Responding to Iowans who have contacted their offices about tax policy, U.S. Senate Senators Chuck Grassley and Joni Ernst have misrepresented how the latest Republican bill would affect lower and middle-income taxpayers.
The Senate Budget Committee approved the broad tax bill on November 28, clearing a path for the full Senate to vote on the legislation this week, assuming Republican leaders can can find 50 votes in favor. (Several GOP senators have expressed doubts.)
Grassley plans to support the bill, his staff are telling constituent callers–though he and some other senior Republicans don’t like a proposed “trigger” that would automatically increase some taxes “if the tax cuts in the bill don’t stimulate enough economic growth to avoid deficits.”
All signs point to Ernst voting yes as well; she has praised key features of the GOP proposal, and I haven’t seen her name in any Congressional reporter’s “whip count” listing senators whose support is in doubt. However, in a replay of this summer’s health care reform debate, her staff have told callers she is “not sure” yet how she will vote on this legislation. Ernst’s spokesperson told me on November 27 the senator “will review the final proposal and remains committed to working with her colleagues throughout the upcoming legislative process to provide relief to Iowa’s families and small businesses, and a much-needed boost to America’s economy.”
In the latest versions of their form letters about tax policy, neither Grassley nor Ernst have acknowledged that the Republican proposal would cost thousands of their lower-income constituents more money over time, while giving the largest tax cuts to the wealthiest Iowans.
BILL WOULD LEAVE MANY IOWANS WORSE OFF
After the Senate Finance Committee approved the tax bill on November 16, the Institute on Taxation and Economic Policy calculated that the plan “would raise taxes on many low- and middle-income families while bestowing immense benefits on wealthy Americans and foreign investors.” Two graphs from that analysis:
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The Iowa Fiscal Partnership commented on November 20,
For the middle 20 percent of Iowans in 2027, with an estimated average income of $72,400, there would be an average tax increase of $40. ITEP projects the majority of taxpayers in the bottom 60 percent would see small tax cuts, but the share seeing increases would, on balance, pay more than the reductions.
“The point is not the size of the increase at those levels, but the fact that those taxpayers cannot expect any, or any substantial, tax benefit,” said Anne Discher, interim director of the nonpartisan Child and Family Policy Center in Des Moines.
“Meanwhile, the very wealthy will benefit, services inevitably will be cut for all, and — if the individual mandate on health insurance is repealed — health insurance will be out of reach for millions,” she said.
The non-partisan Congressional Budget Office released its analysis of the latest Senate Republican tax bill on November 26. Here’s the most important chart, showing that the legislation would hurt taxpayers earning up to $30,000 already in 2019. Those earning $40,000 or less would pay more by 2021. Everyone earning up to $75,000 would be worse off by 2027 than if the legislation were not enacted:
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Heather Long reported for the Washington Post,
The main reason the poor get hit so hard in the Senate GOP bill is because the poor would receive less government aid for health care.
The Senate Republican tax bill eliminates the requirement that almost all Americans purchase health insurance or else pay a penalty. The CBO has calculated that health insurance premiums would rise if this bill becomes law, leading 4 million Americans to lose health insurance by 2019 and 13 million to lose insurance by 2027.
Many of the people who are likely to drop health insurance have low or moderate incomes. If they drop health insurance, they will no longer receive some tax credits and subsidies from the government. The Joint Committee on Taxation (JCT), the other official nonpartisan group that analyzes tax bills, put out a similar report showing how lower-income families are hurt by the loss of the health-care tax credits. But the CBO goes a step further than the JCT. The CBO also calculates what would happen to Medicaid, Medicare and the Basic Health Program if the Senate GOP plan became law. The CBO is showing even worse impacts on poor families than the JCT did.
The Center on Budget and Policy Priorities turned the chart from the CBO report into this graph:
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Chuck Marr of the Center on Budget and Policy Priorities explained on November 20,
Because Senate reconciliation rules prohibit the bill from adding to deficits after 2027, Republican leaders then faced another choice: set the entire bill to expire by the end of the decade, so there were no costs after 2027; revise it so that it pays for itself after ten years; or make certain priority tax cuts permanent and pay for them with other permanent measures that raise revenues or reduce program spending, while letting lower-priority tax-cut provisions expire. They chose the last approach. And they centered the bill around permanent corporate rate cuts and other tax cuts for multinationals.
