TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, June 29, 2017

NY Times:  The False Premise Behind GOP Tax Cuts

New York Times editorial, The False Premise Behind G.O.P. Tax Cuts:

With the Senate effort to upend Obamacare suspended for the Fourth of July holiday, there’s a chance to step back and examine the assumptions behind Republicans’ longstanding objections to the social safety net — as well as the flaws in those assumptions.

From Ronald Reagan’s invocation of a “welfare queen,” to Mitt Romney’s derision of “takers,” to the House and Senate bills to cut taxes for the rich by taking health insurance away from tens of millions of people, the premise of incessant Republican tax cutting is that the system robs the rich to lavish benefits on the poor.

But here is an essential and overlooked truth: As a share of the economy, federal spending on low-income people, other than for their health care, has been falling steadily since it peaked in 2011, after the Great Recession, and while it’s still slightly above the long-term average, it is declining, according to a recent series of reports by the Center on Budget and Policy Priorities. ...

In the next decade, higher spending on low-income health programs is expected to be offset by lower spending on other low-income programs. So total federal spending on people struggling to get by is projected to hold steady.

That is not lavish. And it is not an excuse for tax cuts that deprive tens of millions of people of health insurance.

http://taxprof.typepad.com/taxprof_blog/2017/06/ny-timesthe-false-premise-behind-gop-tax-cuts.html

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Comments

Strange that the Republicans want to cut Medicaid and the safety net. After all, the next item on their agenda is “bigly” tax cuts. Republicans claim that their tax cuts always generate significant economic growth leading to increased government revenue. But they always leave out facts when they argue for tax cuts; e.g., the Kansas experiment and the George W. Bush years. Apparently, Republicans don’t believe their own BS anymore. They need to cut government spending before they cut taxes for the rich. Otherwise the budget deficit will explode.

Posted by: anon JD/MD | Jun 30, 2017 3:29:50 PM

"As a share of the economy, federal spending on low-income people, other than for their health care, has been falling steadily since it peaked in 2011, after the Great Recession, and while it’s still slightly above the long-term average, it is declining"

When last I check, federal + state + local government means-tested spending was $1 trillion per year. That includes earned income tax credits, AFDC, food stamps, Medicaid, everything earmarked for low income households. If every household in the bottom 20% of the income distribution received a check for their share of these means-tested benefits, it would amount to $40,000 per year, or about 70% of median household income.

That's a massive share of the national income just for "welfare" and low-income health care. You can only take so much of the pie before voters react. Had real GDP grown on 2.5 to 3% annually during the past 8 years, this wouldn't be such an issue, but it's only grown 1.5% annually on average, and 0.6% per capita per year.

And I have no problem taxing the 1% more, that's fine. But what's routinely lacking in the New York Time's editorials are basic facts about the income distribution. The U.S. has the *most* progressive federal tax system in the entire OECD:

https://www.washingtonpost.com/news/wonk/wp/2013/04/05/americas-taxes-are-the-most-progressive-in-the-world-its-government-is-among-the-least/?utm_term=.f82000d60ac1

And the top 20% of households, who never get a thank you from progressives, pay ALL net federal taxes:

http://www.cbo.gov/sites/default/files/cbofiles/attachments/44604-AverageTaxRates.pdf

The fourth quintile essentually break even of net federal taxes, and the bottom 60% of households receive more in federal spending (cash and/or benefits) than they pay in taxes.

The U.S. has a very dysfunctional federal tax system, but it does resdistribute at least $1 trillion of $3.5 trillion that the feds collect every year...

Posted by: MM | Jun 30, 2017 7:18:02 PM

Thanks MM. Please keep up with the reality checks. So much of the noise today is just that, noise.

Posted by: Dale Spradling | Jul 2, 2017 7:02:33 AM