Fiscally irresponsible Senate tax plan prioritizes corporate tax cut, many everyday Americans made worse off

Nan Madden
Nov 27, 2017

The latest tax bill moving through Congress shares the same harmful architecture as previous versions, and it adds on the loss of health care for millions of Americans. Further, this bill takes a cynical approach towards safeguards meant to promote responsible budgeting, and instead contains fiscal time bombs.

The Senate tax and health care bill has the same negative outcomes as the House tax bill and the Republicans’ unified tax framework: It provides the largest share of the tax cuts to wealthy individuals and profitable corporations, while many working-class and middle-income households are left out or even harmed. A substantial number of families would see tax increases as a result of provisions in the bill, including some that hit Minnesota particularly hard. And it would add more than $1 trillion to the deficit, with clear plans to come back and deeply cut health care and other critical services, leaving the nation’s children, elderly, people with disabilities, workers, and families worse off. The full Senate is expected to vote on this bill as early as this week.

What’s new: millions lose health insurance

On top of their upside-down tax priorities, the Senate piles on the repeal of the individual health insurance mandate, which generates savings for the federal government that is used to pay for dramatic permanent cuts in corporate taxes. Repealing the mandate is expected to result in 13 million fewer Americans having health insurance, and the federal government spending less on Medicaid and the tax credits and other measures that millions of Americans use to better afford the cost of health care. It is also projected to cause a 10 percent increase in premiums for those buying insurance on the individual market.

Who benefits: profitable corporations and the highest-income households

Whether looking at the tax portions alone, or the combined effect of the tax and health care components, the largest benefits go to those already doing well in today’s economy. For those working paycheck to paycheck, the tax benefits pale in comparison, and many everyday Americans would be worse off overall because of the bill’s erosion of affordable health insurance.

Profitable businesses and those with the highest incomes are the main beneficiaries of central elements of the bill, including cutting the corporate tax rate from 35 percent to 20 percent, providing tax cuts for “pass through” business income, steeply cutting the estate tax, and repealing the Alternative Minimum Tax.

For working-class and middle-income people, the benefits are much smaller. For example, under the Child Tax Credit expansion, about 10 million children in working families live in households that will get just $75 per family or less, while a family with two children and income of $500,000 would get a $4,000 tax cut. Others will find that any benefits from a higher standard exemption or income tax rate cuts are partially or completely swept away by the loss of other exemptions and deductions.

Minnesotans are especially harmed by the Senate’s proposed elimination of the State and Local Tax Deduction; in fact, the Tax Policy Center finds that Minnesota’s 3rd Congressional District is among the 20 Congressional districts with the highest share of tax-filers claiming this deduction.

Adding up all the tax changes, the Tax Policy Center finds the largest average tax cuts in 2019 go to the 5 percent of households with the highest incomes, and that’s true whether measuring the tax cuts in dollars or the percentage increase in after-tax income. The top 5 percent would get about 42 percent of all the net tax cuts that year.

Looking at the full impact of the bill, many everyday Americans would be worse off than they are today.

  • Households with incomes under $40,000 are worse off in 2025 on average, taking in account both the tax portions and the reduction in federal health care spending.
  • By 2027, the three-fifths of American households with incomes about $90,000 or less would be worse off, on average, according to analysis from the Institute on Taxation and Economic Policy that takes into account the tax changes and the health insurance changes that flow through the tax code, especially the lost of tax credits that bring down the cost of health insurance premiums.

The Tax Policy Center finds that about 9 percent of taxpayers in the U.S. would pay higher taxes in 2019. But since most of the individual income tax provisions expire, by 2027 50 percent of taxpayers would pay more in that year than they do today.

Trouble ahead: fiscally irresponsible steps taken to work around the rules

The U.S. Senate has rules meant to prevent policymakers from irresponsibly passing legislation that creates future budget problems. However, the bill’s writers have made a set of cynical choices to technically meet the requirements but plant a ticking fiscal time bomb.

The fast-track process that would allow this sweeping tax legislation to pass the Senate without bipartisan support also requires that it not add to the nation’s deficit after 2027. The bill’s authors seek to avoid adding to the deficit after a decade by having the provisions that provide individual income tax cuts expire, while making the corporate tax rate cut permanent. As a result, 50 percent of taxpayers would pay more in 2027.

Some of the bill’s proponents argue that they have no intent of letting that happen, that they expect future Congresses would extend the tax cuts for families rather than have them expire. This essentially puts in motion another round of expensive tax cuts just at the time that the nation would need the revenues for other priorities, not least of which is meeting the health care and other needs of a much larger number of elderly residents as the Baby Boomers age.

One bill after another has been released following the unified framework, and they all reveal the same fatal flaws. It’s time for policymakers to start over, and instead seek bipartisan solutions that focus on responsibly creating greater economic opportunity for those working hard to reach the middle class.

-Nan Madden