Republicans are trying to sell their tax bill based on what can be described as the values of simplification. If you listen to House Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady, you’d think they’re asking Americans to sacrifice provisions in the tax code that might benefit some of us, for the collective benefit of a simpler tax code that will benefit all of us—lower rates, simpler and quicker filing, and a system so simple that the well-off would not be able to use complex strategies to avoid paying their share.
Unfortunately, even a cursory look at the Republican tax bills reveals that instead of fulfilling the values of simplification, it would simply use simplification as a guise to restructure the tax code to favor the most well-off earners and corporations at the expense of middle-class America and the working poor.
To have the moral authority to go to the general public with a call for sacrifice in the name of simplification, an administration needs to be able to say, “We had no choice.” It must be able to argue convincingly that it asked those who were most well-off to do their part—or at least ensured not one additional penny went to the top 1 percent which has taken a dramatic share of income gains over recent decades—but that it was still not enough. It has to argue that it could not offer the lower rates and other benefits of simplification unless everyone was willing to give up even compelling tax preferences—that it had no choice.
That’s not what these tax plans would do. A tax plan that’s built on the foundation of a massive net corporate tax cut, a massive pass-through loophole for millionaire investors (the House gives more than $400 billion to business owners making more than $260,000, while Senate version likely gives about half of its benefits to the top 1 percent), and between $83 and $151 billion to estates worth over $11 million per couple is not only regressive and deficit-busting, but lacks the moral authority required to ask working Americans to make any sacrifice.
That is why the effort to sell the House bill rings hollow. The House Republican leadership and the Trump administration are claiming they had no choice but to ask 8.8 million families dealing with excessive medical costs who would lose their deductions under the bill, or the more than 3 million teachers who will lose their deduction for buying supplies for their students, or the struggling rural and urban communities who will be denied the New Markets tax credit, or the millions of students, graduate students, and workers in need of new skills who will lose billions of dollars collectively as graduate school scholarships are taxed and the Lifelong Learning Credit is eliminated to make those sacrifices.
But they did have a choice. If they hadn’t chosen to shelter the handful of the richest estates from any taxation, they could have largely avoided eliminating the important tax benefits to working families mentioned above. This was a choice to help the wealthiest estates over teachers, students, workers, poor neighborhoods and families dealing with exceptional medical costs. It was about the math of that choice—not the values of simplification.
House Republican members facing constituents at town meetings will need to explain to a family making $85,000, with $30,000 of medical costs for a child with Down syndrome or autism, why they had no choice but to vote to deny them over $21,000 in medical deductions, while they saw fit to give as much as $151 billion to a handful of the United States’s very wealthiest families.
Likewise, the Senate bill is being sold as if raising taxes on millions of middle-class and working-poor families were just an inevitable sacrifice required by tax simplification. It is stunning that a modern political party could give itself procedural permission to pass $1.5 trillion in deficit spending and still manage to raise taxes on tens of millions of working families. The Senate plan has been shown by the Congressional Budget Office to negatively impact taxpayers making under $30,000 by 2019 and result in a net transfer of resources away from households making under $40,000 by 2025. According to the Tax Policy Center, it would increase taxes on 87 million households with incomes under $200,000 by 2027—including 66 percent of households with incomes between $50,000 and $75,000.
Those outcomes are not unavoidable consequences of simplification, but the result of conscious choices. President Obama designed two major tax cuts—the Make Work Pay tax credit and later a payroll tax cut—that gave all working families serious relief at a cost below either of the Republican tax plans, without raising a single penny from a single middle-class or working-poor family. The GOP plans could have prevented tax increases on all of these tens of millions of families—and avoided the need to make some middle-class tax cuts temporary—by simply choosing not to deliver a nearly $1 trillion net tax cut to large and well-off pass-through businesses, including well-off passive investors, as well as other significant net tax relief to the top 1 percent of earners—those with incomes over $900,000 in 2027.
Indeed, the corporate tax cut was not only a choice—it was a recent and reckless choice. For most of the last decade even staunch Republican reformers recognized that while the top corporate rate in the U.S. is high relative to that of other developed countries, the average net tax that corporations actually pay is in the middle of the pack. Reform that eliminates corporate tax expenditures and lowers rates could and should be deficit-neutral. Indeed, corporate reform efforts such as those proposed or supported by the Bush administration’s Treasury Department, former Ways and Means Chairman Dave Camp, and the Business Roundtable all sought to lower rates no lower than 25 percent while calling for deficit neutrality. As recently as this spring, Ryan, Brady, and Mitch McConnell all called for overall tax reform that would not increase the deficit. The recent decision to give the corporate sector a major net tax cut was not compelled by the need for simplification. It was instead a decision to bypass the tough decisions required for deficit-neutral reform in favor of caving to corporate lobbyists and donors.
And finally, there is the question of whether this tax plan even leads to meaningful tax simplification. Although it takes away tax benefits that help working families under the guise of simplification, the new GOP pass-through provisions are more like a full-employment act for tax lawyers and accountants: They create an unprecedented incentive for high earners to lower their taxes by organizing as an eligible pass-through or passive pass-through investor. And, as I wrote in an earlier column here, the House and Senate versions would create new complexities and loopholes through their papier-mâché global minimum tax, that could significantly increase the profitability of engaging in complex strategies to permanently avoid taxes through strategies to both shift operations and profits overseas. That’s the opposite of simplification.
The House bill in particular purports to do graduate students and families with excessive health costs a favor by saving them the 45 minutes it might take to fill out an extra form, but which will cost them thousands of dollars, while incentivizing the most affluent taxpayers to pursue elaborate and market-distorting tax shelters that will save them far more.
Budget and tax plans are all about choices and values. The Republican plans aren’t about the value of simplification—instead, these bills show what Trump and the GOP leadership most value. It’s not America’s hard-pressed working families.