As the Republican Congress wraps up its “Tax Reform and Jobs” bill, the committee and floor debates provide a stark contrast on how the two parties see the state of the economy and the role of government.

The Republicans argue that allowing “hard-working taxpayers to decide how to spend their hard-earned money is preferable to letting government bureaucrats spend your money on services you don’t need or want.” They predict that the economy will grow by 4-6% a year and that the deep cuts in what will be permanent corporate tax rates will create hundreds of thousands of new jobs and “jump-start” the economy.

They claim that all tax bracket “cohorts”—household income tax brackets from under $55,000 to over $1,000,000– will, on the average, benefit from lower taxes, while on the Senate side, in spite of deep cuts in medical subsidies and the elimination of the mandate (originally a Republican proposal) under Obamacare, “middle Americans”  will still have tax savings. Also claimed is that over 90% of tax payers will file on post-cards since most itemized deductions will be eliminated, keeping the “rich and special interests from gaming the system.” And, to top it off, they argue that adding over $1.5 TRILLION to the deficit is not a problem (except when government wants to spend more money on essential public services).

The Democrats cry that the sky is falling, that this legislation will produce just the opposite of what is claimed and that, crafted in secret without an ounce of bi-partisanship, destroys the comity of legislative policy consensus. They point out that the huge tax cuts to corporations are permanent, while the tax cuts to individuals will start to phase out as early as 2019 and, by 2027, taxpayers will face huge tax increases. Amendments to make individual tax breaks permanent and corporate breaks temporary fall on deaf ears. Obviously, Republicans expect a future Congress to be loath to roll back individual tax cuts, setting the federal government up for bankruptcy.

What is clear is:

  1. The claims of both sides are political hyperbole.
  2. The removal of a myriad of deductions from the tax code will simplify filing, but have unintended consequences, few of which are predictable.
  3. While “average” tax savings may accrue to certain segments of middle income households, individual taxpayers will be winners and losers, depending on whether they own a home, invest in tax-exempt securities, make charitable deductions, etc.
  4. The Republican argument that high income taxpayers will not gain from a small deduction in their marginal tax rate offset by their loss of deductions is belied by the billions of tax savings for this cohort that is projected. Income inequality will be exacerbated on steroids.
  5. The political fall-out will depend on how much of the Republican economic predictions come true. To their benefit, wages are likely to go up as we are in a “full employment” economy, and they will take credit for it. But if future success is based on past experience, trickle-down economics will fail again.
  6. IF multi-national corporations repatriate their earnings from overseas based on their huge tax reductions and expand domestic production, creating new jobs, Republicans will gloat. But, IF higher earnings only mean a bull stock market with the savings accruing to executive pay, stock options and increased investor dividends, with few new jobs created, Democrats will say, “I said so.”
  7. As soon as this tax bill is approved by Congress and signed by the President, amendments will start to unravel the simplification of the Code, building the tax credit/deduction Christmas tree all over again.
  8. The federal deficit will continue to climb forcing Congress to cut back on entitlements such Medicare, Medicaid and Social Security, revealing the stealth strategy of Republicans to cut social spending.
  9. President Trump’s proposal to spend billions on infrastructure (a sure-fire way to create jobs) may be sidelined because it can only add to the $1.5 trillion hole the Republicans have already dug.

While Democrats have rallied against the Republican repeal and replace of Obamacare, leading to the collapse of repeal and replace, Republicans have slipped in measures in the tax bill to sabotage Obamacare and to gut Medicare and Medicaid. Activists will have a hard time rallying public opinion against such obscure subterfuge.

If Democracy still works, the Republicans haste to gain legislative success by ramming tax changes through Congress could backfire. The results of these tax changes could show up in April 2018, unless Republicans are clever enough to phase them in past the November elections. But that will mean all the promises of spectacular results will be deferred and angry constituents may be fed up with broken promises. While the President’s approval ratings still float under 40% Congress continues to hold even less esteem by the voting public. If enough people are adversely affected by the tax changes, Democrats may ultimately benefit next Fall. Voting losers may outnumber voting winners.

 

by Tim Urban
Posted 11/20/17

3 thoughts on “GOP Tax Reform: Winners And Losers

  1. Great article Tim. The key is in the 4 words of your last paragraph, “If democracy still works”,because it is certainly under siege.

  2. Tim, you say, “But if future success is based on past experience, trickle-down economics will fail again.” Indeed. Trickle-down has never worked, neither here nor anywhere else, but dang! it sure kereps getting pushed! I found it telling when asked, at a forum, I believe, of business people, how many would actually use their windfall to raise wages or provide those benefits promised in the latest trickle-down mirage, all but 4 (maybe, 5) did NOT raise their hands (and the audience was full). At least they were honest crooks.
    And I’m with Dick Goodson; we”ll see “if democracy still works”…

  3. Upshot and simplistic view of this “new” tax plan? The middle class and lower will be depending on the kindness of stranger’s for any help now and in the future. Of course that is my opinion not being under the Presidents less than 40 per cent so I also question the future of democracy.

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