax plan that makes the United States competitive, makes it so they can grow their business domestically, makes it so they can — actually pay wages here. … So, our biggest supporters are really the Business Roundtable. When you talk to all the CEOs — they’re the most excited about this.”