Democrats call tax bill unsustainable, say it benefits the wealthy

  • Democrats react to President Trump's tax reform bill, hours after its release.
  • Critics argue it benefits the wealthy, hurts the middle class and contributes too much to the federal deficit.
  • Most don't believe it can pass in its current state.

Democrats have already begun speaking out against the tax reform bill unveiled by House Republicans Thursday, even though many of them actually support slashing the corporate tax rate.

"I agree we ought to lower the corporate tax rate and apply for repatriation of dollars," Rep. Steny Hoyer, House minority whip, told CNBC in an exclusive interview.

"It is a shame, therefore, that we haven't been able to work to accomplish both of those objectives on which I think there is a significant agreement in a bipartisan way," Hoyer said.

For Hoyer, as well as former Obama economic advisor Austan Goolsbee, the Republican plan not only favors the wealthy, but also piles on the budget deficit and national debt.

If passed, the $1.5 trillion legislation would cut federal income tax brackets from seven to four: 12 percent, 25 percent, 35 percent and 39.6 percent.

For corporations, taxes would fall to 20 percent "immediately and permanently" from the current maximum of 35 percent, in an effort to lure companies back to U.S. soil.

To encourage companies to transfer funds stashed overseas back to the U.S., the plan would introduce a one-time 12 percent rate for cash returns and 5 percent for non-cash returns.

Proponents of the bill - including President Trump, House Speaker Paul Ryan and Representative Kevin Brady, chair of the House Ways and Means Committee - argue it would create jobs by giving corporations incentive to return headquarters and money to the U.S.

They also argue that it cuts federal taxes for some people in the lowest brackets and simplifies the tax filing process, which they've emphasized with Brady's postcard prop.

Detractors acknowledge that federal income taxes would drop for some people filing in low brackets, but cite a multitude of other changes as proof that the new bill would damage those touted by Republicans to benefit from the bill.

"There are going to be hundreds of thousands, if not millions, of middle class people who are in a circumstance where their taxes go up," Goolsbee said. They are repealing the interest deduct-ability of student loans, they are repealing medical expense deduction."

"You are going to find people without health insurance with medical bills whose taxes will go up by thousands of dollars," Goolsbee said on CNBC's "Power Lunch."

As far as cost, the bill would add about $1.5 trillion to the federal deficit, a move critics call unsustainable and hypocritical.

"It's a bill that admittedly puts a real hole in the debt," Hoyer said. "Here's a party that said they will balance the debt in 10 years, a party for fiscal responsibility and they are producing a bill that admittedly by them increases by $1.5 trillion -- and we think substantially more – the national debt."

One final point of contention for critics was that Republicans had so far not opened the bill to discussion and input by the public. The last time the tax code was reformed, by former President Ronald Reagan in 1986, more than 450 witnesses testified in what Hoyer called "a bipartisan process." With Republicans aiming to have the bill signed by December, that doesn't look likely.

But when it comes down to it, even voices at some conservative institutions don't think the bill can pass in its current state.

"Let's assume something passes -- and I'd say that's fifty-fifty at best -- you are going to see a higher corporate tax rate, you'll see more significant and obvious middle class tax relief," said Jim Pethokoukis, with the conservative American Enterprise Institute. "We are still early in the process and change might be significant if this thing passes."