Criticism of Tax Cuts Grows More Incoherent

The Democratic critique of the tax cuts has grown increasingly incoherent.

The 2017 Tax Cuts and Jobs Act (TCJA) remains controversial, with public opinion evenly split and many Democrats campaigning on repeal. However, the Democratic critique of the tax cuts has grown increasingly incoherent. The party excoriates the “tax cuts for the rich” while trying to tilt them even further to the wealthy. Democrats slam the deficit effect of the tax cuts while working to worsen budget deficits. In addition, they erroneously describe the law as a “middle-class tax hike” while proposing policies that would truly raise middle-class taxes.

Disingenuous Critique #1: “Tax Cuts for the Rich”

The most aggressive liberal complaint was that the TCJA represented a giveaway to the wealthy at the expense of the middle class. In reality, the tax cuts nudged the distribution of federal taxes in a more progressive direction. The bottom 80 percent of families had previously paid 33 percent of all combined federal taxes, yet received 35 percent of the tax cuts. By contrast, the top one percent had previously paid 27 percent of all federal taxes, but received just 21 percent of the tax cuts. Since upper-income earners received a lower share of the tax cuts, their share of federal taxes paid will slightly rise.

More importantly, several Democratic Governors and legislatures are aggressively building loopholes to expand the TCJA’s tax cuts for wealthy families. The TCJA capped the federal tax deduction for state and local taxes (SALT) at $10,000 per filer. Given that 88 percent of SALT benefits went to families earning over $100,000—and half accrued to the richest five percent of—taxpayersthis cap represented a straightforward way to ensure that the rich did not disproportionately benefit from the rest of the TCJA.

And yet Democrat-run states such as New York, New Jersey, and California are in the process of rewriting much of their state tax codes to work around this restriction. Approaches include replacing income taxes with employer payroll taxes that would be eligible for the uncapped SALT deduction (which would also reduce lifetime Social Security benefits), and reclassifying individual state and local taxes paid as charitable contributions eligible for a federal deduction. The latter approach will likely be blocked by the IRS.

Still, the intention is to cut federal taxes by nearly $650 billion over the decade if all states follow suit. The liberal Tax Policy Center calculates that 96 percent of the initial benefits would go to the top 20 percent of earners, and 57 percent of the benefits would go to the richest one percent. The richest one percent of New Yorkers would triple their benefits from the new tax law.

It is brazen, bizarre, and dishonest to slam the TCJA as a “tax cut for the rich” while simultaneously trying to expand its upper-income tax cuts by a staggering $650 billion.

Disingenuous Critique #2: Soaring Deficits

During last year’s debate, liberal critics regularly attacked the immorality of passing on $1.5 trillion in new debt to future generations. However, Democratic lawmakers previously enacted legislation with a combined $5 trillion price tag under President Obama, and today are rallying around Sen. Bernie Sanders’ (I-VT) $32 trillion single-payer health care proposal as well as a $12 trillion federal jobs guarantee. These liberal initiatives dwarf the cost of the tax cuts.

Furthermore, Senate Democrats have proposed repealing $1 trillion of the TCJA and putting those savings into new spending (while seemingly retaining a portion of the cuts for middle- and lower-income Americans). A House bill would repeal the entire law and reprogram the savings into college financial aid. In other words, these Democrats have no problem adding $1.5 trillion in red ink—they just wish the package was more tilted towards spending. That by itself does not make Democrats weaker than Republicans on deficits—both parties support adding $1.5 trillion in debt—but it does reveal the disingenuousness of their deficit concerns.

It is also noteworthy that, just seven weeks after the TCJA was signed, Democrats teamed up with Republicans on a spending deal that may cost as much as the tax cuts over the next decade. And as described above, state-level Democrats are playing tax accounting games that could reduce federal taxes by an additional $650 billion over the decade. These are not the actions of a party concerned with deficits.

Disingenuous Critique #3: “Middle Class Tax Hike”

Even before the tax bills were drafted as legislation, Senate Democrat cries of “middle-class tax hikes” earned a brutal "four Pinocchios" condemnation from the Washington Post fact checker. When the final TCJA was enacted, the liberal Tax Policy Center calculated that it will benefit 80 percent of families and raise taxes for just five percent—with the higher taxes disproportionately affecting the wealthiest one percent. The typical median-income family will save approximately $900 per year, while the average family will save $1,610.

Despite this overwhelming evidence to the contrary, Senate Democratic leader Chuck Schumer (D-NY) described the tax cuts as a “cynical one-two gut punch to the middle class” that would “raise their taxes.” House Democratic leader Nancy Pelosi (D-CA) called them “simply theft—monumental, brazen theft—from the American middle-class and from every person who aspires to reach it.”

How could the TCJA be described as a middle-class tax hike? By simply ignoring the first eight years of roughly $900-per-year tax relief and focusing only on the $20 tax hike—that’s six cents per day—that the median-income family will theoretically face in 2027 if Congress fails to renew the expiring portions of the law

Of course, if your best argument is that the expiration of the tax cuts would harm families, then the obvious solution is to renew them. Instead, House Democrats are rallying around legislation to repeal all of the tax cuts—including those for the middle class. Furthermore, popular liberal proposals such as single-payer health care, a federal jobs guarantee, free college, and a carbon tax would certainly require steep middle-class tax increases in order to fund the programs. Simply put, the Republicans are cutting middle-class taxes while Democrats would force them upwards.

The TCJA is certainly not above criticism. Yet Democrats continue to undercut their complaints by trying to double-down on the aspects they claim to oppose the most.

Reprinted from E21 Manhattan Institute

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