Why “Trust Us” Isn’t Enough for the Middle Class
When the House released its draft tax legislation, they focused on a cherry-picked family to sell the benefits that the bill would provide to the middle class. In a previous post, I showed how that cherry-picked family — a married couple making $59,000 per year with two kids — would go from receiving a tax cut relative to current law to actually seeing a tax increase by 2024. This is as the legislation maintains some of the largest tax cuts for corporations and the well-off.
From what I can tell, the authors of the legislation have not challenged these and other similar calculations. They seem to accept the basic factual claim that the relatively paltry tax cuts for the middle class dissipate over time and reverse into tax increases for many families, including their own cherry-picked example.
Instead, Chairman Brady and others have responded by arguing that the country should engage in a game of imagination: imagine as if the bill didn’t do what it does. Specifically, they say we should imagine as if the bill continues the new “Family Flexibility Credit” — providing $600 to a married couple — past its expiration in the legislation at the end of 2022. The credit, which helps offset the effect of the bill’s elimination of personal exemptions, appears to cost between $35 and $40 billion per year. So, despite not having continued this provision in the legislation, they say that the expiration doesn’t really matter since Congress will extend the tax credit later on.
There are two problems with this.
First, even if the Family Flexibility Credit didn’t expire, the tax cuts for this example family and many others in the middle class would still be shrinking under the House plan. That’s because the Family Flexibility Credit and the increased Child Tax Credit aren’t indexed to inflation. And so they shrink in value relative to what they’re replacing — the personal exemption which is indexed to inflation under current law. Further, the proposed use of the chained CPI for cost of living adjustments (a slower measure of inflation than under current law) would build over time.
Second, the expiration matters, and it shows the priorities of the tax bill’s authors. Chairman Brady is right about one thing: we should imagine what the future looks like. And, if we do, the tax bill’s effects for the middle class look likely worse, not better, than what they write in law — especially given Republicans’ demonstrated priorities.
Question of Priorities
Up against their self-defined budget for this package of $1.5 trillion in revenue loss, the Republican leadership chose to expire their new Family Flexibility Credit to meet that target. And, apparently still needing additional savings, they chose — in a later revision of their legislation — to accelerate application of the chained CPI (slowing down cost of living adjustments), disproportionately affecting middle- and low-income Americans.
There were many other options for reducing the cost of the bill. Maybe a higher corporate rate or a higher pass through rate affecting those at the top. But they chose not to go down those routes. Instead, they did this.
Now imagine several years down the line. It’s approaching 2023. What Brady doesn’t say is that the deficit in 2023 will be about 5 percent of GDP or $1.2 trillion, according to CBO’s latest projections with the cost of the proposed tax cuts added in. Further, deficits would be projected to rise in the years after that, reaching about 6 percent of GDP or $1.7 trillion by 2027. See the figure below for that deficit projection and showing the effect of the tax cuts.
Would a tax credit costing in the range of $400 billion over a decade be continued at that point? Given what Republicans have chosen to do when actually focused on constraining costs, there is plenty of reason not to trust Brady’s word and instead trust his actions so far.
And, for those of you who think that middle class tax credits can never go away, I have three words: Making Work Pay. That tax credit — of $800 per working family — was in place from 2009 and 2010 before being replaced by the payroll tax cut in 2011 and 2012. These tax cuts were then allowed to entirely expire in 2013, as Congress focused on fiscal austerity and with deficits dropping to much lower levels than we are likely to see in 2023.
It Gets Worse
It’s not just that this tax credit might really expire. If we imagine the future as Chairman Brady asks us to do, then we have to keep in mind that the tax bill is adding considerably to the deficit. As written, it costs $1.5 trillion, and, as Jason Furman and Greg Leiserson describe, someone will eventually pay that bill — deficits delay payment but don’t change the fact that Americans will pay for the tax cuts. Thus, who ends up winning and losing depends on who foots the bill in the years ahead.
The end result will likely be middle class families losing even more — simply because the benefits of the deficit-financed tax cuts are so concentrated at the top. If Chairman Brady and other Republican tax writers actually want us to imagine a better future for middle class families under their bill, then write that bill — a bill that honestly shows who pays for what and delivers its benefits to low- and middle-class families on a permanent basis.
