After Senate Republicans finally gave up on their third attempt to make significant changes to America's health care system, President Donald Trump on Wednesday appeared more than ready to move onto something else, enthusiastically introducing the GOP's initial outline for overhauling the tax code.
"I've been waiting for this for a long time," Trump said in a speech in Indianapolis, during which he touted the Republican proposal to "cut taxes for the middle class, make the tax code simpler and more fair for everyday Americans."
While Trump and the GOP are excited about tax cuts, the plan's lack of detail and its vague promises to do something for everyone are reminiscent of the pledges that every Republican politician from Trump on down made about health care.
While the GOP had promised to lower health care costs and increase access for everyone, the net effect of the party's initial proposal was to cut taxes for wealthy people while reducing benefits to lower-income people. As a result, the first Republican health care bill was soundly rejected in public opinion surveys, ending up as the most unpopular piece of legislation in polling history.
Some Republicans appear to be a bit more realistic than the president, at least in terms of the difficulty of what lies before them.
"Personally, I think tax reform is harder than health care," Sen. Bob Corker of Tennessee said during a Wednesday interview with CNBC. "We've got a lot of work to do. My whole August was meeting with people who were saying, 'Corker, I'm all for pro-growth tax reform, but there is this one thing we don't want you to touch.' So I actually think the difficulty [for tax reform] is greater than with health care, but I'm all for it and I hope we can move ahead."
After eight years of upbraiding former President Barack Obama for not offsetting new spending with budget cuts elsewhere, Republicans now seem to have abandoned the idea of making tax reform revenue-neutral. The Committee for a Responsible Federal Budget, a bipartisan advocacy organization that promotes balanced budgets, released an estimate of the proposal indicating it would increase the federal deficit by about $2.2 trillion within the next 10 years. According to the group's estimate, the proposal would increase the national debt to more than 100 percent of the gross domestic product, an all-time high.
While there are some provisions within the proposal which could lower taxes for some lower- and middle-income people, the tax outline's promises of "doubling" the standard tax deduction for everyone is not entirely true, as Business Insider columnist Josh Barro has observed.
Because the legislative outline does not give full details as to what measures it envisions to increase revenues, it is not clear what kinds of tax hikes will end up within the final product. One group likely to be negatively impacted by the proposal will be residents of states and localities with higher property and income taxes. Under current law, tax filers are allowed to deduct levies paid to state and local governments from their federal taxes. The idea seems to be causing mass outrage in California, as Los Angeles Times writer Jim Puzzanghera reports. The National Conference of State Legislatures released a statement on Wednesday saying it was "dismayed" with this aspect of the Republican plan.
In his Indianapolis speech, Trump called on Democrats to help him pass the plan. But his explicit threat against Sen. Joe Donnelly, a Democrat who represents Indiana in the Senate, seemed to belie that point.
“If Sen. Donnelly doesn’t approve it — because, you know, he’s on the other side — we will come here, we will campaign against him like you wouldn’t believe,” Trump told the crowd as Donnelly sat in the audience. (Donnelly is one of numerous Senate Democrats up for re-election next year in Republican-leaning states.)
Democrats were quick to point out that they were not consulted in the drafting of the plan. While Republicans hold a 52-48 seat majority in the Senate, their highly divided caucus has thus far been unable to pass any significant legislation because the GOP's leader in the chamber, Mitch McConnell, has thus far refused to work with Democrats.
While the Republican plan's effects are not fully known yet, given the lack of detail, wealthy taxpayers are likely to benefit due to several key provisions, including a reduction of the highest income tax rate from 39.6 percent to 35 percent, the elimination of the Alternative Minimum Tax and the tax on large estates. While some middle-class people in expensive states like New Jersey or California are forced to pay the Alternative Minimum Tax, it has long been the bane of high-income people who can claim many deductions. Trump himself has criticized it multiple times in the past.
Almost no one pays the federal estate tax, on the other hand. That is only assessed on estates valued at more than $5.49 million for an individual and nearly $11 million for couples.
Wealthy businesses and individuals will benefit from the proposal in other ways as well, including a reduction in the corporate tax rate from 35 percent to 20 percent. On the other hand, the outline also proposes eliminating many corporate deductions, which primarily benefits the largest enterprises. According to research by the left-leaning Institute on Taxation and Economic Policy, 100 of America's largest corporations paid no taxes at all during at least one year between 2008 and 2015. 18 companies in that group paid less than zero taxes during the observed period -- in other words, we paid them.
Perhaps the biggest benefit to the wealthy is the GOP's proposal to tax "pass-through" entities like Limited Liability Corporations at the corporate tax rate, instead of the higher individual rate. According to the Tax Policy Center, households with annual incomes in excess of $500,000 would reap 97 percent of the benefit of lowering the tax assessed on pass-through entities to 25 percent.
All of this is in stark contrast to the promise that now Treasury Secretary Steve Mnuchin made in November of last year that whatever the administration developed would result in "no absolute tax cut for the upper class."
In his Wednesday speech, however, Trump presented the Republican proposal as one that skewed against rich people like himself.
“This is a revolutionary change, and the biggest winners will be middle-class workers as jobs start pouring into our country, as companies start competing for American labor, and as wages continue to grow,” he said. “And it’s not good for me, believe me.”
That Republicans would try to sell a tax plan that significantly benefits wealthier Americans as primarily helping those with less money is not a huge surprise. That's because there has never been a constituency for cutting taxes for the rich. Public opinion surveys have consistently shown this. Most recently, a poll released on Wednesday by The Washington Post found that just 33 percent wanted taxes cut for wealthier individuals.
This mirrors the findings of a survey released in April by PRRI, a nonpartisan research institute, which found that only 27 percent of respondents opposed raising income taxes on households earning more than $250,000 per year. Even Republican voters approved of the idea, with 58 percent in favor and 42 percent opposed.
"President Trump’s call for sweeping tax cuts for both individuals and businesses may set him on a collision course with key parts of his base," Robert P. Jones, PRRI's president, told Salon. "While the tax cuts may sit well with the elite Republican donor class, majorities of rank-and-file Republicans —and three-quarters of white working-class Americans — actually favor raising the tax rate for wealthy Americans who make more than $250,000 per year."
Cutting taxes for high-income people, however, has long been a major priority for Republican donors. The GOP's repeated failures to repeal the Affordable Care Act have also grated on the right's wealthiest patrons for some time. At a conference in June, several of them reportedly threatened to withhold financial support if Trump and congressional Republicans could not find a way to cut taxes. Earlier this month, that perspective was confirmed during a closed-door meeting where Sen. Cory Gardner of Colorado reportedly told his colleagues that "donors are furious" at the GOP for not being able to pass conservative legislation.
While Republicans are traditionally more enthused about reducing taxes than dealing with health care, the devil will be in the details for this tax proposal, both in terms of how it is publicly perceived but also in terms of what tax increases, if any, Republicans are willing to consider. More than likely, whatever consensus they can achieve will be driven by a desire to placate their donors rather than to appeal to the public.
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