We’ve said from the get-go that actual tax reform — broadening the base and closing loopholes without widening the gap between rich and poor or flooding the treasury with red ink — was a worthy endeavor. We’ve written for months and months that far too much attention is paid by Republicans to the tax code, to the exclusion of pro-growth and pro-opportunity policies on trade, immigration, infrastructure, research and development investment, and more. The public’s lack of support for the bill is a telling reminder that most Americans don’t see the country’s biggest economic problem as the Trump family paying too much in taxes.
Now, if you understand Republicans’ self-description — “God made Republicans to cut taxes” — the question remains why a bill this bad had to be the end product. To be clear: It’s not tax simplification, which the House and then the Senate passed on straight party-line votes, nor is it geared toward the middle class. And it’s not fiscally defensible, no matter what Sen. Susan Collins (R-Maine) tells herself.
Most of the bill’s changes for individuals sunsets in 2025, even as a cut to the corporate rate from 35 percent to 21 percent is made permanent.
If future Congresses decide to extend the lower tax rates for individuals and families rather than allow them to expire, and also extends other temporary provisions, the bill will end up costing $2 trillion to $2.2 trillion, according to a report by the Committee for a Responsible Federal Budget, a nonpartisan deficit hawk group.
Even accounting for economic growth, it predicts the bill would add $1.5 trillion to $1.7 trillion to the debt — bringing debt levels close to 100 percent of the nation’s GDP.
That’s neither sustainable nor smart — let alone conservative — policy.
As for the distributional aspect of the bill, the progressive Tax Policy Center concluded:
High-income households would benefit primarily from five tax changes—lower income tax rates on ordinary income, a more generous Alternative Minimum Tax, the bill’s 20 percent deduction for income from pass-through businesses such as partnerships, the corporate income tax rate cuts, and the roughly doubling of the estate tax exemption to $22 million for couples.
What would these average tax cuts mean for American households? For middle-income people, an extra $900 would pay for about seven months of gas. By contrast, those in the top one percent could pick up a nice Mercedes C Class Coupe with their $50,000+ average tax cut.
The Penn Wharton Budget Model is even more discouraging: “By 2027, under our standard economics assumptions, we project that GDP is between 0.6 percent and 1.1 percent larger, relative to no tax changes. Debt increases between $1.9 trillion and $2.2 trillion, inclusive of economic growth. By 2040, we project that GDP is between 0.7 percent and 1.6 percent larger under our baseline assumptions, and debt increases by $2.2 to $3.5 trillion.” That’s a whole lot of debt (not to mention expanded income inequality) for relatively little growth. The bill is so badly designed to deliver middle-class tax breaks and prolonged growth that one is entitled to conclude those were never the aims.
There is not a single explanation for why the opportunity to create modestly good legislation was squandered. One can point to lobbyists who demanded huge corporate tax breaks. One can lay blame at the feet of the Goldman Sachs contingent in the White House — which drinks supply-side Kool-Aid that not just coincidentally lines up with its own interests. One can cite the president’s limited attention span and desperation for a win that fueled a mad rush to the finish line instead of prolonged, open hearings that could have exposed pitfalls and led to compromise. One can note that House Speaker Paul D. Ryan (R-Wis.), for all his wonkish talk, could not modernize 40-year-old tax dogma to fit a country suffering from gross income inequality and slow wage growth. And one can blame moderates who convince themselves that the choice is binary — a rotten bill or no bill — rather than compel their colleagues to engage in intellectually honest discussions. (To be sure, the mound of debt would have been much, much higher if Sen. Bob Corker (R-Tenn.) had not whittled it down to “merely” $1.5 trillion. However, evidence that the bill could have been even more atrocious does not justify supporting it.)
To the extent they’ve demonstrated that their worst instincts need to be curbed, Republicans have done the voters and the Democrats a great service in clarifying their true anti-populist ideology. The latest NBC News-Wall Street Journal poll reports that “24 percent of Americans say that the Trump-backed tax plan is a good idea, versus 41 percent who believe it’s a bad idea. That’s an increase in unpopularity from October, when 35 percent said it was a bad idea, and 25 percent said it was a good idea. … Notably, just 28 percent of rural Americans and 29 percent of whites without a college degree — key parts of Trump’s 2016 base — say it’s a good idea.”
Republicans have also handed Democrats an opportunity to regain the mantle of the party of working- and middle-class voters. (“What’s more, the NBC/WSJ poll finds 63 percent of Americans who think the Trump tax plan was designed mostly to benefit corporations and the wealthy, compared with 22 percent who believe it was designed to help all Americans equally. Just 7 percent say it was designed mostly to help the middle class.”) They’ve now convinced a plurality of Americans (35 percent vs. 30 percent) that Democrats would do a better job on the economy — “the Democrats’ first lead on this question in the poll since February 2013.”
Democrats have a chance to construct a responsible alternative to this debt-generating, reward-the-donors tax legislation. Democrats can propose that tax benefits going to big corporations and to the rich go instead to the working class (e.g.. via a hike in the earned-income tax credit) or toward further tax reductions for the middle class (e.g., make the cuts permanent, remove provisions designed to pummel voters in blue states) and/or to be used for worthy endeavors that address wage stagnation (e.g., new infrastructure, worker training). Republicans would be stuck defending giving tax goodies to the super-rich.
We don’t think the legislation is the most atrocious bill ever conceived, as some Democrats say. (For one thing, the GOP’s Obamacare repeal bills were much worse. For another, let’s not forget a doozy such as the Fugitive Slave Act.) Nevertheless, the GOP’s work product evinces a stunning lack of forthrightness, intellectual vigor and concern for growing income inequality, which contributed to Trump’s rise in the first place.
It is a missed opportunity to create bipartisan, sensible tax reform. As the Committee for a Responsible Federal Budget put it: “This is the wrong legislation at the wrong time. This country desperately needed tax reform — we needed to get rid of antiquated and distorting tax breaks in order to finance a more efficient and pro-growth tax code. Instead, Congress is passing what could ultimately be a $2 trillion tax cut with far too few reforms — the bill might actually increase the number of tax breaks. … With massive debt, exploding deficits, and entitlement programs racing toward insolvency, our current path is unsustainable. Policymakers need to act soon to begin righting the ship, and sadly this tax bill steers us further in the wrong direction.”
We hope the Democratic Party has the good sense not to race into Sen. Bernie Sanders’s arms, but rather to present a centrist economic approach that Republicans are incapable of offering. In the meantime, our debt situation worsens and the pressure to cut spending on the very items that might address contemporary problems grows. This is no way to cool populist fevers or address needs of the “forgotten man and woman.”