Republican tax plan would help the rich while ballooning the deficit
Republican tax plan would help the rich while ballooning the deficit
FILE - In this Sept. 28, 2017, file photo House Ways and Means Chairman Rep. Kevin Brady, R-Texas, arrives for a news conference on Capitol Hill in Washington. Brady, one of the chief architects of the sweeping tax revamp proposed by President Donald Trump and congressional Republicans isn’t yet saying whether promised cuts under the plan would be retroactive to the start of the year. “To be determined” was the response Oct. 2 from Brady. ( AP Photo/Jose Luis Magana)
Republicans used to think of themselves as the party of fiscal responsibility, but that label clearly is outdated.
A nine-page “framework” for tax changes endorsed by the White House and congressional leaders makes that clear. Abandoning earlier talk of deficit-neutral tax reform, Republicans have made clear that they want to slash tax rates without closing enough loopholes to pay for the cuts.
A draft budget resolution in the Senate would allow tax cuts to inflate the national debt by $1.5 trillion over a decade. A couple of independent analyses say the Republican framework might be an even bigger budget-buster than that.
The Committee for a Responsible Federal Budget puts the 10-year cost at $2.2 trillion. The Tax Policy Center estimates that the tax outline would reduce revenue by $2.4 trillion over the next 10 years and $3.2 trillion in the decade after that.
Such numbers have been labeled “fiction” by Kevin Hassett, chairman of the Council of Economic Advisers, but they’re the best we have.
Roberton Williams, a fellow at the Tax Policy Center, admits that analysts lack key details. The Republican tax plan calls for individual tax rates of 12, 25 and 35 percent, for example, but doesn’t say what income levels those rates apply to.
On such questions, the center made assumptions based on earlier Republican proposals. Even if some details change, it’s clear that congressional leaders have ditched simplification and efficiency arguments in favor of a big, deficit-increasing tax cut.
“They aren’t looking to make it budget-neutral,” Williams says.
The Tax Policy Center calculates that the tax cut would overwhelmingly benefit the richest Americans. Half of the benefits would go to the highest-earning 1 percent, whose after-tax incomes would rise by 8.5 percent. Middle-class incomes would get a boost of only 1.2 percent.
Distribution effects of GOP tax framework
Estimated change in after-tax income
Top 0.1 percent
Top 1 percent
Top 5 percent
Highest quintile
Fourth quintile
Middle quintile
Second quintile
Lowest quintile
10.2
8.5
2.3
3.3
1.2
1.2
0.9
0.5%
10.2
SOURCE: Tax Policy Center
DATASHARE×
Place in income distribution estimated income change
Lowest quintile 0.5
Second quintile 0.9
Middle quintile 1.2
Fourth quintile 1.2
Highest quintile 3.3
Top 5 percent 2.3
Top 1 percent 8.5
Top 0.1 percent 10.2
DISTRIBUTION EFFECTS OF GOP TAX FRAMEWORKDOWNLOAD CSV×
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Administration officials contest this conclusion, but Williams says the framework’s key points make it inescapable. You can’t slash corporate taxes, create a break for people who earn pass-through business income and lower the top individual tax rate without favoring the wealthy.
Still, Republicans probably won’t oppose a tax cut just because it helps the rich. Some still have scruples about fiscal responsibility: Sen. Bob Corker of Tennessee, for one, says he doesn’t support tax cuts that add to the deficit.
The White House is telling deficit hawks that big tax cuts will pay for themselves by stimulating the economy. Williams thinks they could have a positive effect in the short run, but not nearly enough to reach the 3 percent growth rate touted by Budget Director Mick Mulvaney.
Both the Federal Reserve and the Congressional Budget Office project the economy’s long-run growth at less than 2 percent.
The White House’s reasoning assumes that a tax cut will spur businesses to invest more in research and new equipment, but Williams doesn’t believe taxes are holding back such investment now.
“There’s a lot of money in corporate pockets that they could invest, but they’re not,” he said. “They are not seeing enough market opportunities to do things.”
A dynamic analysis of the tax framework also should consider possible negative effects. If deficits get too large they could cause interest rates to rise, which would crowd out private investment.
White House officials keep repeating their 3 percent growth goal as if saying it will make it happen. Based on what we know so far about the Republican tax plan, that number comes more from wishful thinking than from any serious analysis.