Unhappy Birthday? Trump Tax Cuts Turn 2

Unhappy Birthday? Trump Tax Cuts Turn 2

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Plus, how to raise $1 trillion for Social Security
Friday, December 20, 2019

Unhappy Birthday? Trump Tax Cuts Turn 2

“Two years ago today, Republicans in Congress passed a sweeping tax cut,” writes National Public Radio’s Scott Horsley. “It was supposed to be a gift-wrapped present to taxpayers and the economy. But in hindsight, it looks more like a costly lump of coal.”

Horsley, NPR's chief economics correspondent, says the economy appears to have received a short-term boost from the tax cuts, but the effect wore off quickly. Overall, that the tax cut package pushed through Congress on a party-line vote has largely failed to fulfill its promises. Some examples discussed by Horsley:

  • While President Trump said the tax cuts were meant to help “the folks who work in the mailrooms and the machine shops of America," more than half of the tax savings went to the top 20% of the income distribution, and corporations received the biggest cuts.
     
  • Trump portrayed the tax cuts as “rocket fuel for our economy" and Senate Majority Leader Mitch McConnell said “America is ready to take off” when the tax cuts passed, but the economy grew at the same pace in 2018 (2.9%) that it did in 2015. Business investment has actually fallen for the past two quarters.
     
  • Treasury Secretary Steven Mnuchin said the tax plan would pay for itself, but we’re facing $1 trillion deficits for years to come instead. “The tax cuts were never going to — and have not — come anywhere close to paying for themselves," said Maya MacGuineas of the Committee for a Responsible Federal Budget.

The Washington Post’s Catherine Rampell also took aim at the GOP tax cuts this week, saying Thursday that they were like a toddler who is “way behind on nearly all its developmental milestones.” Hitting on many of the same points as Horsley, Rampell mockingly proclaimed, “Welcome to your terrible twos, GOP tax cuts!”

And lest you think the bad reviews are only coming from the ostensibly liberal mainstream media, journalists aren’t the only ones offering critical remarks.

Earlier this week, Senate Finance Committee Chairman Chuck Grassley was asked about how the tax law would affect Trump in the 2020 election. The Republican from Iowa said that while it probably wouldn’t hurt the president, “it definitely hasn't been any help to us." Most Americans received some kind of tax cut, Grassley said, but it was too small for most people to notice in their paychecks. "You don't notice it, so you don't even think about it," he said.

Democrats Again Spar Over Taxes and Health Care

Seven Democratic candidates took on a wide range of issues in their sixth presidential primary debate, from impeachment to the new U.S.-Mexico-Canada trade agreement to climate change to foreign policy — though in the aftermath, their substantive clashes on specific issues may be overshadowed by their arguments over electability and fireworks over campaign fundraising.

If you didn’t watch — Thursday night's viewership hit a 2020 campaign low — or even if you did, here’s a recap of a few of the top tax and health care issues that came up in the debate.

Warren says economists who say her taxes on the rich would stifle growth are “just wrong”: Asked how she would answer “top economists” who say that her tax plans would hurt growth and investment, Warren had a pithy answer: “Oh, they’re just wrong.” That drew applause from the audience. Warren went on to list the ways in which her Ultra-Millionaire Tax, which she refers to as a two-cent tax (though she proposes a 6% tax on the wealth of billionaires) could fund investments in programs from universal childcare and pre-K to canceling student debt. “You leave two cents with the billionaires, they're not eating more pizzas, they're not buying more cars,” she said. “We invest that 2 percent in early childhood education and childcare, that means those babies get top-notch care. It means their mamas can finish their education. It means their mamas and their daddies can take on real jobs, harder jobs, longer hours.”