• Permanent corporate tax cuts. Consistent with President Trump’s only “non-negotiable” requirement — that the GOP tax plan dramatically cut corporate taxes — the Senate bill permanently cuts the corporate tax rate to 20 percent from 35 percent, costing more than $1.3 trillion over ten years. Another, less-noticed provision would permanently set an even lower tax rate for U.S.-based multinationals’ foreign profits by adopting a “territorial” tax system, which would encourage firms to shift profits and investment offshore. As Senate Republican Ron Johnson said recently, “With a territorial system, there will be a real incentive to keep manufacturing overseas.” Yet Senate Republican leaders chose to make this tax advantage for foreign profits one of their top priorities, along with lower corporate taxes generally. […]
• Permanent tax increase for middle-class and other households. In revising their bill, Senate Republican leaders set all of its tax cuts for individuals to expire after 2025 and all of its revenue-raising measures to expire except one: a slower inflation measure (the chained Consumer Price Index) for adjusting tax brackets and certain tax provisions each year to account for inflation. This permanent change would cause these key tax parameters to grow more slowly than they would under the current inflation measure — thereby pushing many taxpayers, including many middle-income taxpayers, into higher tax brackets than otherwise. This measure would raise taxes on households across the income scale, amounting to a $32 billion tax increase in 2027, the Joint Committee on Taxation estimates.
Even more outrageous, the Senate bill would promises an extra $79 billion in corporate tax cuts “if federal revenues hit certain levels” in 2027.
A deal struck today to win over two wavering Republican senators would increase deductions for “pass-through” businesses. That change makes a tax cut already skewed toward the wealthiest “even more expensive and tilted to the top,” Chye-Ching Huang of the CBPP explained in this thread. Patricia Cohen reported for the New York Times today that “the overwhelming share of the money [pass-through businesses] generate goes to a tiny sliver of rich Americans. Nearly 70 percent of the total income earned by such partnerships goes to the top 1 percent, according to a Treasury Department analysis.”
TALKING POINTS FROM GRASSLEY, ERNST
In her latest blog post, the CBPP’s Huang highlighted the “selective and extremely misleading ways” Congressional Republicans are citing estimates from the Joint Committee on Taxation and Congressional Budget Office.
They focus on the average tax change for an income group, which obscures the millions of filers within the group who would face tax increases; ignore the fact that the bill would get far worse after 2025, when all of its individual income tax cuts would expire; and ignore the impact from the bill’s repeal of a key health reform provision.
Recent communications from Grassley and Ernst illustrate all of those techniques. I enclose below the full texts of form letters Iowans have received during the past several days after urging their senators to vote against the Republican tax bill.
Key passage in Grassley’s letter:
The Senate Finance Committee recently processed tax reform legislation that would make good on our commitment to provide significant tax relief to the middle income taxpayers, while making the tax code simpler, fairer and more pro-growth. Some of the middle-income tax relief in the bill includes nearly doubling the standard deduction, doubling the child tax credit from $1,000 to $2,000 per child, reducing the current law 15% bracket to 12% and expanding its reach, meaning hardworking Americans will see more money left in their pocket to spend, save, and invest as they see fit.
According to an analysis by the Joint Committee on taxation, on average every income group will experience a tax cut with the largest percentage tax reductions in the middle income groups. Moreover, the reform bill would make the tax code more progressive with taxpayers earning more than $1 million shouldering a larger share of the tax burden than they do under current law.
Additionally, the Senate bill lowers the burden on middle class families by eliminating the tax penalty in the Individual Mandate. Iowans who have decided that Obamacare is too expensive for them are penalized by the federal government. More than 52,000 Iowans in 2015 were forced to pay the individual mandate tax. Over 80 percent of those who paid the tax made less than $50,000 a year. That’s a tax on working families, and this legislation does away with it.
Grassley doesn’t mention the tax increases individuals would face after 2025, or that repealing the mandate to purchase health insurance would prompt millions more Americans, including thousands in Iowa, to drop their coverage. That decision won’t just affect them. Because the group likely to stop buying health insurance would skew young and healthy, insurance costs will rise for those who stay in the market: “The CBO estimated premiums on the marketplaces would go up 10 percent if the mandate were repealed.”
