By the end of this week, the Senate is expected to vote on the tax cut bill reported out of the Senate Finance Committee earlier this month. Changes in the bill will likely be made right up to the end, as Republican leaders struggle to secure the 50 votes needed to approve the bill under budget “reconciliation” rules (normally, it takes 60 votes to move major bills through the Senate).
At least six Republican Senators are reported to have serious concerns about the bill, either because they fear it would add too much to the deficit or because it favors large corporations more than small business owners. If three or more of those Senators end up opposing the bill (and no Democrats break ranks and support it), the bill will die. For the reasons outlined below, it should.
Equity is in the eye of the campaign contributor
As was the case with the tax bill passed by the House on November 16th, there’s been a fierce debate over the distributional impacts of the Senate bill.
The nonpartisan Tax Policy Center finds that if the bill becomes law, most taxpayers would see a reduction in their tax bills in the years out to 2025 – although the cuts would be heavily skewed towards the top 1 percent of the income distribution (households with more than $750,000 in annual income).
But this changes dramatically in 2026 and beyond, because of Senate Republicans’ decision to make the corporate tax cuts permanent while sunsetting the individual tax cut provisions after 2025 (they did this to comply with the prohibition on increasing the deficit after ten years when using the reconciliation process). As a result, by 2027, the TPC projects that some 50 percent of taxpayers would see an increase in their tax bills, while only 28 percent would still be getting a tax cut. And once again, the impacts would be skewed: for taxpayers with incomes in the top 0.1 percent of all Americans, less than 2 percent would see an increase in their taxes, while 98 percent would enjoy a tax cut averaging nearly $224,000 in 2027 alone.
The Senate bill also eliminates the tax penalty that individuals who choose not to purchase health insurance must pay under the Affordable Care Act, in order to achieve deficit reductions that can be used to offset the cost of the permanent reductions in corporate tax rates.
The Congressional Budget Office estimates this will reduce the deficit by $338 billion over the next ten years, as the number of Americans with health insurance would decrease by 13 million by 2027, reducing government outlays both for Medicaid and for subsidies for individuals purchasing health insurance in the ACA’s marketplace. Meanwhile, health care premiums would increase by 10 percent for individuals in the non-group marketplace, compared to the baseline.
This is Robin Hood in reverse – robbing the poor to pay the rich – and represents yet another effort to dismantle the Affordable Care Act without putting anything credible in its place to deal with the health care needs of millions of Americans.
Some Republicans have claimed that the Senate’s tax cuts will largely pay for themselves as a result of higher economic growth rates. But analysis using a highly-respected economic model estimates the Senate bill would increase the deficit by some $1.4 – 1.6 trillion over the next ten years; this closely tracks the $1.4 trillion deficit increase estimate by the official Congressional scorekeeper, the Joint Committee on Taxation. And of course, these estimates assume that Congress allows the individual tax cuts to expire after ten years, allows the generous business deduction for investments in factories and equipment to expire after five years, and allows other tax increases scheduled to take effect in 2026 to stand. If (as is more than likely) those provisions were to be reversed by a future Congress and President, the resulting deficit would swell further, creating even greater pressure for cuts in Medicaid, Medicare, food assistance, and other programs that benefit low- and middle-income families, along with reduced investments in scientific and medical research, education and job training, infrastructure, and other public goods.
As I’ve noted previously, 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. All of 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).”
The aging of the American population, continued increases in health care costs, the need to replace crumbling infrastructure and pay billions to help communities devastated by hurricanes and wildfires, and other factors will drive a substantial increase in federal spending over the next few decades.
One estimate is that federal spending will need to grow from 20.9 percent of gross domestic product (GDP) to 23.5 percent of GDP by 2035, largely as a result of increased costs for Social Security, Medicare, and Medicaid. In order to keep the national debt from growing faster than the overall economy, federal revenues will need to increase from some 17.8 percent of GDP in 2016 to at least 20.5 percent in 2035.
The need to increase spending on entitlement programs such as Social Security and Medicare, along with pressure to maintain (or increase) defense spending, will continue to squeeze NDD expenditures in the years ahead, even without the higher deficits created by the Senate Republican tax cut bill.
The game plan is clear as can be: pass massive tax cuts that add hundreds of billions of dollars each year to the deficit, then starting next year, use those higher deficits as an excuse for slashing programs that benefit middle- and lower-income Americans.
There’s a better way
The outcome of this week’s Senate action on the tax bill will not only determine whose tax bills will go down (or up) and by how much, important as that is; it will also impact America’s ability to maintain our global leadership on scientific and medical research and technology innovation, improve our 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 make investments in other critical areas.
Senators face a momentous choice. They must refrain from handing out trillions of dollars in tax breaks to profitable corporations and the wealthiest Americans, while eroding health care coverage and laying the groundwork for deep cuts in a broad range of important federal programs down the road. Instead, they should start over, and work across the aisle to craft a real tax reform 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, without exploding the deficit and endangering the ability of the federal government to meet America’s current and future needs.
We know it’s possible to legislate in such a responsible, bipartisan manner; after all, it’s happened before.