Columbians seem to want a break for the middle class from a federal tax cut plan being discusssed in Congress. An overwhelming majority in our weekly poll said the most needed part of the bill is helping middle-class families (see below for the full results).
That makes sense based on the demographics of this area and the general sentiment about taxation. It’s hard to get excited about millionaires who own businesses getting a break on their corporate taxes. But that’s the big problem at the heart of this whole debate.
Nearly everyone, from former Democratic President Barack Obama to the most conservative Freedom Caucus Republicans, agrees that America’s corporate tax rate is too high compared to other nations. That high rate gives incentive for businesses to invest elsewhere, which is increasingly possible as it gets easier and easier to make something in one country and sell it in another. So cutting the corporate tax rate makes sense for long-term economic growth, even if you’re like me and seriously doubt the idea that the benefits will ever trickle down to you, me and Joe the Plumber.
But that comes with a huge price tag, which leaves Congress three options.
1. Cut spending so that what you bring in balances with what you put out (I’ll give you time to stop laughing at the possibility that would ever happen).
2. Get more from individual taxpayers to offset less from corporations.
3. Add more to our astounding $20 trillion national debt.
None of those options is particularly appealing, but they illustrate there is no free lunch. Difficult decisions must be made that will benefit some and hurt others.
Congress will — you guessed it — increase the debt. It’s easier to do because voters aren’t offended now. Presumably, they will be irked when the bill comes due, but that’s a problem our country has been avoiding for a long time.
So that means tax cuts for both corporations and individuals. However, it’s difficult to assess exactly who the winners and losers will be for several reasons. For one thing, there are two versions, one from the House and one from the Senate, that propose different things. And most likely bits from both will make up the final law.
Also, the effects will be different depending on your status. If you own an expensive home, for example, a cap on the mortgage interest deduction could increase your tax bill. But if you rent where you live, it makes no difference.
The best way to tell how the plans will effect different income levels is the Joint Committee on Taxation. It’s the official, non-partisan group Congress appoints to study such things.
Its conclusion? The House plan would create a 2.5 percent overall decrease in individual taxes with more of the break (4.3 percent) coming to people making more than $1 million by the time all the breaks are implemented in 2027. The Senate bill would both give a larger break overall (4.3 percent) and more for the middle class: 7.3 percent for people earning $30,000 to $40,000, for example, versus 2.8 percent for millionaires.
Of course that’s at the cost of adding more to the national debt. As a teacher of mine was fond of saying about whether to put in the work now studying or take a hit at test time, “Pay me now or pay me later.”
Reach C-P Editor and Publisher Charlie Smith at csmith@columbianprogress.com.
