Readers Write: Biggest problem with GOP tax plan

The Island Now

Upon passage in the Senate it appears increasingly likely that the Republican tax proposal will become the law of the land.

The criticism of the plan has largely focused on the proportion of benefit it offers to high earners nationally and its elimination of state and local deductions.

These critiques have been covered at length, especially here in New York State where the elimination of state and local deductions will leave millions of New Yorkers who use these deductions to pay an average of $5,298 more per year in Federal Income Taxes.

However, as significant as these harms are, they don’t pose the risk to our country’s long-term fiscal health that the plan’s impact on our deficit does.

The basic outlines of the tax plan are as follows.

The plan aims to reduce the marginal federal tax rate on most Americans while changing the tax deduction system and reducing the corporate income tax. The non-partisan Joint Committee on Taxation, which was established by Congress to assist in making estimates of the impact of tax policy, estimates that the plan will reduce Federal Revenue by roughly $224 billion in 2019, $246 billion in 2020 and $217 billion in 2020.

For reference, the Congressional Budget Office projects that this year’s budget deficit will amount to $693 billion, and that without such legislation the deficit will rest at $563 billion in 2018 and rise to $689 in 2019.

Put simply, this proposal will immediately do more to increase our national deficit than any law since the various stimulus packages enacted under the late Bush and early Obama administration.

Those actions were designed to pull us out from what, very well, could have been the worst economic depression our nation faced in seventy years. It is not at all clear what national emergency this proposal aims to rescue us from in order to justify its enormously irresponsible impact on our deficits.

The proposal relies on a remarkable level of growth to follow the last nine years where we have already enjoyed, albeit at small annual levels, the longest period of consecutive economic growth since World War II.

In the likely event that we do not experience such an economic boom Congress would then be forced to consider drastic cuts to our federal government’s largest expenditures.

Due to the extent of the expected deficit increases under the current proposal and the lack of clarity as to what will happen to tax cuts to certain individual rates in the mid 2020s within that proposal, such cuts would need to come out of defense, Social Security, Medicare and/or Medicaid.

Passing such a cut is hard to imagine when considering the failure the Republicans endured while attempting to repeal the Medicaid spending allocated under President Obama’s Affordable Health Care Act.

This leaves us with the troubling expectation that this legislation will be passed without any balancing spending cut or alternative revenue generation, placing our fiscal health into a precarious position.

None of this is to say that a push to reform our tax system is ill advised. However, it should be abundantly clear that a reform that is not paid for certainly is irresponsible.

This is ever more apparent when considering just how vulnerable a further increase to the deficit would make us if we were to face another recession.

In such an instance we would struggle to generate the type of stimulus we did in the late 2000s. As our deficits continue to rise under this plan and the prospect of an increase on the interest rate of our debt service lingers, every American should shudder.

For reference, if any wish to take issue with my concern that significant economic growth to recover lost revenue through these tax cuts will not occur I highly recommend reviewing the recent survey taken by The University of Chicago’s Booth Business School.

The survey population was made up of forty-two leading economists and asked each one whether they agreed with two statements.

The first statement proffered, “If the US enacts a tax bill similar to those currently moving through the House and Senate — and assuming no other changes in tax or spending policy — US GDP will be substantially higher a decade from now than under the status quo.”

Only one of the forty-two professors agreed that GDP would be significantly higher.

The second statement submitted, “If the US enacts a tax bill similar to those currently moving through the House and Senate — and assuming no other changes in tax or spending policy — the US debt-to-GDP ratio will be substantially higher a decade from now than under the status quo.”

Here, all of the 42 agreed that the national debt would be significantly higher.

In response to the question Yale professor Larry Samuelson stated, “The prospect of 5 percent GDP growth is absurdly unrealistic, and in its absence everyone agrees the proposed tax reform will contribute to debt.”

We need our leaders to legislate with foresight if we are to be prepared for the unpredictable. This tax bill utterly fails that test.

It places us in a position where we can only hope for unexpected growth to bail us out of a deepening fiscal crisis and leaves us vulnerable to sudden unpredicted crises.

The proposal and its lack of concern for the risk it invites resemble a governing by whim rather than principle. Here’s to hoping that the worst does not occur. After all, if foresight is no longer a luxury we can expect from our legislators then hope will be all we have left.

Peter Fishkind

 

Roslyn Heights

 

 

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