Desperate for a policy win, Republicans have proposed “tax reform”, which is really an attempt to reward their base at the expense of the rest of us. Whether you look at the 429 page (really? Who reads all of that) House of Representatives version (which reduces the number of tax brackets, raises the standard deduction, eliminates the personal deduction), or the equally long Senate version that does some of the same (the Senate keeps the seven tax brackets, as is presently the case), the consistency between the two versions is that the corporate tax rate will be cut from 35 percent to 20 percent).
Cutting the corporate tax rate will cost more than $1.5 trillion, an astounding sum from the so-called “deficit hawks” who have previously said that adding to the deficit is bad news. Now, because they can’t “repeal or replace” the Affordable Care Act, and have kept none of their other promises, their goal is to get a tax bill passed, no matter what the cost. Ordinarily, significant changes in the tax code would be the subject of hearings and debate. This time around, Republicans would rush this thing through “by Thanksgiving”. That’s hardly enough time to read the whole bill, much less react to it.
I call it tax deform, not tax reform, because many of the proposals are just deforming outcomes for people in the middle and at the bottom. For example, eliminating the personal deduction works against families who have three or more children. Eliminating some deductions hurts, for example, teachers who spend about $500 a year from their pockets to buy school supplies. Increasing the amount of the childcare deduction works against low-income families if what is now a credit is changed to a deduction. With a credit you get money back if the credit is more than the tax you owe. With the deduction you get no money back.
All of these changes are designed to make up for the revenue that will be lost by cutting the corporate tax rate. State and local tax exemptions are on the chopping block, which will hurt people who live in high-tax states like New York and California (incidentally, states that voted against 45). The ability to deduct mortgage interest will be curtailed for people whose homes cost more than $500,000. In some places, like Manhattan, parts of Washington, DC and San Francisco, $500,000 may not buy much. But Republicans need a win, and they are willing to do almost anything to get it.
So they are willing to tax university endowments, even though those endowments generate much needed-operating funds and scholarship dollars for colleges and universities. On the other hand, they have proposed changing the 539 (the funds that parents can use to set aside money for their children’s education) so that these funds can also be used to fund private education. Meanwhile, through the budget, public education is being cut. And though deductions are being eliminated for individuals, corporate loopholes remain.
The good news is that the House and Senate have different versions of tax cuts (let’s cut the nonsense and stop calling it reform), and they will have to negotiate some compromises to get a bill through. The bad news is that both houses agree that the corporate tax rate should be cut, no matter what kind of deficit it causes. We’ve walked down this “trickle down” path before. The theory is that if you cut corporate taxes, corporations will have more money to pump into the economy, and that will generate jobs and more economic growth, which will generate more tax dollars. There is no evidence whatsoever that such a theory works. Indeed, it didn’t work when Ronald Reagan was President, and most recently, bailing the banks out in 2008 didn’t pump more money into the economy as the theorists hoped. Instead, banks held onto the money many hoped they would invest, and tightened credit requirements making it more difficult for individuals and businesses to borrow, and impeding growth.
Why are Republicans so intent on rewarding corporations at the expense of individuals, especially those with incomes below $100,000? Because too many of them have been bought and paid for by their corporate interests. And we know the millionaires and billionaires in Congress and the White House will benefit from these changes. We just don’t know by how much, since 45 has still not released his tax returns.
The man who said he’d stand for the working class is standing beside the tax reform that will hurt them. But they voted for him, believing his hype.