In other words, tens of thousands of Iowans who purchase their own health insurance will pay thousands more for coverage every year, dwarfing the savings from the tax cuts. Or they will drop the unaffordable insurance and pray they don’t develop any serious health problems.
The latest version of Ernst’s form letter on taxes claims,
On the individual side, the Senate proposal calls for a larger increase in the child tax credit than the House bill and reduces tax rates across 7 brackets rather than 4, including rates of 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, and 38.5 percent. This proposal passed the Senate Finance Committee on November 16 and currently awaits consideration by the full Senate.
An analysis of the Senate bill from the nonpartisan Joint Committee on Taxation found that on average, middle-income earners would see the largest percentage decrease in their tax bills. In 2019, those earning less than $10,000 would see a tax cut of 5.6 percent, those earning between $20,000 and $30,000 would see an 8.4 percent cut, folks between $30,000 and $40,000 would see a 9.8 percent cut, $40,000 to $50,000 would get a 9.5 percent reduction, $50,000 to $75,000 would get an 8.5 percent cut, $75,000 to $100,000 would see a 7.7 percent cut, and $100,000 to $200,000 would see a 6.8 percent cut. By contrast, folks earning over $1 million would see a 5.4 percent reduction.
Ernst doesn’t mention that corporate tax cuts would be permanent but individual tax cuts temporary under this bill. Nor does she acknowledge how lower and middle-income taxpayers would be affected by losing federal assistance for health care.
In addition, she is obscuring the huge savings for the wealthiest Americans by framing the tax cuts in terms of percentage. People earning more than $100,000 would save tens of thousands more dollars than those with lower incomes. That unfair and bad “bang for the buck” for the federal government. Steering more tax cuts to people living paycheck to paycheck would virtually guarantee that taxpayers spend more on goods and services.
The Des Moines Register published a guest editorial by Ernst on a November 24. Read this excerpt and ask yourself whether the senator could possibly be undecided on the Senate bill:
With a pro-business president in the White House, we are seeing a return to policies that let the American market do what it does best, for its long overdue that the federal government get out of the business of trying to fix the economy. In fact, economists estimate that lowering the tax rate on job creators of all sizes would foster long-term economic growth, which would boost incomes for the average household by thousands of dollars.
By streamlining our cumbersome tax system and eliminating loopholes that primarily benefit the wealthy, Congress has an opportunity to lower tax rates for middle- and low-income Iowans and dramatically decrease the amount folks are taxed. Despite what you might read or hear, the Senate proposal would not cut Medicare, Medicaid, mortgage interest deductions, or student loans, just to name a few. The non-partisan Joint Committee on Taxation found that the Senate legislation — on average — would provide every income group with tax relief.
Likewise, by creating a more competitive tax system for businesses, we can foster greater growth and investment in the United States while boosting wages and job opportunities for hardworking Iowans. The Tax Foundation estimates that the plan would create over 10,000 jobs in Iowa and a middle-income family in Iowa would see roughly $2,600 more in their paycheck annually.
Almost every economist “surveyed by the University of Chicago’s Initiative on Global Markets agreed that the GOP tax bills in Congress would cause U.S. debt to increase ‘substantially’ faster than the economy,” Jeff Stein reported for the Washington Post last week.
Steep tax cuts for wealthy people and corporations decimated the state budgets of Louisiana and Kansas during the last several years. A group of Kansas Republicans warned members of Congress last month not to repeat their mistakes.
At the behest of conservative Governor Sam Brownback, Republican majorities in Kansas in 2012 set the state’s income tax on a “march to zero” and eliminated taxes on companies whose owners filed their taxes as individuals—a loophole exploited by thousands of businesses that resulted in plummeting revenue to the state’s coffers. Brownback, a former U.S. senator and presidential candidate, hailed the policy as “a real-live experiment” in conservative governance. But in the eyes of all but Brownback and his staunchest supporters, the test failed. Economic growth never materialized, and the state legislature could not summon the political will or overcome legal roadblocks to cut spending to match the lower revenue. With annual deficits in the hundreds of millions, Kansas has been mired in a perpetual budget crisis ever since.
