5 Ways the Senate GOP Tax Bill Will Undermine America’s Economic and National Security
5 Ways the Senate GOP Tax Bill Will Undermine America’s Economic and National Security
The Senate tax bill squeezes the middle class, wastes America’s fiscal resources, set up fiscal cliffs, cut off federal revenues needed to support economic and national security priorities, and further concentrates economic and political power.
The Senate is reaching the final stages of consideration of a large and significant tax bill. Here are five ways that the tax bill will undermine America’s economic and national security.
1. The tax bill will increase taxes on the middle class and working families
By 2027, 87 million Americans making less than $200,000—including in every state—will see a tax increase under this bill. Essentially, that’s because the Senate GOP tax bill pays for the deficit-increasing tax cuts for corporate and business pass-throughs by raising taxes on the middle-class and working Americans. Sadly, this tax increase will undermine the economic security of the very people who have been hit hardest by the middle-class squeeze, especially working class Americans without a college degree.
2. The economic growth that supporters claim for this bill will not happen, and as a result, the debt accrued by the bill will be for nothing
Corporate tax cuts do nothing to support consumer demand, which is still the bedrock of the American economy. Moreover, the argument that corporate tax cuts will spur business investment does not hold up in an environment of high after-tax corporate profits, weak competition, and already wide-availability of borrowing. As was the case following the 2004 corporate repatriation, corporate tax cuts do not get plowed back into investment or wages in the United States since businesses already can and do borrow as much as they need. Instead, they are used for executive compensation, stock buybacks, and dividends to shareholders—all of which overwhelmingly benefit the well-to-do rather than working Americans. As such, the deficit spending in the bill—$1.4 trillion over the first 10 years alone, which all Americans will owe—will be wasted on giveaways to those at the top. And its real deficit cost could be much higher. Borrowing now to bring returns later would be worth it if the United States was investing in infrastructure or other national priorities, but this tax bill is simply a wasteful upward transfer of wealth.
3. The structure of the bill gives rise to bad policy and impossible political choices, the results of which will have adverse long-term economic impacts
By sunsetting significant portions of the bill, it sets up fiscal cliffs similar to what the U.S. faced during the Obama presidency, in which the end of the Bush tax cuts left Congress with difficult political and budgetary choices. Then, rising deficits from the tax cuts and the impending expiration of those cuts led to budgetary hysteria and political stalemate, followed by large and indiscriminate spending cuts that hit both national security and domestic investment priorities. And this occurred at a time when monetary policymakers, such as Federal Reserve Chairman Ben Bernanke, were asking for more, not less, federal fiscal investment. The same is likely to happen again—and with equally negative economic consequences.
Moreover, the recent news that the bill’s sponsors are trying to create a Rube Goldberg contraption—the so-called “trigger”—to save the bill from itself shows in stark relief just how bad a bill this is. And what’s more, the contraption is of unknown complexity because it likely will not be made fully public until minutes before the bill is sent to a vote. That is a serious process foul for a provision that could affect, potentially, the entire U.S. economy and all taxpaying families.
4. By effectively removing corporate offshore profits from taxation, the bill shrinks the base for federal revenues far into the future, threatening economic and national security priorities
Precisely when America needs a tax base that is broad and diverse in order to address economic and national security needs, the bill eliminates exactly that breadth and diversity, shifting America’s corporate tax largely to a domestic tax regime. But, in doing so, it supercharges tax gaming and offshoring, from which the U.S. already loses an estimated $100 billion a year. The bill also sets up strong incentives to move real operations offshore, which would mean a loss of U.S.-based jobs.
In addition, the true cost of the tax-base loss is masked by the one-time revenue raised through requiring companies to pay tax immediately on the untaxed profits they have been holding offshore. To add insult to injury, that modest revenue raiser should more properly be counted as a monumental loss of tax revenue, as the bill applies a fire-sale rate of 10 percent for cash rather than the 35 percent owed—effectively, a $562 billion tax cut. The bill makes a pretext of substituting other provisions to prevent shifting of profits and operations offshore, but tax experts believe these will be easily gamed and thus not protect the revenue base. In fact, the bill as a whole provides offshore tax avoiders an additional $30 billion in tax breaks.
All of this is unnecessary and counterproductive for American competitiveness. Furthermore, by cutting off a large portion of its worldwide tax base, the United States is basically handing over to foreign jurisdictions tax revenues that should have been paid to the U.S. by its multinationals, with little to gain for doing so.
Collapsing federal revenues will have serious implications for economic and national security. As three former defense secretaries argue, the U.S. government can ill afford to destabilize its own ability to raise the revenues it needs to support its national security priorities. A weak federal revenue base is also damaging to the ability to invest in education, research and development, infrastructure, and other priorities that are critical to maintaining America’s economic advantages. With the Statutory Pay-As-You-Go Act, these impacts hit immediately. Undermining America’s support systems will not well-serve U.S. economic stability. Indeed, the 2016 election is itself proof that an electorate suffering from economic frustration and the opioid crisis can fall victim to false promises. The results put at risk the very policies and systems—ranging from openness to new and different types of people to basic rule-of-law principles—that have been the foundation of America’s economic and political success and widely accepted on both sides of the political aisle.
5. The bill will undermine competition and further concentrate economic power in the largest economic actors
The overwhelming benefits of the Senate tax bill accrue to large multinational companies. This is because both the corporate rate cut from 35 percent to 20 percent and the shift to a territorial system for corporations are permanent, which are paid for (in the near term) by the tax hike on the middle class and cuts to health care. Not only do small businesses and family farmers already enjoy fairly modest taxation—and thus get relatively little out of the bill—they also generally cannot structure their operations offshore to benefit from the additional changes. By rewarding already large firms, the bill boosts the rising monopoly power of the largest corporations. Moreover, with large cuts to the estate tax and the dramatic drop in taxation on pass-through businesses, the Trump Organization and the wealthiest political donors would be enormous beneficiaries. Even conservatives acknowledge that the bill further cements the power of entrenched interests. The combination of monopoly power and an entrenched donor class undermines the middle-class democracy that has long been the source of America’s true economic and national security strength.
In sum, the Senate GOP’s tax bill is much like their health care bill. Instead of working in a bipartisan way to address genuine economic challenges, the Senate is ramming through an ill-conceived, unpopular piece of legislation that will weaken America’s economy and national security at a time when the U.S. can least afford it.
Andy Green is managing director of Economic Policy at the Center for American Progress.
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