A lost sense of balance

 

By
10/4/17

Most Iowans lose in Trump-GOP plan — in services and balance of tax benefits

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By Mike Owen

Substantive, reliable analysis increasingly shows that Iowans stand to lose in the tax plan that is being rushed through the United States Senate. The losses come in several forms: guaranteed losses of services due to reduced revenue, long-term imbalances caused by changes in the tax code weighted to the wealthy, and back-loaded costs that must be paid for in later years.

The GOP plan includes several costly elements. Deficits would swell as a result of legislation to enact at least $1.5 trillion in tax cuts primarily for the wealthiest individuals and profitable corporations.

Basic RGBIn Iowa, analysis by leading organizations illustrates the impacts. As illustrated in the table above from the Institute on Taxation and Economic Policy (ITEP), taxpayers at the very top of the income scale — with an average income of nearly $1.2 million — would receive an average tax break of over $50,000. These “one percenters” would scoop up half of the tax savings from the nearly $1.5 billion in tax reductions for Iowans. Meanwhile, the bottom 60 percent of taxpayers, earning on average $32,900, would receive less than 15 percent of the total reduction.[1]

As a share of their pre-tax income, the top 1 percent would have a 4.3 percent tax cut; the middle 20 percent, only six-tenths of one percent, or an average benefit of $340.  In addition, the ITEP analysis finds — as illustrated in the next table below — that while more than 9 out of every 10 taxpayers in the top 1 percent would see a tax cut, those cuts would average $54,440 at a cost to all taxpayers of $748 million in 2018 alone.

Basic RGBFor the same year, while about 78 percent of middle-income taxpayers would see a cut, those tax cuts would average only  $50 per month. About one-fifth of those in the middle-income group would pay more in federal tax than they do currently — $620 more each year.

Of the bottom 60 percent, about 86 percent would receive a tax cut averaging $330 — or about $27.50 a month.

Choice: Mounting debt-financed tax cuts for wealthy vs. critical services

As opposed to a revenue-neutral tax reform in which tax cuts are “paid for” by identified cuts in services or increases in other revenues, the GOP package seeks to authorize $1.5 trillion in deficit-financed tax cuts — or more if the Senate Finance Committee chooses to cut into Medicare, Medicaid or other critical programs to permit more tax cuts, as long as the deficit does not exceed $1.5 trillion over 10 years.[2]

Estate tax repeal would benefit few Iowans

The proposed repeal of the estate tax highlights the distorted nature of the package. Congress in recent years has taken significant steps backward on the estate tax, which is one way to assure some level of tax on inherited wealth that in many cases was never taxed as income. In Iowa, as in the nation, only two-tenths of 1 percent of estates (70 in Iowa) are projected to face any estate tax in 2018.[3]  Due to vast exemptions already in place, the tax only applies to estates valued above $5.5 million — $11 million for a couple. The overall cost of repeal was estimated in 2015 to be $269 billion over 10 years.[4]



[1] Institute on Taxation and Economic Policy,“GOP-Trump Tax Framework Would Provide Richest One Percent in Iowa with 50.2 Percent of the State’s Tax Cuts,” Oct. 4, 2017. https://itep.org/trumpgopplan/

[2] Joel Friedman, Chye-Ching Huang, David Reich, Paul N. Van De Water, and Sharon Parrott, Center on Budget and Policy Priorities. “Proposed Senate Budget is Likely to Leave Millions of Americans Worse Off,” Oct. 3, 2017. https://www.cbpp.org/research/federal-budget/proposed-senate-budget-is-likely-to-leave-millions-of-americans-worse-off

[3] Chloe Cho, Center on Budget and Policy Priorities. “Costly Estate Tax Repeal Benefits Only Few Wealthiest Estates,” Sept. 12, 2017. https://www.cbpp.org/blog/state-by-state-costly-estate-tax-repeal-benefits-only-few-wealthiest-estates

[4] Congressional Budget Office Cost Estimate, H.R. 1105, April 2, 2015. https://www.cbo.gov/sites/default/files/50100-hr1105.pdf

 

Mike Owen is executive director of the nonpartisan Iowa Policy Project in Iowa City.

The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit organizations based in Iowa, the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines. Reports are available at www.iowafiscal.org.

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