“It was supposed to increase the GDP, and it didn’t. The feds will have that same problem,” said state Senator Jim Denning, a conservative who originally supported the tax cuts. In a phone interview, Denning told me he had done his own economic modeling in 2012 and “proved to myself that the tax cut would work.” But the new policy did not prevent a rural recession in Kansas or a dip in its oil-and-gas business. “It generated hardly any measurable economic activity,” Denning said. By the beginning of this year, he had changed course and voted along with Democrats and a coalition of Republicans to reverse most of the cuts, erasing Brownback’s economic legacy. […]
Bollier recalled that Republicans had first tried to offset the steep cuts in tax rates by eliminating deductions and exemptions in the Kansas code. But those proposals could not get through the legislature, exacerbating the resulting increase in the state’s budget gap. “You’ve got to have pay-fors. You can’t do it just by cutting taxes,” she concluded.
The “Tax Foundation” Ernst cites is a corporate-backed think tank, which has long pushed misleading claims about U.S. tax rates. As Seth Hanlon described in this thread, the Tax Foundation “is a mission-driven, advocacy organization that advocates for tax cuts, and especially, corporate tax cuts.” Their model, which purports to show that tax cuts boost the economy, is flawed by their own admission.
Ernst’s claim that the proposed tax cuts would create 10,000 Iowa jobs is based on incorrect calculations from a group funded by corporations that would save money under the proposal.
But wouldn’t corporations pass their tax savings along to customers or boost the economy in other ways? For the most part, no, according to this Bloomberg article by Toluse Olorunnipa.
Major companies including Cisco Systems Inc., Pfizer Inc. and Coca-Cola Co. say they’ll turn over most gains from proposed corporate tax cuts to their shareholders, undercutting President Donald Trump’s promise that his plan will create jobs and boost wages for the middle class.
The president has held fast to his pledge even as top executives’ comments have run counter to it for months. Instead of hiring more workers or raising their pay, many companies say they’ll first increase dividends or buy back their own shares.
Steve Matthews reported for Bloomberg on November 27,
“Nothing in the bill suggests it will increase growth,” said Richard Thaler, the University of Chicago professor who last month won the Nobel Prize in economics. “Corporate profits are already high and they are sitting on piles of cash. Why should we think they have profitable investments that they are not doing now but would do if the tax were lower?”
If and when this bill comes to the Senate floor, Grassley and Ernst will vote yes and portray its passage as a victory for over-taxed Iowans. Reporters should not let their claims go unchallenged.
Full text of Grassley’s latest form letter about taxes:
Dear [name]:
Thank you for contacting me about tax reform. As your Senator, it is important for me to hear from you.
I appreciate hearing your concerns about tax reform. There is broad consensus that our tax code is in dire need of reform. It was last reformed just over 30 years ago. Since that time it has grown out of control in length and complexity with taxpayers cumulatively spending over 6 billion hours annually complying with its dictates. Small businesses are estimated to be burdened with $15 to $16 billion annually in compliance costs. These are resources that would be better spent growing their businesses. Moreover, our outdated corporate tax system puts American companies at a competitive disadvantage as they try to compete in a 21st century global economy.
The Senate Finance Committee recently processed tax reform legislation that would make good on our commitment to provide significant tax relief to the middle income taxpayers, while making the tax code simpler, fairer and more pro-growth. Some of the middle-income tax relief in the bill includes nearly doubling the standard deduction, doubling the child tax credit from $1,000 to $2,000 per child, reducing the current law 15% bracket to 12% and expanding its reach, meaning hardworking Americans will see more money left in their pocket to spend, save, and invest as they see fit.
According to an analysis by the Joint Committee on taxation, on average every income group will experience a tax cut with the largest percentage tax reductions in the middle income groups. Moreover, the reform bill would make the tax code more progressive with taxpayers earning more than $1 million shouldering a larger share of the tax burden than they do under current law.
Additionally, the Senate bill lowers the burden on middle class families by eliminating the tax penalty in the Individual Mandate. Iowans who have decided that Obamacare is too expensive for them are penalized by the federal government. More than 52,000 Iowans in 2015 were forced to pay the individual mandate tax. Over 80 percent of those who paid the tax made less than $50,000 a year. That’s a tax on working families, and this legislation does away with it.
The bill also enacts much needed corporate tax reform, lowering the statutory corporate rate down from the highest in the develop world to 20% in 2019. This will allow U.S. corporations to create more jobs and pay higher wages. Economists generally agree that a significant portion of the corporate tax falls on workers in the form of reduced wages. Estimates of the burden of corporate tax on workers range from 25% to more than 70%. While the exact amount may be debated, one thing is clear; corporate rate reduction results in bigger paychecks.
