Have you met Tom and Cindy?
“Tom” is a business owner, and “Cindy” is a hard-working single mother in a hypothetical version of America that Rep. Cathy McMorris Rodgers and her fellow House members are crafting to promote their tax reform legislation.
In the brief, Tweetable web ad introducing Tom, we’re told that Tom has a “business” called “Tom’s Treats.” (I like to imagine Tom went into a hypothetical marijuana edibles business in Sprague, crafting quaint weed petit fours and jugs of pot-infused maple syrup.)
The point is that under the House GOP tax plan, the ad says, Tom will save just over $3,000 a year, on an annual profit of $62,000.
Then there’s Cindy. Cindy is a hard-working single mother of one, an assistant manager at a restaurant who earns $30,000 a year, according to another ad. Under the House tax-cut scheme, Cindy will save $700. She will finally be able to start saving for her future and stop living paycheck to paycheck.
Things are gonna be so great for Cindy.
These ads are quite brief, and they leave out a lot, especially regarding the potential effects as the legislation evolves.
For example: Do you know that Cindy’s tax breaks, as depicted, are liable to last just a year or two? And they’re going to get smaller year by year? And there’s a good chance they’ll turn into tax increases?
That’s based on the analysis of the congressional Joint Committee on Taxation, which concluded that by the year 2027, people earning $75,000 or less will see a tax increase on average. People in Cindy’s income bracket of $30,000 to $40,000 are expected to go from a 3.2 percent reduction in their tax rate initially to a 7.8 increase by 2027 – the biggest hit of any income range.
That’s the JCT’s assessment of the Senate proposal, which differs from the House proposal in some significant ways, but which operates on a similar basis with regard to Tom and Cindy: A little cut now, growing vanishingly small, or disappearing altogether, by 2027.
Unless you’re very wealthy. Then it’s cuts all the way.
Of course, any hypothetical case at this point is conditional and inexact, based on the complexities of the tax system and the fact that the sausage is still being ground. Supporters complain the JCT evaluation is inaccurate because it weighs the elimination of Obamacare subsidies – now a part of the Senate plan – as a tax increase on beneficiaries. They also say it fails to use “dynamic” scoring to account for all the economic growth that they believe will result.
But an analysis of the House plan, without the elimination of the Obamacare mandate, found a similar outcome. Under that plan, according to the Tax Policy Center, about a quarter of all Americans would see a tax increase by 2027. The only group whose tax cut wouldn’t shrink is the top 1 percent.
For Cindy and her daughter, the distinction between losing a subsidy and raising a tax may seem pretty academic. If Cindy relies on that help and it goes away, there’s no mystery about what’s happening to that $700.
Or say Cindy’s daughter receives health insurance through a program known as CHIP – the Children’s Health Insurance Program. That program provides low-cost coverage for kids whose families are just above the cutoff for Medicaid. Congress, while working so diligently to pass the tax-cut boondoggle, has failed week after week to reauthorize the CHIP program, and states are waiting nervously to see if they run out of money before lawmakers act.
Or imagine Cindy’s daughter is about to go to college, where she hopes to earn a graduate degree. As a grad student, she’s going to pay dramatically higher taxes under the legislation, which is going to treat her tuition waiver as income and make it well-nigh impossible to contemplate an advanced degree.
Hang onto that $700, Cindy!
The tax cuts for regular people expire because of the GOP is gaming the budgetary system to avoid larger deficits. The corporate tax cuts are not temporary, naturally. You reveal your priorities by your choices, not your words. But McMorris Rodgers says she wants to make all the tax cuts permanent, and others insist that future Congresses will do just that.
Of course, there is a pretty big alternative that’s very appealing to many of the tax-cut faithful: cutting spending, and in particular the programs that help people in need. The Congressional Budget Office estimated that if Congress did not find other ways to make up for the tax reductions, automatic cuts to Medicare of $25 billion could take effect. There’s little secret where the current congressional majority would go looking to make up other shortfalls.
Which brings us to Tom’s hypothetical grandmother, Grace. Grace depends on Medicaid and Social Security. Keep those arthritic fingers crossed, Grace! And one of Cindy’s daughter’s best friends receives free lunch at school. Time to learn there’s no such thing, Cindy’s daughter’s friend!
In the growth scenario, though, Tom and Cindy will be able to rely on explosive economic activity produced by Mortimer.
Mortimer’s annual income is $2 million. Mortimer’s tax cut isn’t going anywhere. According to averages based on the JCT figures, Mortimer’s tax cut in 2025 would amount 1.6 percent, or $32,000.
More than Cindy earns in a year. Hypothetically.