So What’s New in Washington? Tax Reform Presentation to Government Accountability Task Force, October 2017
Features of “tax reform” “proposal” • 1986 was a real tax reform – reduce rates but close deductions so that revenues remain about the same but taxes become simpler • This isn’t tax reform – tax cuts • Not really a proposal – more of a concept
• Overall income tax rate reductions (except the lowest rate – 10% -- which is increased) • Repeal of “death tax” and alternative minimum tax • Increase of standard deduction and repeal of many tax deductions (e.g., state and local taxes) • But not home interest or medical
• Reduction of maximum tax rate on business to 20%, closing some deductions • Tax holiday on overseas profits “trapped overseas” • Favorable tax treatment for “small businesses” (actually, nothing but another tax rate reduction for the affluent)
Impacts and forecast • Heavily weighted toward the wealthy
• Rate reductions will give much larger savings to wealthy • Repeal of Alternative Minimum Tax and estate tax benefit ONLY the wealthy (Pell estimates 50% of benefits to top 1%) • Tax savings to middle and lower income will be small and negated for some by elimination of deductions
• Likely to increase the deficit by a trillion or more (over a decade) • Will endanger Social Security, Medicare, Medicaid • Economic Policy Institute calculates $2.5T-$5.5T in lost revenue
• Like everything else, appears to be dead in the water on the Hill
• Once again, a reconciliation (51 votes needed) bill with no effort to court support from Democrats • 3 defections will doom it • At least two reasons to hate it: benefits the rich, increases the deficit
• But this will be pushed even harder than AHCA – this is what they actually believe in, plus they’re desperate for a “win”
Questionable claims • Tax cuts will pay for themselves by promoting growth • Other supply side experiments (1981, 2001, Kansas) did nothing but explode deficits
• Benefits will go to lower and middle income • Half of benefits to top 1%
• Corporate tax reductions will promote investment, hiring, and wage growth • Investment, hiring and wage decisions aren’t influenced by tax rates
• Corporate tax reductions will bring business and jobs back here • Companies don’t take jobs overseas to avoid taxes • And they don’t pay workers less because of taxes • There is plenty of low interest money to fund any investments that make sense