I understand some are concerned that tax reform will add to the deficit. I agree it is important for tax reform to be done in a fiscally responsible way. Our tax reform proposal is designed to spur economic growth, which will result in more taxpayers and more revenue for the federal government. If tax reform spurs as little as .4 percent of additional growth on an annual basis that would equate to about $1 trillion in additional revenue. In truth, if we are ever to get a grip on our growing debt we can’t continue to settle for the anemic growth of less than 2% we have experienced since 2010.
Tax reform will provide middle class Americans with financial relief, make U.S. industry and workers more competitive, create jobs across the country, and get the economy growing again after years of stagnation. There’s still work to be done. The legislation now goes to the full Senate and will have to be reconciled with legislation passed by the House of Representatives. This is a historic opportunity to help Americans from every walk of life. I look forward to working with my colleagues in both chambers to deliver on our promise for middle class tax relief.
Again, thank you for contacting me. Keep in touch.
Sincerely,
Chuck Grassley
Full text of Ernst’s latest form letter about taxes:
Dear [name],
Thank you for taking the time to contact me about reforming the federal tax code. It is important for me to hear from folks in Iowa on policy matters such as this.
One of the biggest problems facing Iowa families and businesses today is our uncompetitive and loophole-ridden tax code. Every year, Americans spend 8.9 billion hours and $99 billion filing taxes. In addition to being a complicated headache for families and individuals, it also puts American businesses at a disadvantage. Small businesses, which make up 97 percent of employers in Iowa, are taxed as much as 44.6 percent on their profits.
As you know, on November 16, the House of Representatives passed H.R. 1, the Tax Cuts and Jobs Act. This legislation would make several changes to individual income taxes, reducing the number of income tax brackets from 7 to 4, maintaining the top bracket of 39.6 percent along with brackets of 35 percent, 25 percent, and 12 percent. It also eliminates or reforms several deductions and credits while doubling the standard deduction and expanding the child tax credit. The bill also includes significant changes to the taxation of businesses in an attempt to make the United States more competitive with other developed countries. It would lower business tax rates, impose a one-time tax on assets that businesses hold overseas, and move toward a territorial-based cash flow system in which businesses would get taxed based on where they make their profits rather than where they are headquartered.
On November 9, the Senate unveiled a tax plan that includes many similar reforms, but it does not eliminate nearly as many tax deductions and credits. On the individual side, the Senate proposal calls for a larger increase in the child tax credit than the House bill and reduces tax rates across 7 brackets rather than 4, including rates of 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, and 38.5 percent. This proposal passed the Senate Finance Committee on November 16 and currently awaits consideration by the full Senate.
An analysis of the Senate bill from the nonpartisan Joint Committee on Taxation found that on average, middle-income earners would see the largest percentage decrease in their tax bills. In 2019, those earning less than $10,000 would see a tax cut of 5.6 percent, those earning between $20,000 and $30,000 would see an 8.4 percent cut, folks between $30,000 and $40,000 would see a 9.8 percent cut, $40,000 to $50,000 would get a 9.5 percent reduction, $50,000 to $75,000 would get an 8.5 percent cut, $75,000 to $100,000 would see a 7.7 percent cut, and $100,000 to $200,000 would see a 6.8 percent cut. By contrast, folks earning over $1 million would see a 5.4 percent reduction.
It is long-overdue for our country to pursue a simpler tax code that provides much-needed relief for hardworking Iowans and puts our economy back on track. By streamlining our cumbersome tax system and eliminating loopholes that primarily benefit the wealthy, Congress has an opportunity to lower tax rates for middle- and low-income Iowans. Likewise, by creating a more competitive tax system for businesses, we can foster greater growth and investment in the United States while boosting wages for hardworking Iowans. I look forward to carefully reviewing tax reform legislation in the Senate and working with my colleagues on a path forward that reduces the burden our complicated tax system places on our families, individuals, and small businesses.
Please know that I will continue to keep your views in mind as this issue is considered by the Senate. Feel free to contact my office with any further information, as I always enjoy hearing from Iowans.
Sincerely,
Joni K. Ernst
United States Senator
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