A Tax Proposal That Can’t Be Fixed

Yesterday, Republicans in the U.S. House of Representatives released their long-awaited tax legislation proposal, filling in some details on the GOP tax framework put out by President Trump and congressional leaders in September. (Read the Budget Center’s analysis of this framework.)

GOP leaders plan to bring the tax legislation to a vote by the entire House — which includes 14 Republican members from California — before Thanksgiving. This bill follows on the recent approval of a joint House and Senate budget resolution that included the overall GOP framework and allows for a “fast track” approval process, by which the tax package would be able to pass with no Democratic votes in either chamber of Congress.

While the House tax bill includes some changes to the tax proposals outlined in earlier GOP plans, the major elements of — and serious concerns raised by — the overall package remain the same. Like the initial GOP tax framework, the House tax bill released yesterday:

  • Overwhelmingly provides the greatest benefits to wealthy households and large corporations.
  • Significantly increases the federal deficit over the next decade, a reality that ultimately would require budget cuts to programs that largely benefit low- and middle-income households.
  • Provides very little in the way of tax benefits for low- and middle-income households, while actually raising the taxes of many middle-income households, particularly in California. This is especially troubling given that low- and middle-income families and individuals would face the greatest harm from lost or reduced services resulting from federal budget cuts.
  • Would shift to state governments more of the costs of providing vital public services. This would likely result in cuts to services and supports while threatening the states’ fiscal health.

Californians would be especially hard hit by the House tax bill. For instance, the bill sets a cap on the mortgage interest deduction (MID) and on the state and local tax deduction (SALT) that would significantly increase the taxes of middle-income households in higher-cost US regions and in states — like California — with more progressive tax structures. In addition, likely cuts to federal programs also would disproportionately impact the millions of low-income Californians struggling to make ends meet who receive health care, food assistance, income support, and other benefits through federal programs.

The bottom line is that even with the changes the House tax plan makes to earlier proposals, this is a GOP tax package that cannot be fixed.

Why? Because the House tax bill not only reflects a fundamentally flawed approach to taxes from the start, but also must adhere to the “rules of the road” set out by the recently enacted House and Senate budget resolution. Under this resolution, the final tax plan can add up to $1.5 trillion to the federal deficit over the next 10 years. However, the GOP’s overall tax framework has been estimated to cost well over $2.0 trillion over the next decade. This means that to keep in place the central components of the GOP tax plan, which provides large tax cuts to corporations and the wealthiest households, these cuts would partly be paid for through major reductions in critical areas of federal investment over the next decade. These include cuts to Medicaid, Medicare, income support, and other entitlement programs as well as to the so-called “non-defense discretionary” side of the federal budget, which includes housing and community development, environmental protection, arts, and research and development, among others.

In sum, the House tax bill represents a massive wealth transfer to the richest households, paid for on the backs of low- and middle-income families. Yet, 14 members of our state’s congressional delegation — all of them Republican — recently voted in favor of the underlying GOP tax framework. Given what’s at stake for our state’s residents and our economy, Californians should be watching the emerging debate and House vote with great interest.

— Chris Hoene