Congressional Republicans are putting the final wrappings on the Christmas present President Trump promised – a “giant, beautiful, massive, the biggest-ever-in–our-country, tax cut” for the middle class. So they don’t spoil the surprise, Republican leaders have been doing this without much scrutiny. The rest of us have been left shaking the box to figure out what’s inside.
The diligent Capitol press corps has been sneaking peaks, hearing rumors, and giving us some hints. For example, to help pay for tax reform, between 5 million and 13 million Americans will be left without health insurance, according to analyses by S&P Global Ratings and the Congressional Budget Office (CBO) respectively. Those who can still afford insurance will have to pay higher premiums. So, insofar as middle-income taxpayers see less money withheld from their paychecks, their tax savings may be offset by higher health care costs and insurance premiums. Santa giveth and Santa taketh away.
Second, Republican leaders are logrolling to get enough votes to send the bill to Trump. Logrolling is the practice of giving a favor to get a favor. Sen. Lisa Murkowski’s vote for the bill reportedly has been secured by attaching a provision that opens Alaska’s Arctic National Wildlife Refuge (ANWR) to oil and gas production. Energy production has been banned at ANWR – often called America’s last great pristine wilderness ― since 1980. For years, legislation to lift the ban has failed on its merits. Now it may ride into law on the coattails of the tax bill. Never mind that the number of existing but unused oil and gas leases on federal lands reached record levels last year.
When Congress attaches a lot of extra giveaways to a piece of legislation, it’s called a Christmas tree bill. Oil drilling in ANWR is one ornament on this bill. There may be others.
Next, the promise that tax reform will benefit the middle-class is based largely on the assumption that corporations and wealthy Americans will use their tax savings to expand businesses and create jobs. But history shows that is not likely to happen.
Major American corporations already are awash in cash. Moody’s anticipates that the amount of corporate profits being hoarded overseas will reach $2 trillion by the end of this year. The GOP tax bill reportedly will give companies a special tax break for bringing those profits back to the U.S.
However, Congress gave a “tax holiday” in 2004 to companies that repatriated their overseas money. The Center on Budget and Policy Priorities found that CEOs used it to repurchase shares to raise the value of their stocks and to pay dividends to shareholders. “Moreover, many firms laid off large numbers of U.S. workers even as they reaped multi-billion-dollar benefits from the tax holiday and passed them on to shareholders,” the Center found.
Since 80 percent of stocks are owned by the top 20 percent of income earners, relatively few middle-income families will benefit.
The package reportedly contains a reduction of the corporate income tax from 35 percent to 21 percent, based on the argument that the U.S. rate is the highest among developed economies. But according to the CBO’s latest data, profitable companies actually pay an average of 18.6 percent (called the “effective” rate), thanks to the array of tax breaks Congress has approved at the behest of lobbyists over the last 30 years.
The Institute on Taxation and Economy Policy studied the tax filings of Fortune 500 companies over the last eight years. It found that 258 profitable companies paid a tax rate of 21.2 percent on their U.S. profits. Their tax breaks totaled nearly $530 billion. Other companies paid no taxes at all in one or more of the eight years. Electric utilities payed an average of just 3 percent. Oil and gas companies averaged only 11.2 percent while telecommunication companies paid 11.5 percent and internet service companies paid 15.6 percent.
Then there are the impacts of the $1 trillion to $1.5 trillion in new federal debt required to pay for the tax bill. It’s as though the gift we get from Congress will come with an invoice inside. If the additional debt were $1.4 trillion, taxpayers would end up paying nearly $260 billion in interest, according to the Peter G. Peterson Foundation. “Higher interest rates make it harder for families to buy homes, finance car payments, or pay for college,” the foundation points out. “Vital safety net programs (like Medicare and Social Security) would come under even greater budgetary pressure, threatening support for those who need them most.”
Plans to cut holes in those vital safety nets already are underway. House Speaker Paul Ryan has said openly that Republicans will try to cut entitlement programs such as Medicare next year to reduce the debt the tax bill creates. In other words, elderly and low-income Americans who need social safety nets the most would have to sacrifice to help sustain tax cuts for other taxpayers including corporations and wealthy Americans.
If these features end up as part of the GOP’s “tax reform” package, there is still an opportunity to return it to Santa’s workshop. The Senate and House are required to approve the bill without changes. Despite its pretty wrappings and all the anticipation it has created, the tax bill does not appear to be the gift the middle class was promised.