When Senate Republicans introduced their tax bill in the middle of last month, they faced competing interests: Some senators thought it wasn’t generous enough for working families. Others thought it didn’t deliver enough to business owners.
Hours before senators voted on the bill, it had undergone a transformation. The bill had fewer benefits for families than the original version. And it appeared likely to have even more benefits for business owners.
The disparate treatment underlined how the legislation has evolved since its first incarnation: What began as an effort that would favor the wealthy and corporations became even more tilted in their favor as the legislation made its way through the Senate.
When lawmakers needed a way to limit the legislation’s impact on the deficit to make it comply with Senate rules, they made the bill’s tax cuts affecting individuals temporary, while leaving in place ones that benefit corporations. The move would lead to a giant tax hike on most Americans in the middle of the next decade.
Likewise, when they needed to find additional ways to finance the tax cut, leaders targeted the Affordable Care Act’s individual mandate for elimination. Such a move would lead 13 million to drop health insurance, including 5 million on Medicaid, according to the nonpartisan Congressional Budget Office.
At the same time, changes demanded by Sen. Ron Johnson, R-Wis., to increase benefits for companies that pay their taxes through the individual tax code appeared likely to be in the final version of the legislation.
“It clearly makes inequality worse. The primary beneficiaries are the highest-income taxpayers,” said Adam Looney, a senior fellow in economic studies at the Brookings Institution who served as deputy assistant secretary for tax analysis in the Obama administration.
The tax bill’s disproportionate benefits represent a belief by Republican leaders that providing deep tax cuts to corporations and wealthy business owners will pump up the economy and deliver benefits to voters who, polls show, are deeply skeptical of the tax plan.
“In one bill, we’ve taken the U.S. from being one of the least attractive places to do business into one of the most attractive places to do business,” said Scott Hodge, president of the Tax Foundation, a think tank.
In interviews this week, Republican senators noted the middle class will also get direct cuts in the bill, so it doesn’t matter what the rich receive, as long as ordinary Americans are getting help.
“I’m not worried about the rich in this country. The rich generally take care of themselves. Out of a country of 300 million people, there aren’t that many really rich, rich people,” Sen. Richard Shelby, R-Ala., said in an interview this week. “I do worry about the people who work every day that are paying more than their fair share.”
Other Republicans argued it’s fair for the wealthy to get the biggest tax cut since they pay the most in taxes.
“It’s obvious that people who make money are going to pay more in taxes than people who don’t,” Sen. Johnny Isakson, R-Ga., said.
Other Republicans argued it was time for a change in direction, given how much inequality increased over the past eight years.
“Income inequality increased dramatically under President Obama,” said Sen. Ted Cruz, R-Texas. “High taxes, high regulations, and big government benefit the rich and hurt working men and women.”
According to the most recent analysis by the nonpartisan Tax Policy Center, the average taxpayer earning $50,000 to $75,000 will get a $1,010 tax cut. But the average taxpayer earning more than $1 million will get $42,930 in tax cuts.
Looked at another way, about half of taxpayers earning more than $500,000 a year get a tax cut of $500 or more in the Senate bill, according to Congress’ Joint Committee on Taxation. By contrast, just 5 percent of taxpayers earning $50,000 to $75,000 do.
Some experts argue Republicans could have done a better job of targeting middle-class taxpayers directly, if that was the main objective. For example, the 2008 tax cut pushed by the Bush administration during the financial crisis delivered, on average, $1,010 to people earning $50,000 to $75,000, but people earning above $1 million got virtually no tax cut, according to the Tax Policy Center.
“If this is our only major tax reform for another 30 years, then I think it’s a great disappointment,” said Alan Auerbach, a tax expert at the University of California at Berkeley who has co-authored research with the head of President Donald Trump’s Council of Economic Advisers. Republicans “could have done much better,” said Auerbach. “Most of the benefits go to very high-income people.”
Auerbach said some of the pain for the middle class is not even clear in the bill, because Congress has to borrow $1.5 trillion to finance it – and that money will one day have to be paid back with spending cuts.
“Someone is going to have to pay for those deficits,” he said. “To the extent the deficits are addressed by cutbacks to entitlement programs, it could further exacerbate inequality.”
Some economists fear that the inequality created by the bill will deepen social divisions that have been on display across the U.S. and other Western countries in recent years.
“This bill is the reverse of what we need at a time of populist backlash against inequitable gains from globalization in advanced economies,” said economist Emmanuel Saez, a professor at the University of California at Berkeley.
Even among some Republicans who favor a deep tax cut, there was agreement that it should have gone further to support the working class.
“For Republicans, this is a once-in-a-lifetime opportunity to get corporate tax reform done. It will help growth, but there could have been more done for the lowest-income households,” said Aparna Mathur, an economist and scholar at the right-leaning American Enterprise Institute.
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