Pete Buttigieg tried to differentiate himself from Warren. “I think we’re being offered a false choice that you either have to go all the way to the extreme or it’s business as usual. Yes, we must deliver big ideas and, yes, taxes on wealthy individuals and on corporations are going to have to go up,” he said. “We can also be smart about the promises we're making, make sure they're promises that we can keep without the kind of taxation that economists tell us could hurt the economy. … On issue after issue, we've got to break out of the Washington mindset that measures the bigness of an idea by how many trillions of dollars it adds to the budget or the boldness of an idea by how many fellow Americans it can antagonize.”

Sanders, Biden and Klobuchar clashed over Medicare for All: Health care, which has featured prominently in previous debates, only came up toward the end of this one. Sen. Bernie Sanders was asked if there are “smaller specific measures” he would take immediately to expand health care coverage and reduced costs, under the assumption that, if elected, he wouldn’t be able to get the votes to pass his Medicare-for-All plan.

Sanders insisted that he could sell his plan to the American public, and that Congress would fall in line as a result. “I think we will pass a Medicare for all single-payer system, and I will introduce that legislation in my first week in office,” he said.

Vice President Joe Biden countered that Sanders’s plan is unrealistic — and expensive. And Amy Klobuchar said Sanders would struggle to get moderate Democrats to embrace his plan: “Your fight, Bernie, is not with me or with Vice President Biden. It is with all those -- bunch of those new House members, not every one by any means, that got elected in that last election in the Democratic Party. It is with the new governor, Democratic governor of Kentucky, that wants to build on Obamacare. … [I]f you want cross a river over some troubled waters, you build a bridge, you don't blow one up. And I think that we should build on the Affordable Care Act.”

Sanders responded that Biden’s plan would maintain the status quo and suggested that the former vice president and Klobuchar should be more focused on the fundamental problems in the profit-driven U.S. system: “My fight, Amy, is not with the governor of Kentucky. My fight and all of our fights must be with the greed and corruption of the pharmaceutical industry, with the greed and corruption of the insurance industry. These guys last year made $100 billion in profit and tens of millions of Americans cannot afford to go to a doctor tonight.”

The candidates didn’t hit Trump and Republicans for attacking Obamacare: An appeals court this week handed down a decision invalidating the Affordable Care Act’s individual mandate and punting the rest of the law back to a Texas judge for further review. The case will almost certainly wind up before the Supreme Court, and it could foster renewed debate around Obamacare and key elements such as its protections for patients with preexisting medical conditions. But the seven candidates on stage didn’t mention the politically charged case. “Instead of pivoting to defend the law and branding Republicans as existential threats to the ACA — a strategy that helped Democrats win control of the House last year — the candidates continued their months-long disagreement over whether a single-payer health-care system would be best for the country,” write Amy Goldstein and Sean Sullivan at The Washington Post.

Why the Fix to Surprise Medical Bills Didn’t Happen This Month

BuzzFeed News reports that after a tenuous deal between Democrats and Republicans to address surprise medical bills as part of Congress’s year-end spending package fell apart, “people on both sides of the aisle are pointing their finger at one member for tanking the momentum: Rep. Richard Neal, the powerful chair of the House Ways and Means Committee.”

BuzzFeed’s Paul McLeod writes:

“The deal was endorsed by President Trump and seemed set to pass, but it was always on shaky ground. Senate Minority Leader Chuck Schumer, receiving pressure from the Greater New York Hospital Association, did not endorse the bill but did not try to block it. Politicians in both parties had problems with the bill, but it seemed to have enough support.

“Then, last week, Neal surprised everyone by releasing a counterproposal. Conversations with half a dozen politicians and aides across both parties and chambers with knowledge of the process concluded that the proposal from the Ways and Means Committee fractured the unsteady coalition and killed chances for surprise billing to be solved in 2019. …

“Opinions vary on what happened. Some think it may have just been jurisdictional jostling, whereas Republicans suspect Neal was working with Democratic leadership to deliberately tank a solution. Of particular frustration is that Neal’s counterproposal wasn’t even a piece of legislation but only a vague one-page outline.”

