Is There A Stealth Tax Increase For Working-Class People In The Republican Budget

Isaiah J. Poole

What the Republican budget proposal by Rep. Paul Ryan doesn’t say is in many respects more ominous than what it says—and on taxes, perhaps more indicative of the truth. For while the Ryan slash-and-burn budget proposal doesn’t come right out and say it, it could have some low-income and middle-class people paying higher taxes than they would under a more progressive proposal that is not tilted toward the wealthy.

There is practically no other way to make the numbers add up in a budget that would create or continue a total of $10 trillion in tax cuts to the wealthy and corporations over 10 years while making cuts in government spending so deep that the economy would be slowed, resulting in 4.1 million fewer jobs created over 10 years.

The nice-sounding tax-cut sizzle in the Ryan Republican plan is a simplified tax structure on earned income, with 10 percent and 25 percent tax brackets, plus the lower capital gains rate of 15 percent. Ryan also promises the elimination of deductions and credits that he, in his “Road to Prosperity” budget manifesto, denounces because they direct “resources to politically favored uses, creating a drag on economic growth and job creation” and even “take taxes paid by hardworking Americans and issue government checks to individuals and corporations who do not owe any taxes at all”

But where one might expect to find the steak lurks a poisonous tax snake instead. A bulletin issued last week by the Coalition for Human Needs raised the relevant questions:

House Budget Committee Chairman Paul Ryan (R-WI) asserts that the new tax cuts will be paid for by cuts to other tax expenditures—that is, the deductions and credits that make up so much of the tax code. But while the budget is fairly specific in recommending cuts to services, it is utterly silent on which tax expenditures it would end. Deductions for mortgage interest? state and local taxes? 401(k) contributions? charitable giving? employer contributions to health insurance? Mum’s the word. These and more tax breaks would have to be eliminated altogether to pay for the tax cuts proposed in the budget.

The Center for Budget and Policy Priorities, citing Tax Policy Center research, came to a similar conclusion.

TPC estimates that Chairman Ryan’s new tax cuts would cost $4.6 trillion in lost federal revenue over the next decade. To offset those costs, the Ryan budget documents say the plan would curb tax expenditures. But, the documents offer no details. Tax experts doubt that policymakers could actually pass tax-expenditure savings of anywhere close to this magnitude. …

Moreover, the Ryan documents say that his plan would secure the needed revenues to finance his tax cuts not by closing tax expenditures across the board but by getting rid of special-interest loopholes that mainly benefit the politically well-connected, distort economic growth, and encode unfairness in tax law. … In essence, Chairman Ryan conveys the impression that he would pay for his rather massive tax cuts for high-income individuals by cutting tax expenditures for the same affluent taxpayers.

But, Chairman Ryan himself makes the challenge of doing so all but impossible. As TPC data show, the tax expenditures that tilt most heavily to high-income households are the preferential rates for capital gains and dividends. And while the Ryan budget does not provide details on the tax expenditures that he would curtail, it makes clear that Chairman Ryan rejects any increase in the capital gains tax rate.

But while the Mitt Romneys of the world are off limits to a tax increase on the money they make flipping stocks or managing hedge funds, one group is well within the conservative movement’s cross-hairs: the working poor.

A little-noticed report from the Department of Labor last month contained the unsettling revelation that 10.5 million Americans, more than 7 percent of the labor force, is classified as “working poor.” These are people who are working at least 27 weeks of the year but who are still below the federal poverty line. Close to 5 million of these working poor are below the poverty line even after working full-time for a full year.

Especially for workers struggling to raise children on poverty wages, the Earned Income Tax Credit is a vital lifeline. It is a refundable tax credit; families that qualify can get a credit that can be in excess of $5,000 when they file their taxes. In a post-welfare-”reform” age in which aid to low-income people increasingly comes with conditions and is more designed to shame than assist, one would think that strengthening the Earned Income Tax Credit—getting more cash into the hands of people who are working but are unable through no fault of their own to earn a living wage—would get bipartisan support.

But the Earned Income Tax Credit falls squarely in the category of “[taking] taxes paid by hardworking Americans and [issuing] government checks to individuals and corporations who do not owe any taxes at all.” It’s anathema to many conservatives, such as Red State’s Daniel Horowitz, who wrote last year that the EITC and its cousin, the Child Tax Credit, “have surreptitiously created dependency by manipulating the tax code.”

You think that Republicans would never countenance an effective tax increase on people who are at or below the poverty line? Last week the Center for Budget and Policy Priorities released a report that found that the working poor “saw their income taxes increase” in “almost all” of the 15 states where such families pay state income taxes. In eight of those 15, Republicans control at least two of the three political bodies—the House, the Senate and the governor’s office. Nearly all are “red” or “purple” presidential election states, where many of the Democratic lawmakers lean conservative.

There is no overt embrace in the Ryan budget of the tax principle laid out most directly by Rep. Michele Bachmann, R-Minn., when she was a presidential candidate, that “everybody pays something,” no matter how poor they are—without fretting over the multibillion-dollar corporations that evade paying any income tax. But what the Ryan Republican budget would do is outsource tax burden decisions to Bachmann’s fellow travelers in the extreme, Tea-Party core of the Republican Party who now sit on the tax-writing Ways and Means Committee. Knowing that, there is ample reason to distrust the supporters of the Ryan plan when they say that it will leave economically struggling families better off. That would be far from true if low-income people end up paying more for a government too crippled to meet their needs.

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