The voices of Tax Policy Center's researchers and staff
Let’s say you want to cut about $1 trillion over the next decade from Medicaid, subsidies for private insurers, and other government programs that benefit low- and moderate-income people. And let’s say you believe that since you are cutting government spending by that much, you should cut taxes by an equivalent amount. Whose taxes would you cut?
House Republicans seem to have decided. By limiting their focus to repealing the tax increases that were included in the Affordable Care Act, they would slash taxes largely for corporations and high-income households. The Senate Republican leadership’s draft health bill (now in the shop for an overhaul) would do the same, though some GOP senators may be having second thoughts.
Why have most Republicans limited their focus to the ACA’s taxes? There is no rule that says these tax cuts must primarily benefit high-income households. They could as easily be aimed at middle-income people.
Targeting Tax Cuts
That’s not what the GOP is doing. The Tax Policy Center estimates that both the House bill and the Senate leadership plan would distribute most of their tax cuts to high-income people, who would be mostly immune from the proposed cuts in Medicaid and government health insurance subsidies.
Since we don’t know what the final Senate plan will look like, let’s focus on the House-passed bill, the American Health Care Act (AHCA). TPC estimates that 70 percent of its tax cuts would go to households making $200,000 or more. They’d get an average tax cut of $5,700. By contrast, middle-income households (those making $50,000- $75,000) would get an average tax cut of $280. On average, households making between $10,000 and $50,000 would pay slightly more in taxes under the AHCA than under current law.
But Republicans don’t need to blindly cut taxes by rolling back the ACA’s tax increases on the wealthy. They could instead cut taxes for the same low- and moderate-income households that would lose Medicaid benefits in a GOP health bill, or whose private insurance premiums are likely to rise.
How? Congress could trim Medicare and Social Security payroll taxes. It could expand the Earned Income Tax Credit or increase the standard deduction. Each of these has its own issues, and they may not precisely target those who would face Medicaid cuts, but there are plenty of choices.
There are good equity reasons to head in this direction: To start, if you believe in giving tax money back to people so they can make their own economic choices, why would you largely exclude those with low- and moderate-incomes? Those extra tax dollars could supplement what are likely to be skimpier health insurance tax credits or help pay higher out-of-pocket medical costs.
Besides, if President Trump really wants to “prime the pump” and boost short-term economic growth, passing out tax cuts to low- and moderate income people who’d likely spend the extra cash would be far more effective than cutting taxes for high-income households who’d more likely bank the money.
Plus, there is little evidence that the economy would be harmed if Congress kept the 2010 tax increases. Take, for example, the 3.8 percent net investment income tax for individuals making $200,000 or more (couples making $250,000+). Since the NIIT took effect in January, 2013, the S&P stock market index has risen by more than 50 percent. At least one GOP senator, Bob Corker of Tennessee, is suggesting that the Senate may retain the tax.
Politics At Work
Politics undoubtedly are at work here too. Since 2010, Republican candidates have vowed to tear out Obamacare by its roots. And among some GOP supporters, the ACA’s tax cuts are the first target. On the other hand, this gives Democrats a powerful talking point: Republicans want to slash health benefits for average working families so they can lavish tax cuts on the rich.
Of course, there are other alternatives. Lawmakers could redesign their health bills so low- and moderate-income households don’t take such a big hit. They could not cut taxes at all and use the revenue to reduce the deficit. But the GOP seems committed to reducing Medicaid and subsidies for those buying health insurance as well as cutting taxes. If they are going that route, congressional Republicans and President Trump could do so in a way that keeps low- and moderate-income households whole.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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