President Trump and Republicans in Congress are considering tax reforms which could cut corporate tax rates and provide substantial relief for the wealthy while shifting the nation’s tax burden onto the poor, working families and children, a new report says.
A Center on Budget and Policy Priorities white paper looked at possible plans as Congress considers tax reform legislation. At a bare minimum, tax reform should not lose revenues. Key Republican congressional leaders have promised that tax reform will be revenue-neutral.
Proposals to reform the federal tax system generally aim to reduce marginal personal and corporate income tax rates and offset the cost of the rate reductions, in whole or in part, by expanding the tax base. For example, the House Republican “Better Way” tax plan would reduce the top individual income tax rate on capital gains and dividends from 23.8% to 16.5% and the top corporate rate from 35% to 20%.
Broadening the tax base entails limiting tax deductions, exclusions, and other tax breaks known collectively as “tax expenditures.” Although many tax expenditures have merit, others are inequitable or inefficient, and tax expenditures disproportionately benefit the well-off.
The revenue gains from curbing tax expenditures, however, should not all be devoted to reducing tax rates. Applying all such savings exclusively to tax-rate reduction would exhaust what may be the most promising and politically feasible options for increasing revenues and would effectively take revenue-raising off the table for deficit reduction for years to come.
That would place the burden of deficit reduction entirely on federal programs.
Without additional revenue, rising deficits will fuel efforts to cut Social Security, Medicare, and other programs. Social Security and Medicare will be vulnerable because they account for most of the projected growth in federal spending, even though that growth stems primarily from the aging of the population and rising health care costs.
Programs for low- and moderate-income households will also remain a prime target of budget cuts, as they have been in recent congressional Republican budget plans, if revenues are inadequate. For example, the budget plan that the House Budget Committee approved would have secured 62% of its cuts from low-income programs such as SNAP (formerly food stamps) and Pell Grants, slashing them by two-fifths overall, while achieving no deficit reduction whatsoever from curbing tax expenditures
Info: https://goo.gl/hMUOuo (report).