US Senate tax bill would cause millions to lose affordable health care, proposed “fixes” wouldn’t undo the harm

The Senate tax bill includes changes in health care policy that would result in 13 million fewer Americans having health insurance and about a 10 percent increase in premiums for those buying insurance on the individual market. That’s the impact of eliminating the health insurance mandate. What’s it doing in the tax bill? Mandate repeal frees up more than $300 billion over the next decade – because when fewer people have health care coverage, the federal government spends less on things that make health care coverage more affordable, like premium tax credits, other cost-saving measures, and Medicaid. Policymakers have used that $300 billion to pay for tax cuts primarily for businesses and the wealthy.

Senator Susan Collins (R-ME) has reported that the Senate is expected to vote for other legislation to improve the individual insurance market, including the Alexander-Murray individual market reform legislation and Collins-Nelson reinsurance proposal. But these proposals would do little to reverse the coverage losses, premium increases, and disruption caused by the repeal of the individual mandate. And if policymakers succeed in enacting massive tax cuts, it will make it even harder to fund any additional legislation to improve access to affordable health care coverage.

Alexander-Murray legislation is a bipartisan compromise meant to reduce premiums and increase stability in the individual insurance market. Among other things, it would restore the “cost-sharing reduction” payments to insurers that pay for measures that reduce out-of-pocket costs. But Alexander-Murray was crafted for the health care environment that existed before the mandate repeal bombshell was dropped into the tax bill. Analysis by the Center on Budget and Policy Priorities finds that the combined impact of repealing the individual mandate and enacting Alexander-Murray would be about as harmful as repealing the individual mandate alone:

  • 13 million Americans without health insurance. Alexander-Murray impacts the individual health insurance market, but the coverage losses from mandate repeal are in multiple areas: Medicaid, employer-based, and individual market.
  • Premium increases in the individual market. In 2019, this combination of policy changes would likely result in small reductions in premiums for “silver” insurance plans and higher premiums for other plans purchased in the individual market. All plans would have higher premiums starting in 2020. Alexander-Murray would have no impact on the 10 percent projected premium increases that would result from the market pressures caused by repealing the individual mandate.
  • Increased market instability. Alexander-Murray was designed to address the market instability caused when President Donald Trump said he would stop funding the cost-sharing reduction payments. But it won’t resolve the turmoil caused by mandate repeal, which is the equivalent of pulling out several bricks from the bottom of a Jenga tower, and could result in insurers leaving the individual market.

The Center on Budget and Policy Priorities similarly find that, the Collins-Nelson reinsurance proposal would have little real impact on the damage done by mandate repeal. This proposal would provide $2.3 billion annually in 2018 and 2019 to fund state reinsurance pools, which cover some or all of insurers’ costs for high-cost claims.

  • The proposed reinsurance pool is too small to reverse rising premiums. It’s estimated that it would take roughly a $5 billion a year permanent reinsurance program to counter the 10 percent increase in premiums resulting from mandate repeal. The Collins-Nelson bill would provide less than half that amount, and for two years only.
  • Little impact on market instability. It’s hard for a temporary program to address uncertainty about the future of the individual insurance market and overall health care landscape.
  • Only a small reduction in the number losing health insurance coverage. Estimates are that a permanent reinsurance program of this size could increase coverage by fewer than 1 million; that’s only a small dent in the 13 million who are expected to lose coverage.

Some have downplayed the widespread coverage loss from mandate repeal – arguing that it’s just a matter of individual choice. But some of those who would lose coverage would do so because the ripple effects of the mandate repeal would make coverage unaffordable, not because they would prefer to go without health insurance.

Changes like Alexander-Murray and Collins-Nelson won’t substantially alter the fact that many everyday Americans would be made worse off than they are today by the combination of tax changes and lost health care funding. Combined with ongoing delays in renewing funding for the Children’s Health Insurance Program and looming threats to Medicare and Medicaid, this is a very bad omen for Americans’ access to affordable health care.

