Permanent Corporate Tax Cuts, With Tax Increases for Everyone Else

https://www.cbpp.org/federal-tax/commentary-senate-tax-bill-revisions-make-its-fundamental-tradeoffs-big-tax-cuts-for-the

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Permanent Corporate Tax Cuts, With Tax Increases for Everyone Else

To further ensure that the bill not does increase the deficit beyond the first ten years, as required under budget rules, Chairman Hatch proposed two additional changes to it.

First, it makes permanent a change to the inflation measure used to adjust tax brackets and other tax parameters every year — using the “chained Consumer Price Index,” which grows more slowly than the current inflation measure. In practice, that means that taxpayers across the board will pay slightly more each year, with the impact growing over time. As New York University professor David Kamin demonstrates,[8] this provision represents a trade-off between a tax increase for every income group except the top 1 percent and a three-percentage-point drop in the corporate tax rate that this provision finances.

Second, the revised bill makes the other provisions related to individual income taxes, including those that provide tax relief to middle-class families, expire after eight years. The expiration of such provisions as the larger CTC, the increased standard deduction, and the cut in individual income tax rates means that many millions more families would face a tax increase beginning in 2026. Even if lawmakers made these provisions permanent, however, the added benefits for many low- and moderate-income families would not be large enough to outweigh the harm they would suffer from the mandate repeal and a chained CPI, along with other individual tax provisions such as the repeal of personal exemptions. Indeed, that’s why tens of millions of families are direct losers from the bill even within the first decade of its implementation.

The Republican tax bill’s supporters already object to such an analysis, arguing that policymakers over the next decade surely will extend the individual tax provisions that would otherwise expire. That’s far from certain, however. Whether due to concerns over the deficit or political gridlock, there is simply no guarantee that the President and Congress will act. But if, policymakers do extend the individual tax provisions in the coming years without offsetting the cost of doing so, the actual costs of this tax bill will far exceed the $1.5 trillion over the first ten years that’s allowed under this year’s budget reconciliation process. As we’ve previously noted,[9] the likely result of unpaid-for tax cuts, and the higher deficits they will fuel, is more pressure on policymakers down the road to cut programs that provide basic assistance for struggling families; health care to children, seniors, people with disabilities and adults with low earnings; and basic public services that benefit the country and economy as a whole, like education, job training, environmental protection, scientific research, and infrastructure. President Trump’s 2018 budget and the 2018 congressional budget resolution already propose cuts that disproportionately affect low- and moderate-income people. In other words, under Chairman Hatch’s revised tax bill, low- and middle-class people will foot the bill for a permanent corporate tax cut either because they pay higher taxes to cover the cost now or they face spending cuts down the road to offset the higher deficits.