Desperate to hold on to their majority in the House, GOP leaders are planning to bring up a new set of tax-cut proposals soon that would dole out more favors to certain constituents — especially those with higher-than-average incomes. It's a nakedly political move, given that the measures haven't a snowball's chance in Hades of making it through the Senate. Plus, it's even more fiscally irresponsible than last year’s deficit-exploding tax cuts.
Dubbed “Tax Reform 2.0,” the package’s three pieces are a grab bag of proposed changes, most of them aimed at reducing the tax bills paid by selected individuals and businesses. One of the measures (HR 6760) would take the temporary tax cuts for individuals and business owners that Congress adopted in December and make them permanent. A second bill (HR 6757) would create new opportunities to shield savings from federal taxes. And a third (HR 6756) would carve out a new tax shelter for start-up businesses.
This is the congressional equivalent of giving a sack of candy canes to a room full of hyperactive children whose teeth are falling out. The economy already is overstimulated, as the Federal Reserve’s moves to raise interest rates attest. The last thing the country needs is more fuel for the inflation that’s starting to rear its ugly head.
The bigger, albeit less imminent, problem is how sharply these measures could increase the federal budget deficit. The annual cost for each ranges from a few hundred million dollars to about $200 billion, and the price tag grows over time, amounting to an estimated $5 trillion over 20 years, according to the Committee for a Responsible Federal Budget. That’s on top of the annual deficits of $1 trillion or more that Republicans are now running in Washington.
It’s one thing for the Treasury to go deeply into the red when the economy tanks, tax revenue plummets and the demand for federal spending surges, as happened in the last recession. But once the economy recovers, there’s no more excuse for binging on red ink. By saying damn the deficits, full speed ahead, House Republicans are splurging on the current generation of taxpayers at the expense of the ones to come.
Beyond that, it’s too soon to measure the effects of the recently adopted tax changes for individuals and “pass-through” businesses (companies that pay no corporate tax, but instead are taxed through their owners’ individual returns). They won’t really register until early next year, when people start doing their tax returns for 2018.
Analysts have estimated that about two-thirds of taxpayers would pay less under the new law, but it’s hard to predict who the winners will be. That’s because the law capped or eliminated some tax deductions — most notably, the personal exemption and the deductions for state and local income taxes — which will raise many people’s taxable income, but it also increased the child tax credit, shielded more middle-income people from the dreaded alternative minimum tax, increased the standard deduction and cut rates. That’s why it’s well nigh impossible to tell yet whether the changes will work as intended, and why it’s idiotic even to contemplate extending them at this point.
But this whole exercise isn’t about improving the tax code. It is not even about changing it, since the measures can’t overcome the Democratic filibuster they would be certain to face in the Senate. It’s about reminding constituents a few weeks before November’s election that Republicans are the party of tax cuts. Perhaps that’s the only message Republicans can send, given how the GOP’s internecine fights have left it incapable of acting on immigration, infrastructure, healthcare and every other major issue that voters care about.
Not that voters will necessarily welcome the reminder. The vast majority of the benefits from the new proposals, like the cuts approved in December, would flow to upper-income households.