The tax bill’s short-term buzz
This rushed and reckless proposal may make people happy, briefly. But the fiscal hangover will be bad.
Ocongressional Republicans stand on the verge of passing a rushed, ill-thoughtout and deeply unpopular piece of legislation that would affect a huge swath of the American public — this time, a big tax cut for corporations and high-income individuals that the House and Senate could approve as soon as Wednesday. A recent survey by Harvard University and the Harris Poll found that almost twothirds of those interviewed opposed the Senate version of the bill, even though nearly as many favored its stated goals of reforming the tax code and reducing the tax burden.
Naturally, House Speaker Paul D. Ryan (R-Wis.) is untroubled by the public’s repudiation of his work. Once the bill becomes law, he says, the benefits will become obvious “Results are going to be what sells this bill,” Ryan told the Associated Press, “not the confusion before it passes.”
By “results,” however, Ryan is focused on the short term: the extra income most Americans are likely to see next year. The bill’s combination of lower rates on individuals and businesses, a bigger standard deduction and larger tax credits for dependent children is projected to lower the taxes paid in 2018 by most Americans, rich or poor.
But those savings are merely the sugary icing on a toxic cake that will only worsen the federal government’s fiscal diabetes, as deficits deepen, spending cuts become unavoidable and the tax cuts themselves wither in the face of inflation before expiring.
Although the problems with the bill are legion, a few stand out. The first is that the measure is projected to add more than $1 trillion to the federal debt over the coming decade, even assuming a modest-at-best spurt in economic growth. The actual loss in revenue is likely to be far higher — the bill’s authors made many of the tax reductions temporary to hold down the cost, knowing full well that future Congresses will be hardpressed not to extend them. The result of this budget-busting profligacy is that the bill’s winners will be partying on somebody else’s dime.
We may soon see who the biggest losers will be. Republicans are expected to push for deep cuts in costly federal programs for the poor and the elderly in the name of the very fiscal responsibility they’re ignoring. Rising costs in healthcare programs like Medicaid and Medicare pose a long-term challenge for Washington, but slashing tax revenue only makes it harder to stem the tide of red ink.
And even if you ignore the attacks to come on the safety net, the bill is manifestly unfair.
Wealthy individuals will see their taxes cut by a larger percentage than middle- and lower-class ones. People living in high-tax states with high property values — in other words, blue states like California and New York — could feel a double whammy of higher federal taxes and lower property values caused by the loss of crucial deductions. In the entertainment industry, rank-andfile performers stand to lose tax breaks for all-but-unavoidable business expenses, while higher-powered performers with crafty tax accountants won’t.
The bill will also make life worse for people who’ve endured catastrophic losses. Today, taxpayers can deduct from their income any uninsured losses from a natural disaster, accident or theft. Under the bill, those losses would be deductible only if they stem from a federally declared disaster. At least six major wildfires in California haven’t received that declaration over the last 15 years, including Kern County’s worst blaze on record, the 2016 Erskine fire that destroyed 290 homes and claimed two lives.
Whole sections of the measure are indefensible as tax policy. A key provision of the Affordable Care Act — the requirement that adult Americans buy health insurance — is being eliminated simply because doing so will free up billions of dollars for tax cuts by prompting millions of Americans not to sign up for federally subsidized coverage. A portion of the Arctic National Wildlife Refuge would be opened to drilling because that, too, would generate revenue for tax cuts.
The measure also fails in its stated mission to simplify the tax code. Instead, it introduces complex new rules that will encourage taxpayers to reclassify what they do or where they do it to cut their tax bills. That defeats one of the main purposes of tax reform, which is to reduce the incentive and opportunity for people to game the system.
As with the GOP’s heedless race to repeal and replace Obamacare, the party’s rushed, haphazard approach to tax reform feels like a long weekend of binge drinking. It may be fun for them while it lasts, but it’s sure to be followed by a head-splitting fiscal hangover. Unfortunately for Republicans, there don’t seem to be enough soberminded members to stop this bill before it’s too late.