-Nan Madden

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Minnesota’s November budget forecast shows deficits amid high uncertainty

Predicting the future is a tricky business, especially in uncertain times. But nonetheless today’s state budget and economic forecast is important because it marks the first comprehensive look at Minnesota’s budget landscape that incorporates the budget passed in the 2017 Legislative Session. State policymakers used almost the entire projected $1.7 billion surplus when putting together the FY 2018-19 budget. The largest piece of the surplus went to the $648 million tax bill, followed by additional investments in K-12 education, transportation, and higher education. Using nearly all of the projected surplus left our state much more vulnerable to even slight changes in budget or economic projections, as these forecast figures bear out.

The November Budget and Economic Forecast released by Minnesota Management and Budget compares what the state would be expected to spend on schools, roads, and other public services under existing laws and current projections for economic growth, how much revenue the state would expect to bring in, and whether those numbers line up. The forecast does not include the likely economic or state budget impact of broad policy changes being considered in Washington, including the proposed tax and health legislation or likely future cuts to federal funding.

Here are our top takeaways after a quick review of the forecast:

  1. The forecast projects a $188 million deficit for FY 2018-19. That’s less than 1 percent of the total two-year budget, which runs through June 30, 2019. Assuming that the Legislature’s funding is restored would add another $114 million for a total deficit of $302 million.
  2. The November forecast also projects future deficits. Today’s report shows a $586 million negative balance for the upcoming FY 2020-21 biennium.
  3. The future balances do not take into account what it takes to maintain current levels of services. Keeping up with inflationary costs on our current commitments would cost another $1.3 billion in FY 2020-21. In other words, these projections are built on the assumption of flat funding for many areas of the budget.
  4. The forecast expects weaker economic growth than projected in the February 2017 forecast. The national economy is still expected to grow over the next several years, and as a result boost wages and salaries. But in today’s forecast, national GDP growth is expected to be slower: 2.2 percent for 2017 rather than the 2.3 percent expected in February, and 0.1 to 0.2 percentage points less each year in 2018, 2019, and 2021. That results in lower projected state revenues.
  5. There’s more uncertainty than usual. Because of the high level of uncertainty about federal tax and budget decisions – and because of the above-average length of the current economic recovery – this forecast has more uncertainty than usual. IHS Markit, Minnesota’s economic consultants, assigns a 65 percent probability to their baseline economic forecast, a 20 percent probability to a more pessimistic scenario, and a 15 percent probability to a more optimistic scenario.

There are always some unknowns in any forecast, but given the high number of them this year, Governor Mark Dayton said he will wait to produce his supplemental budget proposal until after the February 2018 Forecast.

The state’s budget picture could improve – for example, if federal policymakers finally reauthorize funding for the Children’s Health Insurance Program (CHIP). But we can’t take our eyes off the serious threats posed by federal proposals to fundamentally weaken the federal-state partnership and step back from commitments to the safety net. These would result in a large loss of funding to the state and to essential federal services that Minnesotans count on.

Some noted today that tapping into the state’s budget reserve would be one way to address any minor shortfalls. We shouldn’t be too quick to go there. This shortfall is nothing compared to the multi-billion dollar deficits the state has faced during economic downturns. Given the length of the current economic recovery, it’s likely that the next recession isn’t too far away.

State policymakers may not be able to control the decisions that come out of Washington or the course of the national economy. But their priority should be to put the state in a strong position to respond to federal changes and to support Minnesotans most likely to struggle in an economic slowdown.

Getting ready for what’s ahead is more important than ever to make Minnesota a state where everyone can thrive.

-Clark Goldenrod and Nan Madden

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Rankings of state “business climate” are misleading, fall short of actual measures

Note: I had the opportunity to see Dr. Peter Fisher present on state business climate rankings at the recent Minnesota Policy Conference. We asked him to summarize his findings in this guest blog.

Minnesota has the third best business climate in the U.S. Or maybe it has the third worst, or somewhere in the middle. It all depends on which ranking you believe.

