Republicans would have you believe the tax overhaul they pushed through Congress Wednesday is an economic panacea for the country. Republican Senate Majority Leader Mitch McConnell said the bill “is as good as it gets.”
Democrats would tell you the bill is a boondoggle, a political debt to corporate interests and the very wealthy masquerading as middle class tax relief. Democratic House Minority Leader Nancy Pelosi said the bill “is Armageddon.”
The truth, of course, is somewhere in between. Are there appealing reforms that will benefit broad numbers of American families? Absolutely. And are there aspects that should cause American families to be concerned? No doubt.
First, the good: The bill cuts taxes for most Americans. The nonpartisan Tax Policy Center’s analysis shows that eight in 10 Americans will see their taxes reduced.
By nearly doubling standard deductions, the bill should make filing simpler. Estimates are that the doubling of deductions will reduce the percentage of Americans who itemize from 30 percent to 6 percent.
The bad: Republicans pushed through a repeal of the Affordable Care Act mandate that Americans purchase health insurance or face a tax penalty. That repeal is likely to prompt younger, healthy Americans — the people who reduce risk in insurance pools — to forgo health insurance, resulting in increases in premiums for the majority of Americans who do buy health insurance. Those increases easily could wipe out all gains from the tax cuts.
Further, most of the individual tax cuts are temporary; they expire after 2025 because of complicated Senate budget rules that limit the impact of legislation on the deficit after 10 years. This means that the tax cuts will be short lived unless a new congress sees fit to extend the cuts.
Perhaps the most controversial aspect of the tax reform bill is the reduction of the corporate tax rate from 35 percent to 21 percent. Tax experts agree that the current rate is so high it puts American business at a disadvantage with foreign competition.
But cutting corporate taxes so drastically could have a dramatic impact on the federal budget deficit. The Congressional Budget Office estimates that the tax bill will add $1.4 trillion to the deficit over the next decade.
Republicans argue that the CBO estimates don’t account for growth that the tax cuts will spur. Tax bill proponents go so far as to argue the cuts will stimulate hiring and wages like never before, and that the resulting growth could cover or exceed the $1.4 trillion.
Democrats argue that history shows otherwise, that corporations tend not to reinvest tax breaks in hiring and expansion. The disastrous tax-cut experiment in Kansas the past five years underscores that point.
The last time significant tax reform came through Congress, in 1986, more than 30 Senate Democrats voted for the Reagan Administration’s bill. No such bipartisanship this time around as the reform bill passed without a single Democratic vote in either chamber. Sadly, in the case of Republicans and Democrats, the optics of the 2018 midterm election campaigns took priority over working together to produce a bill that both parties — and a majority of Americans — could embrace.