Republican Tax Reform Gives Corporations A Break While Slashing A Vital Anti-Poverty Program


House Ways and Means Committee Chairman Rep. Dave Camp (R-MI) speaking about his tax reform package

The tax reform legislation introduced by House Ways and Means Committee Chairman Dave Camp (R-MI) on Wednesday includes many good ideas, but unfortunately remains deeply committed to failed trickle-down economic theories. Chairman Camp’s bill would deliver a big corporate tax cut, although he uses budget gimmicks to hide this aspect of his bill. At the same time, it slashes an anti-poverty program that conservatives claim to support as an alternative to raising the minimum wage.

Chairman Camp’s corporate tax cuts are carefully hidden by budget gimmicks to make his legislation appear fiscally responsible at first. These gimmicks are enough to mask higher budget deficits for the first ten years, which is the only period considered by Congressional budget analysts. In the long-term, however, our fiscal position would deteriorate if the corporate tax cuts in Chairman Camp’s bill become law.

For example, his legislation would levy a one-time tax on the foreign profits that corporations are holding offshore to avoid paying American taxes. After that, Camp would shift to a system under which foreign profits would hardly be taxed at all. The one-time tax makes the bill look fiscally responsible in the near term, but after the temporary tax ends, multinational corporations will get a big tax cut on their offshore income.

Chairman Camp also cuts the corporate tax rate from 35 percent to 25 percent, but this cut happens gradually to minimize its impact within the first decade. It increases the deficit by $14.3 billion in 2015, but that grows to $107.3 billion in 2023.

Trickle-down adherents claim that corporate tax cuts, such as the ones found in Camp’s bill, will eventually benefit everyone. But researchers have found that the vast majority of the benefit would flow to the wealthiest Americans, who tend to own most of the stock in these companies. Instead of generating prosperity, trickle-down policies have increased inequality and held back economic growth.

While Chairman Camp gives big businesses carefully disguised tax relief, he cuts the Earned Income Tax Credit (EITC), which low-income workers depend on to make ends meet. Overall, his bill would cut the EITC by $217 billion over ten years. But if Congress chose to continue the successful expansion of the EITC, which is scheduled to expire after 2017, Chairman Camp’s cut would actually become much larger. In the case of childless workers – for whom conservatives particularly claim to support a larger EITC – Chairman Camp would cut the maximum benefit from $496 to $100, or $200 for married couples. Many poor families would be hit by an even larger tax increase – sometimes thousands of dollars.

Yet the EITC lifts millions of Americans out of poverty when they receive it as part of their tax refunds. Many conservatives who are blocking an increase in the minimum wage claim that they would like to enhance the EITC instead. But the Republican tax bill would actually do the opposite.

Instead of relying on failed trickle-down theories, tax reform should strengthen and grow the middle class, which economists generally agree is the true engine of economic growth. That means expanding the EITC and other programs that help workers get out of poverty. That also means raising new revenue from the wealthiest Americans – not giving them another break with disguised corporate tax cuts – so that Social Security, Medicare, and Medicaid can support our aging population.

While Chairman Camp’s bill fails these tests, it still includes many good ideas for Congress to use in the future. He ends many of the same egregious tax breaks that President Obama previously targeted, such as the “carried interest” and “Gingrich-Edwards” loopholes. He also limits the value of itemized deductions, which President Obama also proposed using a different approach. And his tax on big banks is even larger than what President Obama recommends.

Chairman Camp deserves credit for showing that there is bipartisan support for closing tax loopholes and making Wall Street pay its fair share. But implementing those good ideas does not mean Congress also has to cut vital anti-poverty programs or give corporations a tax cut and hope it trickles down to the rest of the economy.

Harry Stein is the Associate Director for Fiscal Policy and John Craig is a Research Assistant in the Economic Policy department at the Center for American Progress Action Fund.