WASHINGTON (AP) — Just six days after the bipartisan debt ceiling agreement took effect, House Republicans proposed a series of tax cuts, drawing accusations of hypocrisy from Democrats in a row that shows two opposing views of the US economy.
GOP lawmakers are pushing for deep tax cuts for corporations and the wealthy as the main driver of maintaining economic growth, while President Joe Biden and his fellow Democrats are seeking more targeted tax cuts to achieve social goals such as reducing child poverty and switching to renewable energy that can help the economy in the long run.
The Republican tax cuts for businesses, coupled with an increase in the standard household deduction, would be funded by removing $216 billion in 10-year tax breaks that Biden signed into law last year to support the development of businesses. electric vehicles and renewable energies.
“They should look at this plan as more jobs, higher wages,” said Rep. Jason Smith, R-Mo., chairman of the House Ways and Means Committee. “We are undoing a bad policy and replacing it with a good one.”
White House officials say Republicans’ rapid pivot to tax cuts reveals they were never sincere about cutting deficits during the debt limit debate. Many — but not all — of the tax changes Republicans passed the Ways and Means Committee last week would be temporary.
If the proposed corporate tax changes become permanent, according to the Biden administration, it would undermine the spending cuts that were part of this month’s deal to increase the government’s borrowing power.
“No sooner did we get a balanced bipartisan deal to cut deficits than they came back and put $500 billion in corporate tax cuts on the table,” said Lael Brainard, director of the National Economic Council. of the White House. “It’s just inconsistent.”
The dispute sets the stage for the 2024 election and the immediate economic challenges that winners will face: Lawmakers will have to raise the debt ceiling again and key parts of the 2017 tax cuts passed under the President of the era, Donald Trump, will expire and result in lower taxes. increase for most households unless extended.
Democrats say the latest Republican plan would largely favor businesses and wealthy households. That would make some corporate tax breaks retroactive to 2022. The White House says tax breaks for what businesses have done in the past would do little to create the jobs Republicans are promising.
“Let’s really take it a step further and ask ourselves, ‘How will these corporate tax breaks affect the things that people care about?’ They care about good jobs in their communities,” Brainard said. “Will a retroactive tax windfall result in a single additional job?
While Republicans base their tax cuts on the need to get tax breaks in the economy, Democrats position their favorite tax breaks as investments that would happen over decades.
This difference matters because Republicans believe the jobs will likely come from lower effective rates and policies such as permanently making it easier for small businesses to bear the full cost of new business equipment and changing IRS requirements for businesses using subcontractors. Democrats counter that tax breaks to help children and provide market signals for cleaner energy will generate long-term growth.
“The really fundamental part of key policies has to be about how we make long-term investments that help our communities, help our families,” said Rep. Suzan DelBene, D-Wash., who chairs the Congressional Campaign Committee. democrat. “Republicans have been short-term thinkers and really focused on the wealthy and the well-connected.”
One of the main differences between the parties is how they would funnel money to families. The GOP bill would increase the standard deduction by $2,000 for individuals and $4,000 for families in 2024 and 2025. That might sound like a lot of money, but it’s less than you might think because that these totals apply to the amount of taxable income rather than savings.
By definition, low-income people would receive less money from a more generous standard deduction. The poorest 40% of households would benefit on average from tax cuts of less than $12 per month, according to an analysis by the Tax Policy Center. Households in the top 20% would benefit from an average monthly tax cut of $46.
Smith defended his plan, saying it stemmed from what voters told his committee during on-the-ground hearings in West Virginia, Oklahoma and Georgia. He said the three bills that are part of the tax plan stem from hearings that began in February and reflect what lawmakers heard from voters.
“Everything in the legislation that we’ve been circulating came from discussions or ideas at all of these hearings outside of Washington,” Smith said. “So this bill is for working class families.”
In contrast, Democrats would rather help families by renewing the expanded child tax credit, which has become more accessible and has grown in size due to Biden’s 2021 coronavirus pandemic relief package. Families could receive monthly payments of up to $300 per child under the expansion, which expired after one year. The child poverty rate fell to a record low of 5.2% in 2021 due to payments.
Another source of tension is how Republicans structure their costs. Many of their tax cuts would expire after 2025, although they would like to make their policies permanent. But the Biden tax breaks they want to eliminate span 10 years, leading Republicans to be accused of hiding the entire spending of their tax cuts. An estimate from the Committee for a Responsible Federal Budget says the costs to make the entire GOP plan permanent would top $1 trillion, eliminating nearly all of the savings from spending cuts that were part of the deal. debt limitation.
“The most cynical part of it all is the cost,” said Howard Gleckman, senior fellow at the Tax Policy Center. “They take 10 years of income and use it to pay for two years of tax cuts. They make the tax cuts temporary, so it looks like it costs less than it actually costs.
The Tax Foundation, a conservative-leaning political organization, estimated that the GOP bills would slightly increase the size of the U.S. economy in 2024 and 2025. But the benefits are limited because the corporate tax cuts are for the mostly temporary and unlikely to change companies’ investment and hiring choices.
“When you think about how tax policy can improve the economy, it’s all long-term decision making,” said Erica York, senior economist at the Tax Foundation. “If you want this to be as meaningful as it can be, then it has to be done permanently.
While the House bill is unlikely to pass the Senate or sign Biden into law, it is part of a larger message about how each party feels about the tax code. Just as Democrats are deeply skeptical of growing GOP cuts, Republicans are wary of the administration of social policy through the IRS. These differences point to the risks in 2025, when the debt limit drama restarts and tax breaks for the middle class and the wealthy are about to expire.
“There is a fundamental disconnect as to the purpose of the tax code,” York said. “That puts us in 2025 for a whole bunch of uncertainties.”