So which one should you believe? The short answer is, probably none of them. Any ranking that claims to have come up with a single metric that represents the overall state “climate” for businesses considering setting up shop in Minnesota is suspect.

That includes the Tax Foundation, which just released their 2018 State Business Tax Climate Index, which put Minnesota at 46th – only four states worse. It includes the ALEC-Laffer report, Rich States, Poor States, which invents an “Economic Outlook Ranking” that places Minnesota 45th, and the Small Business and Entrepreneurship Council’s Small Business Policy Index, where Minnesota is 47th.

The basic problem with these rankings is that they are not based on research or evidence of which factors contribute how much to a state’s prospects for economic growth or its attractiveness for new business investment. And all three of those just cited base most or all of their ranking on various measures of taxes; the rankings are designed to promote the anti-tax, anti-government agenda of the organization producing the ranking.

The proof is in the pudding, as they say. Does recent state performance support the claims by these organizations that their index provides a recipe for state growth and prosperity? No. States that did better on the Economic Outlook Ranking have not grown any faster in subsequent years than states that did poorly, and the states with the best rank actually have lower incomes and higher poverty rates than the states with a low rank. The states scoring highly on the Small Business Policy Index have done no better on a variety of measures of entrepreneurial activity and small business growth than states scoring poorly.

There are rankings that are much broader, taking into account the quality of the state’s workforce, the cost of living, quality of life measures, education and infrastructure investments, and other factors that can matter to businesses and to the workers they hope to attract. On these indexes, Minnesota ranks much higher – as high is third by CNBC’s Top States for Business, and 15th by Forbes’ Best States for Business.

It is tempting, if you are a Minnesotan proud of your state’s investments in public services and the quality of life your state offers, to decide that these rankings are the ones to pay attention to. But here’s the rub. While the individual measures that go into the rankings – average education level of the workforce, for example – do provide useful information, the overall index is still suspect. That’s because dozens of disparate measures are weighted arbitrarily and mashed together into a single index number that has no real science behind it.

My advice? Yes, pay attention to how your state is performing on particular measures – growth in wages, incomes, education levels of the workforce, environmental quality. Look at real research on the benefits and costs of programs like job training or child care assistance or infrastructure. But forget about these rankings of a mythical “business climate” that are driven by the desire either to promote an agenda, or sell magazines.

Guest blog by Peter Fisher, Research Director of the Iowa Policy Project and Professor Emeritus of Urban and Regional Planning at the University of Iowa. For a more detailed critique of these rankings, visit his website: Grading the States: Business Climate Rankings and the Real Path to Prosperity

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Senate tax bill harmful, irresponsible

Minnesota Budget Project Director Nan Madden’s public statement on the Senate tax bill passed last week:

I’m extremely disappointed, and frankly alarmed, that such a harmful, irresponsible and unpopular tax bill was passed.

The bill gives large and permanent tax cuts to profitable corporations at the expense of most Americans. The harm will be dramatic, particularly to those who look to the safety net to get through rough times or to health care supports like Medicaid to live and thrive. The tax cuts add more than $1 trillion to the deficit, and to pay for it, policymakers have clear plans to come back and deeply cut health care and other critical services, leaving the nation’s children, elderly, people with disabilities, workers, and families worse off.

The fast-track process that allowed this sweeping tax legislation to pass the Senate without bipartisan support also required that it not add to the nation’s deficit after 2027. The bill’s authors have cynically sought to meet that requirement through a set of fiscally irresponsible gimmicks that hide the true cost of the bill and fail to prioritize everyday Americans. For example, the provisions that provide individual income tax cuts expire, while making the corporate tax rate cut permanent. It would increase taxes for millions of working-class and middle-class families.

Further, this bill includes damaging health care policies that would result in 13 million fewer Americans with health insurance, and increase premiums for those who purchase health insurance in the individual market.

In all, this is about the worst set of policies that could be packaged together. Small changes won’t change the fundamental flaws in this bill. These aren’t the priorities that most Americans expect.

