What the tax-reform package – if any – that Congress eventually sends to the president will include is anyone’s guess. The possible components of this $1.5 trillion dollar “cut,” though, are lined up for all to see.
Congress cannot simplify ordinary Americans’ tax forms without eliminating deductions, and for some, the increased standard deduction will balance the losses. For others, it will not, and Congress is banking on those increases to help pay for other cuts.
Taxpayers are analyzing which features would lower their tax bills and who might get hurt, and businesses are trying to guess how any money that’s freed up might be spent. Under the House bill, 47 million households – more than a third – will pay more in federal taxes.
The ramifications of tax reform extend far beyond those for individual taxpayers, because specific provisions of a tax bill can affect the economic shape of a community.
Most of the benefits do cluster far above the income level of the average household or small business, and not much is likely to trickle down. According to the Colorado Fiscal Institute, 59 percent of the benefits would go to the top 1 percent of income earners. The president has trumpeted that the economy has reached full employment and interest rates are low. Quite a few analysts believe there is little societal benefit to be had, but significant risks are apparent.
Colorado funds 30 percent of its budget from the federal government, which pays for things like transportation, farm and public health programs and health care for lower-income families. A small tax cut for those who may receive it has to be balanced against what will be lost in needed programs.
One significant area of concern is around education. How will changes in the tax code affect higher education? The Washington Post reports that provisions in the House bill could raise costs to students and families by $71 billion over the next decade. Various higher-ed costs have been deductible because an educated workforce benefits both communities and the nation, while also raising individual income.
Now the deduction for student-loan interest could be cut. Tuition waivers for post-graduate education might become taxable. Will that push college and vocational education out of reach for more individuals?
Loss of the deduction for medical expenses undeniably would make health care less affordable for patients who need more than routine care. If the tax-cut package eventually includes cuts to Medicaid and/or Medicare, or if it eliminates the Affordable Care Act’s individual mandate – a goal in the Senate – fewer people will be able to afford the care they need.
When local “sin taxes” levies are proposed for sales of tobacco, marijuana and alcohol, or even on such unhealthy items as soda, detractors rail against “social engineering via taxation.” Any alteration of the federal tax code is likely to amount to some noticeable social engineering as well. Some groups will benefit. Some will lose ground. Because modern Americans tend to congregate in communities of their peers, some of those communities will benefit, and others will suffer.
So far, the suffering appears likely to settle close to home, while the advantages land elsewhere.