House Republicans finally revealed their tax plan this past week. They received some swift and fierce pushback, which suggests this might be more difficult than they expected. Right now we see six areas of concern.
First, who needs it? Approximately 45.5 percent of American households pay no federal tax, meaning they get nothing from this tax bill. In fact, when you figure in Medicaid cuts to pay for this, the poor could very well end up worse off. The notion that we need this bill to create jobs is hard to maintain when unemployment is down to 4.1 percent (“That would be below the 4.3 percent where Fed officials in September estimated it would be by year’s end,” the Wall Street Journal’s David Harrison writes. “It also is well under the 4.6 percent jobless rate Fed officials see as the threshold for a labor market running at full steam, a level known as ‘full employment.’ Most central bankers believe a labor market this tight should soon fuel higher inflation.”) Since the vast majority of the tax breaks go to the very rich, their heirs or corporations (which are already hiring in a full-employment environment), the rationale for this kind of tax bill is not consistent our current economic circumstances.
Deficit hawks won’t like it. The Committee for a Responsible Federal Budget finds, “According to the Joint Committee on Taxation (JCT), the TCJA would increase deficits by $1.487 trillion over 10 years. Those deficits would lead to higher debt, resulting in $270 billion in additional interest costs. As a result, the legislation would add $1.75 trillion to the national debt by 2027.” That is not all, however. “Three major provisions in the bill arbitrarily expire after five years, making them look much cheaper than they actually are. There is no legitimate policy justification for these sunsets—the intent is clearly to force Congress to extend them in the future. Doing so would add over $350 billion to the cost of the bill.” (And if Congress rejects cuts in Medicare and Medicaid in the spending bill, the debt will go up even more.)
The health-care bill is back. Sen. Tom Cotton, R-Ark., and other staunch conservatives want to use the tax bill to—one more time!—get rid of the individual mandate in Obamacare. That proposal failed in the health-care debate and would likely lose all Democratic votes in the Senate plus those of Republicans who already objected to GOP health-care bills.
Home builders and real estate agents won’t like it. These two groups fear that the lowered cap on the mortgage interest deduction plus the big increase in the standard deduction (meaning fewer itemizers) will wallop the housing industry. The head of a home builders group declared, “What we’ve seen is that when house values start to go down, it spreads to the next market after that, and another market, and the next thing you know you have a housing recession.” There are home builders and real estate agents in every state, and if they make a big push, that will spell trouble for vulnerable lawmakers.
Charities won’t like it. The increase in the standard deduction also means many individuals won’t get the tax break for charitable giving. (“The tax reform bill unveiled today by the House Ways and Means Committee would tragically undermine the ability of certain charitable nonprofits to serve our country’s people and communities,” the chief executive of a nonprofit group has claimed.) Universities get hit again by a new tax on endowments. Once again, there are nonprofit organizations in every city—and they will have sympathetic clients whom the nonprofits will say will go without help.
Corporations aren’t people. The administration’s argument that the bulk of corporate tax cuts goes to boost workers’ wages is disputable from a policy standpoint. From a political standpoint, tax cuts for corporations are hugely unpopular—especially if they take up so much of the tax bill that there is a smidgen ($300 billion) left over for individual tax cuts.
None of this is to say some kind of tax bill won’t pass. However, the immediate, negative response shows there is a long way to go before Republicans will be able to claim any kind of legislative win. And if you are a betting person, you might want to wager that the final bill will be a lot smaller than Republicans wanted.
The immediate, negative response shows there is a long way to go before Republicans will be able to claim any kind of legislative win.