There's an easy way to tell the Republican tax plan from the Republican health-care plan.
The first one would cut the corporate tax rate to help mostly wealthy investors, and pay for some of that by cutting health-care spending for the poor and the middle class. The second one, on the other hand, would cut health-care spending for the poor and the middle class to pay for the capital-gains tax cuts it would give to mostly wealthy investors. See the difference?
Now, there are a lot of ways to think about the GOP's latest tax bill, but the simplest one is this: It would temporarily cut taxes for the middle class the next 10 years (while actually raising them on a number of the working class), before turning into a permanent tax hike on them to help pay for its permanent cuts to corporate taxes. In all, the budget scorekeepers at the nonpartisan Joint Committee on Taxation (JCT) estimate that the Republican plan would, on average, force households making $75,000 to start paying higher taxes by 2027 at the latest. Households making between $10,000 and $30,000 would actually face higher tax bills beginning in 2021.
Even that, though, wouldn't be enough to eventually offset the full cost of its big business tax cuts — which, to comply with Senate rules, it'd have to for Republicans to be able to pass it on a party-line vote — so they'd also get rid of Obamacare's penalty for people who don't buy health insurance. This, according to the nonpartisan Congressional Budget Office (CBO), would counterintuitively save the government $338 billion over the next 10 years for the reason that fewer people would be pushed to find out that they qualify for subsidized, or even free, health-care coverage. The result is that 13 million fewer people would have insurance, and, because the remaining pool of customers would be somewhat sicker, policies would cost 10 percent more.
This is a strange type of populism. The working class and the middle class might, just might, get lower taxes for a little while but would definitely get higher insurance premiums, to the point, as even Sen. Susan Collins (R-Maine) admits, that some of them would be worse off than they are now. Corporations, though, would get to keep their big tax cuts now and forever.
This is a bet on two things. The first is that whoever's in charge of the government in 2026 won't actually let these middle-class tax cuts expire. That, after all, was the case in 2013, when Democrats agreed to renew the George W. Bush tax cuts for everybody but the top 1 percent. And it very well might happen again. The Republican plan, you see, would sunset almost all of its individual tax changes, both cuts and revenue raisers, in 10 years' time. The only exception is it would still have tax brackets increase slower than they do now, so that people would more easily get pushed into higher ones. Regardless, it isn't hard to imagine a future Democratic president extending the twice-as-big standard deduction and child tax credit but letting all the various tax breaks for the rich — the lower top individual rate, the lower pass-through rate and higher estate tax threshold — turn into legislative pumpkins.
The second is the belief that permanent corporate tax cuts, and only permanent corporate tax cuts, would cause such an explosion of growth that they would, as President Trump's top economic adviser Gary Cohn put it, “trickle down” to workers. It's a theory Republicans have taken to such an extreme that former Clinton treasury secretary and Obama economic adviser Lawrence H. Summers says he would be “hard pressed to give it a passing grade” if a “PhD student submitted” it.
There's a real question, you see, about how much of the benefits of a corporate tax cut goes to capital vs. how much goes to labor. That's because it isn't entirely clear to what degree the tax falls on profits from old investments (which hurts shareholders) or on profits that would have gone into new investments (which, by lowering the stock of capital, and, as a result, productivity, hurts worker wages).
There is a mainstream consensus, though: Corporate tax cuts don't help workers that much. The CBO thinks about 25 percent of the benefits go to labor; the JCT says the same; the nonpartisan Tax Policy Center estimates that 20 percent do; and the Treasury Department's Office of Tax Analysis thinks that 18.5 percent do. The Trump administration, meanwhile, claims that somewhere between 300 percent and 675 percent do. This estimate is worth about as much as a degree from Trump University.
It's based on an idea that isn't true, and one that wouldn't even matter if it was. What do I mean by that? Well, the Trump team thinks that the United States is just like Ireland. That cutting the corporate tax rate would cause a flood of foreign money to pour into the country to pay for the type of factories and machines that would make workers better off. This is believable only as long as you don't listen to anything CEOs have to say. Indeed, just the other day, only a handful of them raised their hands at the Wall Street Journal's CEO Council when asked whether the Trump tax cuts would make them increase their capital expenditures. “Why aren't the other hands up?” Cohn asked. The answer, of course, is that U.S. companies, with their record-setting profits, are not capital-constrained right now. If they see a good investment opportunity, they're already making it. They'd just use a tax cut, then, to pay out more money to shareholders. That, at least, is what they've been publicly saying the past few months.
But even if a corporate tax cut really did cause an investment boom of unprecedented proportions, it would cause one funded by foreign money — and that matters. As Paul Krugman points out, we'd have to pay those overseas investors back, so we wouldn't get the full benefit of whatever extra growth there was. We might not even get most of it. In other words, it would help our GDP stats a lot more than our workers. That's certainly been the case in Ireland.
Republicans have left no doubt what their priorities are. Because of the Senate rules, they had to decide between making their middle-class tax cuts permanent or their corporate ones, and they chose the latter. They have some obviously overstated theories about why this makes economic sense, which they may have truly convinced themselves of, but the more cynical motive is at least as important: Their donors are demanding this. Republicans have gone so far as to openly admit this. “The financial contributions will stop,” Sen. Lindsey O. Graham (R-S.C.) said, if they don't cut corporate taxes. “My donors are basically saying, 'Get this done or don't ever call me again,'" concurred Rep. Chris Collins (R-N.Y.). This is the real reason Republicans think the word “reform” means cutting health care for the poor to pay for tax cuts for the rich.
It is difficult to get a politician to help anyone other than the top 1 percent when his salary depends on him not doing so.