Neal’s Massachusetts primary challenger, Alex Morse, offers a more nefarious explanation, alleging that Neal was swayed by a $29,000 donation from private equity giant the Blackstone Group.

Neal’s office didn’t immediately respond to that charge, McLead says. The congressman says he remains committed to ending surprise medical billing but that the congressional deal was rushed and a packed calendar left little time to scrutinize the details.

How to Raise More Than $1 Trillion for Social Security

One of the more popular ideas for improving the finances of the Social Security system is to raise the maximum level of income that is exposed to FICA (Federal Insurance Contribution Act) taxes.

Currently, workers pay 6.2% in Social Security tax on just the first $132,900 of income, with employers paying the same, for a total tax of 12.4%. Analysts at the Penn Wharton Budget model released a study this week that estimated the revenue gains associated with raising the cap on that payroll tax. The researchers found that increasing the maximum to $300,000 starting in 2021 would raise about $1.2 trillion in additional revenue over 10 years.

Families in the top 10% of the income distribution would bear most of the brunt of the tax hike, accounting for about 93% of the increased revenue. "The cost of this policy would fall largely on the upper-middle class and richest Americans," the researchers wrote. "After-tax income for those in the 95th to 99th percentage would fall by 1.3%, experiencing the greatest change of any income group," raising their payroll taxes by about $3,830 per year.

Penn Wharton also estimated that the economy would be 1.7% smaller in 2050 than it would have been without the tax increase. (Critics have raised questions about this aspect of the Penn Wharton economic model in the past, however, charging that negative GDP effects from tax hikes are simply assumed in the model.)

Column of the Day: The Problem With Finding ‘Common Ground’

The Washington Posts’ Robert Gebelhoff argues in a new piece that there’s a dangerous pothole in the “common ground” that politicians often say they want to find: “Sure, it may appeal to voters for lawmakers to find proposals on which they agree, but that doesn’t mean it’s good governance. Far more important — and difficult — is the work of building bridges between our separate political territories, even if doing so is unpopular.”

Gebelhoff offers as an example the bipartisan $1.4 trillion spending deal passed this week by Congress. The package, he writes, highlights “a different — and damaging — kind of common ground: the tendency of lawmakers to agree that they can ignore ballooning federal deficits.” The result is a spending bill that is projected to add another $50 billion in annual deficits to the existing $1 trillion budget gap:

“It does so with an array of bipartisan spending sprees, including expanding Pentagon budgets, eliminating unpopular taxes in the Affordable Care Act and extending what were meant to be short-term tax cuts for biodiesel producers, brewers and distillers, and others. It’s because of these ‘common ground’ items that Maya MacGuineas, president of the Committee for a Responsible Federal Budget, called the bill a ‘bucket of garbage.’”

Gebelhoff argues that this congressional common ground masks a larger inability to make progress on bigger problems like climate change, immigration and health-care costs and that lawmakers would better serve the public by seeking compromise, even if it’s much harder to achieve and could leave them politically more vulnerable:

“Consider the Reagan-era tax reform of 1986, which required lawmakers to face down relentless special interests, partisan blockades and — most potent of all — angry voters to whip the bloated tax code into shape. Negotiators from both parties closed themselves off in private rooms and hashed out the details knowing full well they wouldn’t get everything they wanted.”

Read the full column at The Washington Post.

Your Prize for Making It Through the Week

We heard something about a new Star Wars movie coming out this week. If you feel the need for a refresher before heading down to the cineplex, try “The WIRED Guide to Star Wars” or “A Quick Guide To Star Wars If You're Too Afraid To Ask.”

If Star Wars-themed gifts are more your thing, try “The Perfect Star Wars Gift for Every Room of the House.” And for advice on the surprisingly contentious issue of watching the series in its entirety, take a gander at “Deciding the Best Order to Watch the ‘Star Wars’ Movies: A Complete Investigation.”

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