Tax plan bad for Connecticut, for the debt, and for the middle-class

The Day

Connecticut’s U.S. Sens. Richard Blumenthal and Chris Murphy must do more than stand united with fellow Democrats in seeking to block a tax reform bill that would be bad for Connecticut and for many middle-income taxpayers, while exploding the national debt. They and their fellow members of the loyal opposition must offer alternative tax relief ideas that are more fiscally responsible.

In so doing, Democrats could dislodge the votes of Republican senators who are fiscal conservatives committed to deficit reduction, such as Sens. Jeff Flake of Arizona and James Lankford of Oklahoma, and those concerned about the tax bill's treatment of small businesses and individuals, such as Ron Johnson of Wisconsin and Susan Collins of Maine.

As far-fetched as it might seem in today’s Washington, bipartisan tax reform is possible that lowers the corporate tax rate, provides middle-class tax relief, and includes spending reductions to offset the revenue losses. At the very least, an alternative Democratic plan would provide for a national debate in the 2018 election.

Murphy, for example, has said, "I am all for tax reform that simplifies the tax code and actually lowers taxes for the right people."

The first order of business, however, is to block the badly conceived tax reform bill the Senate will take up after the Thanksgiving break. A House bill is in place. If the Senate approves its own measure, the bills would then have to be reconciled. It is in the national interest that the process not get that far.

Why? Because these tax reform plans are bad public policy.

The Joint Committee on Taxation, a nonpartisan congressional committee created in 1926 to provide objective data on tax policy proposals, determined the Senate version would add $1.5 trillion to the national debt over the next decade, the House version close to that much. Some critics say that estimate is optimistic.

Even using “dynamic scoring,” which tries to calculate the tax revenues produced by increased economic activity tied to the tax cuts, the Penn Wharton Budget Model predicted the tax bills would add upwards of $2 trillion to the debt. That number includes accounting for $367 billion in “dynamic revenue.”

The nonpartisan Committee for a Responsible Federal Budget warns that if the Republican approach to tax reform becomes law, the national debt will reach about 99 percent of the Gross Domestic Product — meaning the size of the economy — by 2027. Under current law the percentage , now 77, would grow to 91 percent in 2027.

Tax cuts do not pay for themselves. They have to be largely offset by corresponding reductions in spending. Yet there is no plan to make the necessary reductions in the big-ticket items that drive federal spending — entitlements and defense allocations.

Even while doubling the standard deduction, the House and Senate proposals would mean tax increases for many middle-income earners, particularly in a state such as Connecticut. That’s because the House bill would end the deductibility of state and local income taxes and cap the deductibility of property taxes at $10,000.

The Senate version would end the deductibility of all those taxes, with no property-tax cap.

The Joint Committee on Taxation determined the Senate bill would increase taxes in 2019 for 13.8 million households earning less than $200,000 — with most of those folks living in states such as Connecticut that depend on state income and local property taxes to fund government.

The committee also concluded those earning between $75,000 and $200,000 would see the steepest increases, averaging more than $500 per household.

So who gets the big tax breaks? That would be corporations and the wealthy. Kevin B. Sullivan, commissioner of Revenue Services in Connecticut, said that in Connecticut more than three-quarters of the proposed tax cuts under the House plan would go to the top 1 percent, with an average reduction of 8.5 percent.

The House version ends the federal tax penalty for failing to have health insurance. Without that incentive, millions of younger and healthier Americans would leave the health insurance exchanges, driving up the cost of premiums to prohibitive levels for many older Americans and those with medical issues.

In their desperation to pass tax reform, Republicans could be about to pass a bad plan that is not in keeping with the ideals of fiscal conservatism. They can work toward a more reasonable proposal or risk paying a steep political price in 2018, when Democrats will be happy to remind middle-class voters what Republicans did to them.