Political malpractice: GOP makes a lousy tax plan worse

· November 6, 2017  
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Vladimir Gjorgiev | Shutterstock

“The bill’s like a dead fish: The more it hangs out in the sunlight, the stinkier it gets … The more people learn about this bill, the less they’re going to like it.”

So said Senate Minority Leader Chuck Schumer last week about the GOP tax bill.

I’d rather eat spoiled fish than agree with Chuck Schumer on something. But when the Stupid Party lives up to its namesake, conservatives must step in a throw a red flag.

On Friday, I noted that, because of the revenue-neutral nature of the individual income tax plan, the tax cuts were a complete wash – some will get a tiny cut while others will incur a small tax increase.

Now, Republicans made a change to the plan that will further dampen the rate cut. So, when coupled with the elimination of deductions, more people might actually wind up paying more in the long run.

Republicans in Congress want to calculate the rate of inflation in a way that will consider you wealthier for taxation after a few years but not apply the same calculation to the growth of welfare programs. Because, of course, in Washington ideology, you have a right to welfare but not a right to the fruits of your labor.

How calculating inflation affects taxation

Under current law, the income threshold subject to higher tax brackets is indexed to the standard measure of inflation, known as Consumer Price Index for all Urban Consumers, or CPI-U. Obviously, $100,000 in 2017 is not worth the same as $100,000 in 2007.

That is why the minimum threshold of income for the graduated brackets increases every year, pursuant to the CPI, which factors the rate of inflation on a basket of roughly 200 goods and services. This is also the way government spending and welfare programs grow with inflation – both in terms of income threshold for eligibility and the size of the benefits.

This is where the “chained CPI” comes into play. No, this is not some sexual fetish the courts are mandating on the military; it’s a less aggressive way of measuring inflation that, according to some economists, more accurately reflects the cost of living.


For example, whereas traditional CPI will factor in the increase of any basket of goods in absolute terms, chained CPI will anchor the rate of inflation down slightly — roughly a quarter percentage less — to comport with the adjustment in lifestyle changes as a result of the inflation.

Putting aside the debate over which measure better reflects the cost of living, using chained CPI as the measure for tax brackets will accelerate the number of people placed into high brackets and create more revenue for the federal government.

At the same time, applying that measure to spending programs would result in slower growth of welfare programs.

Of course, Republicans are now deciding to use chained CPI to calculate tax brackets but not to slow the rate of spending. The cruel irony is that the GOP’s reluctance to cut any spending is what is backing the party into a corner on revenue and blunting its ability to offer a clean, impactful tax cut in the first place.

Unequal proposition: Muddled rate cuts in exchange for full repeal of deductions

It would be one thing for Republicans to offer a clean tax cut, albeit do so by subjecting income thresholds to chained CPI. But to get rid of deductions and then blunt the effect of the rate decreases will ensure that more people will wind up without a tax cut at all.

This means that those in the middle-income level (those earning $90,000 at present), the starting point for the 25 percent rate under the new plan, will see their increased wages taxed at the higher level sooner.

The original draft legislation introduced the chained CPI in 2023. This would have created a political cliff and the possible opportunity to block it from being enacted because it would reflect a clear tax increase six years from now.

Now the chained CPI is being applied immediately, tethered to a supposed “tax cut,” but will wind up being a net tax increase for many in the long run. It will result in $128 billion more tax revenue over a decade and $500 billion more in the next decade, according to the left-leaning Tax Policy Center. It has a compounding effect to void out the benefit of the rate cut (whereas the deduction cuts are absolute and permanent).

Moreover, under this plan, inflation will actually make even more people pay higher taxes when factoring in the other provisions. The GOP does a ridiculous bait-and-switch by abolishing the personal exemption but expanding the child tax credit per dependent by $600. They roughly cancel each other out and serve no purpose (for neither growth or simplification).

However, it’s really an unequal trade for most taxpayers because the personal exemption (which is abolished) grows with inflation, while the child tax credit was always flat. Thus, over time, the benefit of the child tax credit will not cover the loss of the personal exemption.

Accordingly, the Tax Policy Center estimates that by 2027, “taxes would rise for roughly one-quarter of taxpayers, including nearly 30 percent of those with incomes between about $50,000 and $150,000 and 60 percent of those making between about $150,000 and $300,000.”

Remember, those are the people getting pummeled by $2,100 Obamacare premiums and are not eligible for subsidies. And no, premiums are not rising by chained CPI levels of 1-2 percent, they are rising by close to 100 percent.

For Republicans to raise taxes on these individuals is the worst form of political malpractice they’ve ever committed.

All we are left with now is a corporate tax cut, which, we all agree is necessary. But again, even on the corporate side, Obamacare is a bigger issue. Although premiums on group plans have not increased quite as much as in the individual market, the crushing cost of Obamacare is destroying jobs and permanently depressing wages.

According to the American Action Forum, “the rise in premiums has been associated with $19 billion in lost wages, 10,130 fewer business establishments, and nearly 300,000 lost jobs, with seven states losing more than 10,000 jobs, all results consistent with our previous research.”

Therefore, all roads to economic prosperity, cutting taxes, and cutting spending run through one direction – repealing Obamacare.

Until Republicans recognize this reality, they will continue to spin their wheels on a tax proposal that increases the deficit without offering tax relief. And worse: increasing taxes in the long run on the families most hurt by Obamacare.   


 

 

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Author: Daniel Horowitz

Daniel Horowitz is a senior editor of Conservative Review. Follow him on Twitter @RMConservative.