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What’s Tax “Reform” Got to Do with Science and Public Well-being?

, director of strategy & policy | October 5, 2017, 9:03 am EDT
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This post is a part of a series on Understanding the Budget

In the days since the “Big Six” group of Congressional leaders and Trump administration officials unveiled the outlines of their tax “reform” proposal, there’s been a fierce debate—and rightly so—over who stands to win and who lose. Will the average working American get anything significant from this tax plan, or are most of the benefits skewed towards the wealthy and profitable corporations?  More on this in a minute.

What’s gotten less attention is the impact of this plan on the public science enterprise and the well-being of all Americans.

An unprecedented assault

Federal government investments in science research and innovation have led to discoveries that have produced major benefits for our health, safety, economic competitiveness, and quality of life.  This includes MRI technology, vaccines and new medical treatments, the internet and GPS, earth-monitoring satellites that allow us to predict the path of major hurricanes, clean energy technologies such as LED lighting, advanced wind turbines and photovoltaic cells, and so much more. The work of numerous federal agencies to develop and implement public and worker health and safety protections against exposure to toxic chemicals, air and water pollution, workplace injuries, and many other dangers has also produced real benefits.

These essential programs are already under unprecedented assault. UCS president Ken Kimmell has called President Trump’s proposed FY18 budget “a wrecking ball to science.” Others at UCS have detailed the devastating impacts of Trump’s proposed budget cuts on the Environmental Protection Agency, the Department of Energy, the Department of Agriculture, the Federal Emergency Management Agency, the National Oceanic and Atmospheric Administration, worker health and safety, the Forest Service, and early career scientists.

UCS and our allies are pushing back hard on these proposed budget cuts, and we remain vigilant to ensure that when Congress takes final action on the FY18 appropriations bills in December, these irresponsible cuts will be rejected.

All these programs (along with veterans’ care, homeland security, transportation and other infrastructure, law enforcement, education, and many other core government programs) fall within the non-defense discretionary (or NDD) portion of federal spending, which has been disproportionately targeted for spending cuts over the last decade. As an analysis by Paul Van de Water of the Center for Budget and Policy Priorities points out, “NDD spending in 2017 will be about 13 percent below the comparable 2010 level after adjusting for inflation (nearly $100 billion lower in 2017 dollars).”

Even if the draconian Trump budget cuts are beaten back, the very real need to increase spending on entitlement programs such as Social Security and Medicare, along with a push by many in Congress to maintain (or increase) defense spending, will continue to squeeze NDD expenditures in the years ahead.

Creating long-term pressure on essential programs

Here’s where the Republican tax plan comes in, as it will almost certainly reduce government revenues substantially and add to the national debt. While Treasury Secretary Steven Mnuchin told ABC News that the tax plan would generate higher economic growth rates and “will cut the deficit by $1 trillion,” few independent economists agree with that rosy outlook.

The Committee for a Responsible Federal Budget estimates the plan could increase the deficit by $2.2 trillion over the next decade; CRFB president Maya MacGuineas cautioned that “tax cuts shouldn’t be handed out like Halloween candy,” and said they “certainly don’t pay for themselves.”

Senate Republicans openly acknowledge that the tax plan will increase the deficit; the Budget Committee resolution that they plan to put before the full Senate for a vote later this month contains reconciliation instructions to the Finance Committee that would allow the deficit to increase “by not more than $1.5 trillion over the next 10 years.”

Deficit spending is sometimes justified, such as for investments in infrastructure, education, public health, and other forms of physical and human capital that more than pay back over time, or to kick-start the economy when unemployment is high. But that’s not the case here; as discussed below, the bulk of the benefits from this plan would flow to the wealthiest Americans, with low- and middle-income Americans receiving only modest direct benefits, if any.

Moreover, the resulting increase in the federal deficit would lead to louder calls for cuts in programs that benefit low- and middle-income Americans, including food assistance programs, student loans, unemployment insurance, economic development, and worker retraining.  As another analysis by the Center for Budget and Policy Priorities put it, “the majority of Americans could ultimately lose more from the program cuts than they would gain from the tax cuts.”

The government needs more revenue, not less

Looking down the road, it’s clear that the aging of the American population, continued increases in health care costs, the need to replace crumbling infrastructure, and other factors are creating pressure for federal spending to increase substantially over the next few decades.

The Center for Budget and Policy Priorities estimates that to accommodate these factors, federal spending will need to grow from 20.9 percent of gross domestic product (GDP) to 23.5 percent of GDP by 2035. This is largely driven by increased costs for Social Security, Medicare, and Medicaid; CBPP projects that defense and non-defense discretionary spending will decrease somewhat as a share of GDP over the next couple of decades. As the CBPP report observes, the need to increase federal spending is “hardly a controversial notion. Budget plans from such diverse organizations as the National Academy of Sciences, the Bipartisan Policy Center, and the American Enterprise Institute have reached the same conclusion.”

To keep the national debt from growing faster than the overall economy, CBPP estimates that annual budget deficits need to be held to an average of 3 percent of GDP; this in turn means that federal revenues should increase from some 17.8 percent of GDP in 2016 to at least 20.5 percent in 2035. There are any number of ways to do this, from closing special interest loopholes in the tax code to putting a tax on carbon dioxide emissions or other forms of pollution. Of course, given the current political realities in Washington, no one expects a serious discussion of this issue anytime soon; the current challenge is just to avoid making the situation worse.

Tax fairness: the rhetoric and the reality

President Trump and Republican leaders insist that their aim is to provide tax relief for the middle class, and that taxes won’t be cut for wealthy Americans; President Trump even asserted that this tax plan is “not good for me. Believe me.”

But a preliminary analysis of the framework by the Tax Policy Center found otherwise. While acknowledging that several details remain to be filled in, TPC estimates that in 2018 under the “Big Six” plan, “taxpayer groups in the bottom 95 percent of the income distribution would see modest tax cuts, averaging 1.2 percent of after-tax income or less. The benefit would be largest for taxpayers in the top 1 percent (those making more than $730,000), who would see their after-tax income increase 8.5 percent.”

Over half of the total benefit of the tax cuts would accrue to taxpayers in the top 1 percent, increasing to nearly 80 percent of the benefits by 2027. Others have examined how the elimination of the alternative minimum tax, the abolition of the estate tax, and several other provisions of the plan would personally benefit President Trump—and his heirs.

Private interests vs. the public good

It’s clear that the stakes in the tax debate now under way in Washington are not just about the critical issue of whose tax bills go down (or up) and by how much. The outcome will also have an impact on our ability to maintain America’s global leadership on scientific and medical research and technology innovation, improve air and water quality, avert the worst impacts of climate change (and cope with the impacts we can’t avoid), upgrade our transportation, energy, and communications infrastructure, and many other important issues.

It’s hard to dispute the need for real tax reform—a plan that clears away the dense thicket of special interest loopholes and simplifies the tax code, in a way that’s equitable to all Americans. But that’s not what’s on offer right now—instead we’re seeing a drive to give trillions of dollars in handouts to profitable corporations and the wealthiest Americans, while laying the groundwork for deep cuts in a broad range of important federal programs down the road.

Our elected officials can – and should – do much better than this; if they’re unwilling to, they should observe the Hippocratic oath, and “first do no harm.”

 

 

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  • Juliet McLean

    Thank you for taking the time to write this article.