The tax reform bill that the Senate is rushing to pass this week has several flaws, but one is especially disappointing for most Americans: It breaks Donald Trump’s promise of a “great big, beautiful Christmas present” for the middle class. In fact, Congress is preparing to deliver a large lump of coal to the majority of American families ― a bigger lump of coal than most analysts have described to the American people so far.
What’s obvious is that the gift Trump has promised would go to corporations and rich individuals who don’t need them. One of the purposes of tax reform should be to reduce the wealth gap in America. Instead, a taxpayer in the lower fifth of income would save only $60 on federal taxes under the House bill. Taxpayers in the next two quintiles would save $310 and $830, respectively. In 2027, the savings would be lower for all three groups.
Less publicized is how the bills would make low- and middle-income families significantly less secure than they are today. The tax code has always given individuals some protection from catastrophic life events like serious illnesses or job losses. Those protections would be stripped away for individuals, but not for corporations. The impact would be particularly severe with the House version.
First, here are some of the tax bills’ impacts that have been pointed out by the Congressional Budget Office (CBO) and other analysts:
While the tax savings for low- and middle-class individuals are small and temporary, the top 0.1 percent of taxpayers will save nearly $175,000 next year, rising to $320,000 annually in 2027. The savings are partly because these taxpayers earn more income, but they also would save money because the bills moving through Congress would lower tax rates for earnings from dividends and partnerships. The savings for Trump and his family would be enormous. His estate tax exemption would double and his taxes would be reduced for many of the more than 500 private companies in which he holds interests.
The CBO says there would be cuts of nearly $136 billion in federal programs, including many that support poor and middle-class Americans. For example, $25 billion would be cut from Medicare next year, with further cuts through 2026. That could come on top of a 2 percent cut in Medicare payments Congress imposed in 2011. More than 50 million elderly and disabled Americans rely on Medicare. As the Los Angeles Times says, the cuts “could increase pressure on some facilities to close or limit how many Medicare patients they care for.”
The Senate bill would repeal the individual mandate of the Affordable Care Act. That would result in higher premiums for everyone who buys insurance and leave 13 million people without any health insurance at all in the next 10 years, the CBO says.
Here are some of the less-publicized impacts identified by policy analyst Doug Koplow and others – impacts that would undermine the economic security of low- and middle-income individuals, but not of corporations:
Businesses that lose money can deduct their losses years later when they begin making profits. Individuals would be able to do the same only if they lost money selling stocks or bonds. But few poor families own stocks or bonds. In fact, 80 percent of stocks are owned by the richest 10 percent of Americans.
The House and Senate bills scuttle a number of itemized deductions for individuals, including some that can help them get through hard times and emergencies. For example, individuals could no longer deduct medical expenses under the House bill, even though the costs of unexpected catastrophic health problems are already a frequent cause of families going into bankruptcy. The loss of these deductions would hit the middle class especially hard. Nearly half of the taxpayers who itemized their medical expenses in 2015 earned less than $50,000, and nearly 70 percent had incomes of less than $75,000.
Under the House bill, homeowners would be able to deduct interest payments only on mortgages half as large as now. The Senate bill would eliminate taxpayer deductions for state and local taxes, including property taxes. Changes like these would make it more difficult for middle-class families to own homes. Meantime, wealthy individuals often put their real estate into corporations, allowing them to take advantage of many of the tax breaks that would be denied to individuals.
The paltry tax savings contained in the House and Senate bills would not begin to make up for the losses and liabilities that middle and lower-income families would experience. It should tell us something that the Senate, anxious for a Republican “win,” is rushing to pass a tax bill without public hearings and without a complete impact analysis by the CBO.
So, will tax reform be the middle-class miracle Trump has promised? Not by a long shot. Moreover, we should look beyond the numbers to judge the morality and the human impacts of these “tax reforms.”
The miracle we’d like to see is Trump’s veto of the bill that appears to be emerging from Congress. It would be a big present indeed if he sent the bill back with a message that Republicans must deliver on the promises he has made to the middle class.