By: Connor McNairn, Columnist
Both Congress and President Trump have placed great emphasis on restructuring taxes in the U.S. Republicans generally lament the fact that the United States has the highest corporate tax rates of developed countries, aggressively criticize the estate tax and complain of complicated filing procedures.
This past Thursday, however, the GOP set the stage for a potential tax overhaul.
Senate Republicans, through a slim 51-49 vote, pushed through a budget bill which essentially creates a “blueprint” for how the U.S. will spend its money in the 2018 fiscal year. In order for the government to spend money, it must have tax revenue; and because the GOP aims to cut taxes, it must also cut spending to avoid increasing the national deficit (when spending exceeds tax revenue, deficits grow larger). The GOP budget establishes a $473 billion cut from Medicare, and slashes $1 trillion from Medicaid over the next 10 years. Not surprisingly, no Democratic senators supported the measure, and all Republicans except for Rand Paul voted in favor. Although some Republicans remain uncertain about the bill’s merit, most support the measure because it sets the stage for subsequent tax cuts.
Republican lawmakers have been under tremendous pressure from the American public to pass significant legislation. While President Trump talked highly of his and Congress’ ability to pass meaningful healthcare legislation and tax reform during his presidential campaign, so far, they have achieved neither. In fact, the Affordable Care Act looks as though it will remain for quite some time. Given Congress’ lack of productivity under Trump, paired with a public opinion generally critical of incumbent Republican Congress members, 2018 midterms may eliminate Republican majorities and render Trump’s conservative agenda ineffective. In order to preserve their majority, Republicans must win on tax reform.
GOP lawmakers have relied on clandestine meetings to flesh out details for significant future tax cuts. The tax plan will most certainly cut corporate tax rates which, according to Republicans, will help corporations hire more Americans in need of employment. The plan will also consolidate tax brackets. According to the GOP tax outline that was released in September, lower-income Americans will face tax hikes, while the richest Americans will enjoy tax breaks. The philosophy behind slashing upper-income tax rates is commonly referred to as “trickle-down economics.”
The trickle-down approach is a popular method for Republicans with regard to tax legislation, and was especially prevalent under the Reagan administration. Unfortunately, this tax structure has never effectively grown long-term incomes and wages, and has not led to widespread job creation. Rather, the trickle-down theory has greatly contributed to American income inequality, as the gap between low-income and high-income earners has grown larger for several decades.
So, currently, Senate Republicans have successfully passed a budget blueprint which must either be passed by the House or modified by conference committees. Because the budget proposition significantly cuts spending, the groundwork for lower tax rates has also been established. Effectively, by the smallest majority possible, Republicans have set the stage to install a tax program that benefits high-income Americans and corporations at the expense of the less fortunate. Republicans must pass this legislation to build credibility for the approaching 2018 midterms. It is certain, however, that Democrats will fight the proposal at every possible opportunity. For the overall welfare of low-income earners, Medicare and Medicaid recipients, this is a fight that Democrats must win.