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If Tax Bill Passes as Written Now, Poor Children Lose at the Expense of Billionaires

December 13, 2017

I have avoided reading about the pending tax bill or writing about the articles I do read for two reasons. First, I have serious doubts that the bill will pass as written, and it is therefore premature to comment on each and every iteration. Secondly, I could devote every blog post to legislation that widens the divide between the top .1% and everyone else… and there is so much of it in the pipeline that this blog would be nothing but endless conjecture.

I am writing today about the framework of the GOP tax bill, which signals the intention of that political party to sacrifice the well-being of children raised in poverty in order to reward those who make the largest contributions to their political campaigns. Two NYTimes articles highlight elements of the framework that will add the economic divide in place.

Economist Nora Gordon describes how the significant cut to the deduction of state and local taxes will impact public education funding in her article titled “How the Tax Bill Hurts the Poorest Schools“. As Ms. Gordon explains, even with the “compromise” forged in recent reconciliation meetings, the loss of this deduction will adversely effect the poorest districts:

After a consideration of eliminating all state and local deductions, current proposals have been marketed as a political compromise: Both bills take away taxpayers’ ability to deduct income taxes but allow a property tax deduction of up to $10,000 per year. The problem is that states depend more heavily on income taxes, and local governments on property taxes, so the compromise favors raising funds at the local level. Structuring it this way will only add to inequality in the school system.

As an economist who has studied education funding and policy, to me the historical record is clear: State-level school spending is critical. Economic segregation across school districts means some areas need an infusion of resources to have a chance at serving their students well, and states are the primary source of that infusion. Research shows that when states send more resources to their neediest districts, achievement levels in those districts rise.

But states are already in a tough spot: The most recent data show they are still recovering from the recession, with over half of them spending less on K-12 now, in inflation-adjusted terms, than they did in 2008.

And Ms. Gordon goes on to note that when the GOP finds the deficit widening they are “forced” to make cuts, those cuts will likely come at the expense of the neediest in our country: children. Ms. Jones asserts that the GOP should reduce rather than eliminate the deductions for state and local property taxes on the basis that it would provide them with a straight-faced argument that they empowered states “to improve the lives of disadvantaged families and provide all children the opportunity to succeed” — a Republican Party goal listed in its “A Better Way” policy paper. I may be skeptical, but I doubt that Mr. Ryan or Mr. McConnell are paying attention to a GOP policy paper. Instead I think they are listening more to the donors who elected them and want a large deduction in the business tax even if it dis-empowers states and local governments.

Eduardo Porter also analyzes the impact of the current version of the GOP tax bill in his recent article titled “Tax Plan’s Biggest Cuts Could be in Living Standards“. In the article, Mr. Porter questions the fundamental basis for the tax cuts; namely that cutting taxes on the wealthiest Americans and businesses will result in a better standard of living for all Americans. When he examined the analysis of the original tax proposal, Mr. Porter identified an ethical dilemma:

The Joint Committee’s analysis of an early version of the Senate Republican plan found that 10 years from now, millionaires would get a tax cut worth $8,500, on average. People earning $75,000 or less, by contrast, would experience a tax increase.

Adding in the cuts to Social Security, Medicaid, education and other programs that Republicans are planning to cull to pay for the tax reductions, the cost to poor and middle-income families would be even greater.

And this presents an immediate ethical problem. Students of the history of economic thought learn early on that taking money from the poor and the middle class to give to the rich tends to reduce overall welfare for the simple reason that an extra dollar provides much more to those who have few of them than to those already rolling in money. Most conventional proposals to increase general welfare support redistributing in the other direction.

Mr. Porter’s “ethical problem” is not shared by the GOP, who believe— despite all evidence to the contrary— that tax cuts for the wealthy will ultimately benefit those in the middle and lower classes. And this is not a new perspective for the GOP or our Congress, no matter which party is in control.

Of the world’s seven richest large economies, the United States and Britain have experienced the highest growth in income per person since the mid-1990s. But the United States ranks second from the bottom in the income gains of the poorest fifth of households over the period. And it also fares poorly when it comes to incomes in the middle of the distribution.

This lopsided distribution of riches imposes a question on Republicans perpetually pushing for tax cuts on corporations and high-income Americans: What understanding of national welfare justifies the upward redistribution they are proposing? Using growth as a justification seems like a ruse.

Given that the GOP was NOT in control of the White House for at least 12 of the 20 years since the “mid-1990s”, this voter wonders if the GOP “owns” this redistribution problem. The mainstream Democratic Party has not offered an alternative tax proposal to the one proposed by the GOP, though the Progressive Wing offers an alternative budget and tax package annually.  I may be skeptical, but I am guessing that the DNC is listening more to the donors who elected them and prefer to avoid suggesting any proposal that looks like it might redistribute funds from the .1% to the middle and lower classes.

Mr. Porter concludes his article with this parapgraph:

And yet reading about Republicans’ latest step in their long march to cut tax rates at the top of the distribution — redistributing income from the bottom to the top — I can only agree that that’s the world we live in.

I would amend his concluding paragraph to read as follows:

And yet reading about Republicans’ latest step in their long march to cut tax rates at the top of the distribution — redistributing income from the bottom to the top — and noting the silence of the Democrats on the need for an alternative redistribution— I can only agree that that’s the world we live in.

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