In what will no doubt go down as one of history’s greatest bouts of political amnesia, Congressional Republicans yesterday unveiled a tax reform plan that not only flies squarely in the face of their eight years of whining about the national debt, but also repeats rather than repudiates the “real-live experiment in conservative governance” that imploded so spectacularly in Kansas earlier this year. Trumpeted by Trump as a plan designed to help American families, the plan offers paltry help to some middle-class families while putting institutions those families are deeply dependent upon at considerable risk.
The plan, which blows a $1.5 trillion dollar hole in the deficit over 10 years in part by lowering the corporate tax rate from 35 percent to 20 percent, should worry middle-class families for two reasons. First, it’s predicated on the flawed economic theory that says cutting taxes on corporations and the wealthy stimulates job growth despite extensive evidence to the contrary. As history has shown, boom and bust markets don’t wound the wealthy, but they kneecap wage earners. Second, while it may lower some families taxes in the short term, it’s going to stick the entirety of middle-class America with a huge bill down the heavily pot-holed road. Economists predict that the cost of the package will deepen the deficit and lead to cuts in spending that will have an outsized impact on middle- and low-income earners.
Why do economists predict this? Because they just spent five years watching a similar plan decimate the Sunflower State.
First, some context: In 2012, conservative Republican governor Sam Brownback ⏤ hellbent on cutting taxes and consolidating tax brackets ⏤ promised Kansans spectacular job growth, unrivaled economic prosperity, and cake-eating unicorns that crapped gold. Republican lawmakers fell in line and, dreaming of tax breaks that pay for themselves passed the cuts no questions asked. Then everything went to hell in a hurry.
Growth stalled well below the national average (.02 percent compared to 1.6 percent nationally), the state economy technically slipped into a recession, and, facing a giant hole in the budget, lawmakers were forced to slash spending on tons of services, including education. Schools shut down. Kids got bussed across town lines. The suffering got extremely real at a truly remarkable rate of speed. Eventually, the state’s supreme court found that lack of school funding unconstitutional and moderate Republicans, finally bucking the governor to join with Democrats, overrode his veto and raised taxes. Conservative economists blamed agricultural prices and a slow global economy for the mess, but they were in a very, very small minority.
Most economists pointed out what would seem to be an obvious lesson: Unpaid-for tax cuts don’t generate pie-in-the-sky economic growth.
Traditionally, states have served as laboratories to test policy before elevating it to the federal level. So one would assume (wrongfully in this case) that Republican policymakers would view their Kansas debacle as a cautionary tale and learn from their mistakes. Not so. Instead, fast forward to yesterday where Republican lawmakers in Congress essentially doubled down and unveiled a tax cut plan that eerily resembles, at least in broad strokes, one that just failed. Seriously, you don’t even need a long memory to avert the disaster ⏤ this just happened four months ago.
But what’s so bad about cutting taxes for regular folks and simplifying the tax code? And what’s even in the proposed overhaul for parents and families? Republican claim the plan will provide $300 billion in tax relief to American families in part by lowering income tax rates (consolidating seven brackets to four) and raising the standard deduction from $12,700 to $24,000 per family. They have also increased the child tax credit from $1,000 per child to $1,600, upped the threshold to claim the credit to $230,000 (from the current $110,000), and thrown in a $300 per person credit for parent and non-kid dependents. Good start for families, right? At first glance.
The bigger story, however, is about disappearing deductions and the elimination of the personal exemption, which allows couples to reduce taxable income by $4,050 for each kid and has always been a boon for big families. In addition, the plan eliminates the medical expenses deduction and reduces the amount homeowners can claim using the popular mortgage interest deduction (from $1 million to $500,000 on new mortgages), which will likely sting families living in expensive coastal cities (however, the plan does include a deduction for property taxes up to $10,000). Similarly, the cessation of the state-and-local-tax deductions will ding families living in high-tax blue states pretty hard. Ding them again, that is, since they’re already disproportionately subsidizing red-state budgets despite many conservatives standing morally opposed to “socialist” transfers of wealth.
And finally–not to get too far ahead and talk college for your toddler–but one little-mentioned provision in the plan would tax college endowments, treating them more like foundations than non-profits. This could result in costs rising or colleges closing. Not too worry though, pro-life advocates slipped in a provision that allows expecting families to open 529 college savings accounts for unborn children. So if you’re expecting, you can start saving. Nine-month head start!
Honestly, nobody knows for sure how this plan will affect the middle class as a whole. There are simply too many moving parts that are dependent both on a family’s personal finances and their geography. Some will no doubt see their tax bills cut. Others, many others, will be paying more. But the bigger issue here is that Americans are getting a worse deal for their tax dollars if instability and risk are baked into the plan. Roads, healthcare, schools, everybody wants to think their states and towns can pay for those without help from the federal government. Sometimes, sure. Often not. And as much as Republicans want to pretend that everybody’s church or neighborhood or local business is going to step in and use their well-earned tax cuts to help out friends in, unfortunately, this happens less than one would hope.
In comparison, the last major tax overhaul was in 1986 and had bipartisan support and took a very long time to negotiate. This tax overhaul is being ramrodded down American’s throats to ensure Republicans don’t face angry primary voters next year. Even if it benefits some families, it’s not for them. It’s for the sake of political expediency. The long-term effects of taking this path are unpredictable and, at the end of the day, unpredictability is bad for American families.