Senate tax plan: More debt, more inequity, more pain


Like House bill, Senate plan stacks the deck against services and opportunity

IOWA CITY, Iowa (Nov. 14, 2017) — Senate Republicans’ new tax proposal in Washington carries many of the same problems of equity and fiscal irresponsibility of the House plan.

“This plan is not only unbalanced. The scales are being tipped all the way over,” said Mike Owen, executive director of the nonpartisan Iowa Policy Project (IPP).

“Adding $1.5 trillion in debt at the almost certain cost of food and health assistance for the vulnerable and educational opportunities across the board — really, did anyone promote doing that in the last campaign? Did anyone vote for it?”

In addition, the nonpartisan Institute on Taxation and Economic Policy has released new estimates showing that for Iowa, well over half of the tax reductions would go to the top 20 percent in both 2019 and 2027 under the Senate plan. Some taxpayers would pay more, but very few of those at the top — 2 percent — while in both years, 13 percent of the middle one-fifth of taxpayers would pay more.

“Overall, these are especially troubling implications for Iowa, with daunting fiscal challenges coming in only two months with the new legislative session. Besides penalizing low-income families at a steep cost to all taxpayers, this plan would shift new costs to the state, which is becoming a common theme in Washington,” said Mike Crawford, senior policy associate for the Child & Family Policy Center (CFPC) in Des Moines.

“This Congress, many will recall, also attempted to shift hard choices and big costs to the states with health-care proposals that, thus far, have been unsuccessful. The tax choices being offered in the House and Senate threaten state resources and services as well.”

Specifically, the Senate bill would eliminate the federal income tax deduction for state and local taxes paid. The largest beneficiaries of this deduction are high-income taxpayers.

“This change could pressure states to make new reductions in taxes for those taxpayers — who already pay a smaller share of their income in state and local taxes than do low- and moderate-income taxpayers,” Owen said. “Furthermore, this would cut into revenues, which already are running short of expectations and pose difficult choices for state legislators in January.”

The bill would provide nearly half of total tax benefits to the top 1 percent of households, which would receive tax cuts averaging over $50,000 by 2027.

In addition, the legislation would:

  • Skew a critical tax credit now targeted for low-income working families, the Child Tax Credit (CTC), to couples with incomes between $110,000 and $1 million. While extending this benefit to those higher-income families, it would deny any significant help ($75 or less) to 10 million children in low-income working families. The Center on Budget and Policy Priorities estimates that in Iowa, the House bill would totally leave out 89,000 children in those working families, and either fully or partially exclude 203,000 from the bill’s increase in that benefit.
  • Further reduce the federal estate tax, which already carries significant exemptions from tax for the very wealthy — $5.5 million per person and $11 million per couple. Because of these already generous exemptions, the estate tax already only affects two-tenths of 1 percent of estates nationally and in the state of Iowa. It is the only way a small amount of tax is collected on certain income. (The House bill would fully phase out the estate tax.)
  • Cut taxes for millionaire households by lowering the top income tax rate compared with the House bill, and by providing a deduction for “pass through” businesses that mean big tax cuts for high-income households.

“Elements of the Senate bill make only slight improvements to the House bill, and like the House bill it is heavily skewed to the wealthy,” Owen noted.

“Take the example of the Child Tax Credit. This program is intended to be a work support, to assist people in low-paying jobs. In our low-wage state especially, it makes no sense to be extending this credit to wealthy families when low-income families are being left out of an improvement.”

Unlike the House bill, the Senate bill would not cut the wind production tax credit, which has been critical in making Iowa a leader in clean energy.

IPP and CFPC are nonpartisan, nonprofit Iowa-based organizations that collaborate as the Iowa Fiscal Partnership on analysis of public policy choices affecting Iowans, particularly those in working families and at low incomes. Find reports at iowafiscal.org.

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