OK, let me grant from the outset that I'm not David Letterman and this top 10 list isn't very funny at all. But here are 10 good reasons not to fall for this big, wasteful, regressive tax cut:
- It's big. From what we've seen so far, the tax cut is largely unpaid for. Its cost of somewhere around $2 trillion over 10 years will thus be added to the debt. If you're thinking Republican fiscal hawks won't stand for that, think again. When it comes to tax cuts, they're chicken hawks.
- It's wasteful. We need that $2 trillion in revenue to meet forthcoming challenges that fall to the public sector. Our aging population alone is such that, according to CBO, we'll need another 2.5 percent of GDP to meet current health and retirement obligations. To that I would add the fallout from climate change, which is contributing to more intensive and costly storms, and investments in public goods, including infrastructure and education.
- It's regressive. As far as we can tell, by 2027, 80 percent of the cuts in this plan go to the richest 1 percent of households, whose average income is $3.6 million. Don't we already have enough economic inequality without making it worse?
- It's a tax increase. Due to some underappreciated features of the plan, including the loss of personal exemptions and bracket creep due to the use of a slower growing price deflator, by 2027, the plan is expected to increase the taxes of 28 percent in the middle-class and about 60 percent of upper-middle class households.
- Despite its advocates' claims to the contrary, it won't come anywhere close to paying for itself. I wish I could eat ice-cream sundaes all day and never gain weight, but reality is such that I can't. Neither can we realistically hope to pay for anything close to the price tag of this cut through any growth effects it will supposedly spin off. The state of Kansas recently learned this lesson the hard way, cutting taxes and opening up one of the same loopholes in this plan (a favorable rate for pass-through businesses; see #4 below). The state hemorrhaged revenues, began cutting vital services, and saw their bond rating downgraded twice, until the Republican legislature pulled the plug on the failed experiment. Do we really need to relearn this lesson?
- While our corporate tax code could use some reforming, this ain't that. Our corporate code is a hot mess because of all the loopholes, exemptions, and deductions that privilege one type of income over another (e.g., debt financing is hugely tax-favored compared to equity financing). But to reform that aspect of the code, you've got to create some losers. That, in turn, engenders political risks that team Trump apparently wants to avoid. So, this just cuts the corporate rate from 35 to 20 percent and repeals the alternative minimum tax at a cost of $2 trillion over 10 years.
- It creates a big, fat new loophole. By sharply reducing the tax rate on pass-through income of high-end businesses, the plan creates a lush incentive for people to define their wage income as business profits.
- It incentivizes more offshoring. The plan would allow multinational corporations to pay no U.S. tax on foreign earnings, encouraging the shifting of economic activity abroad at the cost of American jobs, wages, and tax revenues.
- These corporate goodies are not necessary. While many in the middle-class are still waiting for the recovery to reach them, the stock market is crushing it, led by realized and expected corporate earnings which stand near all-time highs.
- In other words, the plan targets the wrong folks! It helps the rich, does little or worse for the middle class, and by raising future deficits, undermines the government's ability to help those who actually need help, many of whom happen to be the same working-class people that put this president in the White House.
Like I said, not funny. But other than doing the bidding of their wealthy donors and creating pressures to reduce future public spending, I've not seen anyone come anywhere close to justifying this benighted tax plan. That doesn't mean it won't pass, which just underscores the non-representativeness of our current government. And that, of course, is an even bigger problem.
Commentary by Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities. Bernstein was the chief economist and economic advisor to Vice President Joe Biden and a member of President Obama's economic team. He is also the author of "The Reconnection Agenda: Reuniting Growth and Prosperity." Follow him on Twitter @econjared.
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