Back from their Thanksgiving vacation, Senate Republicans are devoting much of their attention to a tax cut plan they hope to pass by the end of the year. Rather than a rushed package of changes that disproportionately benefits the wealthy and corporations, lawmakers should slow down and fully consider the best ways to help middle-class Americans and small businesses.
Numerous analyses of the proposed Senate tax plan, which is not finalized, and a plan passed by House Republicans earlier this month have found that the plans’ benefits flow mostly to rich Americans and large corporations and that many average-income Americans will pay higher taxes in a decade. One reason is that while corporate tax cuts are permanent in the legislation, tax changes for individuals and families will expire.
A major Republican argument for the tax cuts is that they will pay for themselves by stimulating the economy. In a survey by The University of Chicago’s Booth School of Business, 35 of 37 economists said this won’t happen. The two who disagreed later said they misunderstood the question.
“The idea that these cuts would unleash huge growth is not very well supported, either theoretically or empirically,” Oliver Hart, an economist at Harvard, told The Washington Post last week. “Almost everyone is extremely doubtful this is going to come out well. This is wishful thinking.”
That was confirmed at a meeting of CEOs, sponsored by The Wall Street Journal. At that event, earlier this month, the CEOs were asked if they would increase investment if the tax cuts were passed. Only a few hands were raised. “Why aren’t the other hands up?” White House economic advisor Gary Cohn asked. The question was not answered.
Small businesses, which comprise a large portion of Maine’s employers, are also skeptical of the tax plans. The National Federation of Independent Business, an advocate for small businesses, said that it is “unable to support” the House bill because it “leaves too many small businesses behind.”
Making the economics even worse for middle-class families, the Senate bill would repeal Affordable Care Act’s individual mandate, a move the Congressional Budget Office found would raise premiums and leave 13 million additional Americans without health insurance by 2027.
There is a better way. If lawmakers really want to help the middle class, they can permanently lower taxes on America’s average wage earners, not eliminate the estate tax and reduce the top income tax rate.
Sen. Susan Collins, one of the few Republican lawmakers to criticize the tax bills, has said she will work for needed changes in the Senate bill that would favor the middle class. For example, she suggests a smaller reduction in the corporate tax rate, maintaining the current top income tax rate of 39.6 percent for those who make more than $1 million a year and keeping the federal deduction for state and local taxes and medical expenses. She also does not want tax reductions for individuals to expire in nine years while corporate tax cuts are permanent.
Collins also opposes putting a repeal of the individual mandate in the Senate bill. “I want to see changes in that bill, and I think there will be changes,” Collins said last Sunday on ABC’s “This Week.”
Of course, there are ways to help the middle class that don’t involve taxes, such as increasing federal investments in workforce training, increasing Pell grants and child care assistance.
The changes Collins suggests are a good start, but major overhauls, not tweaks, are needed if the Republican tax plans are going to truly help the middle class. It is unclear if Republican leaders, who are trying to speed the bill through the Senate before Christmas, are willing to consider significant changes.
They certainly should.
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