Minnesota’s elected officials need to take a strong stand against this dangerous tax bill. Policymakers should sharpen their pencils and go back to work to craft a tax plan that doesn’t pave the way for deep cuts in health care and other crucial services, and that doesn’t provide big tax cuts for corporations and the wealthy at the expense of families living paycheck to paycheck.

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Child Tax Credit in Senate tax bill provides minimal benefits to working families, harms immigrant families

The U.S. Senate is currently considering a tax bill that would provide the largest tax benefits to those already doing well in today’s economy. As we’ve explored in prior blogs, the Republican plans provide small and shrinking tax benefits for lower- and middle-income families, and many would actually see tax increases. Senate leadership has lifted up their Child Tax Credit (CTC) expansion as their signature benefit for working families. However, an analysis from the Center on Budget and Policy Priorities shows that many families would be left out of the CTC expansion, and many immigrant families would see their tax credits completely eliminated. And the expansion is temporary, expiring after 2025.

The Senate tax bill doubles the maximum CTC that families can qualify for to $2,000 per child. It also extends the credit for the first time to high-income households – for example, married couples with two children and incomes between $150,000 and $580,000 would become newly eligible. It’s high-income families who see the largest benefits, while working-class families see only a small increase. This is because the CTC is not fully available to families who have incomes below a certain level, and the proposal on the table does little to fix this. Many of these parents receiving a less than a full increase are working to make ends meet in sales, food preparation or administrative support jobs. Additionally, about 1 in 7 of all U.S. children living in working families would only receive a token increase of $75 or less from the proposal; 1.1 million of these children are living in deep poverty. In Minnesota, 134,000 children live in working families that would receive only a small increase; about one-quarter of those children live in rural counties.

senate-ctc-proposal-cbpp-graph

The Child Tax Credit proposal also takes the credit away from about 1 million children across the country. Currently, many immigrant workers who do not have a Social Security Number (SSN) use what’s called an ITIN to file their taxes. Workers filing with an ITIN are generally subject to the same tax rules as those filing with an SSN and are also eligible for the Child Tax Credit. However, the Senate would eliminate the credit for children without an SSN. Almost all of the children affected are Dreamers, children who came to the United States at a very early age and who often know no other country as their home.

As in many states across the country, with a tightening labor market and a projected labor shortage on the horizon, Minnesota’s economic growth increasingly depends on adding more people to our workforce. We will increasingly rely on immigrants and refugees to fill vital roles as employees, business owners, and entrepreneurs. In addition, income supports like refundable tax credits are linked to better school performance and higher college enrollment. But taking away the Child Tax Credit would not only increase hardship immediately for these families, it would also make it less likely that these immigrant children will be able to reach their full potential in school and later in the workforce.

The Child Tax Credit expansion, while touted as a boon for low- and middle-income families, actually does little to make our tax system work better for folks working to make ends meet. Furthermore, the proposed improvements to the credit cannot overcome the Senate tax bill’s overall problems. Its benefits still primarily go to the highest-income households and profitable corporations, and the plan would increase the deficit by more than $1 trillion over the next decade, which will almost certainly lead to cuts to health care and other essential services.

-Clark Goldenrod

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State budget adds to an uncertain future

With the state scheduled to release its latest Economic and Budget Forecast next Tuesday, it’s a good time to look back at the state budget passed earlier this year and whether it made it easier or harder for the state to respond to economic bumps or federal tax and budget choices.

It took five months and a short special session for Minnesota policymakers to complete the primary work of the 2017 Legislative Session: passing the budget for FY 2018-19, which started on July 1. The state had a $1.7 billion projected surplus, resources that could have been used to address two pressing issues: to expand economic opportunity to more Minnesotans, and to prepare for potential federal decisions that would have a profound impact on the state and its residents.

While policymakers completed the task of getting the budget done, they came up short in terms of meeting those broader goals. The budget makes some important investments in building a broader prosperity, but it uses up nearly all of the surplus, leaving the state with less flexibility to respond to federal funding cuts or economic rough spots. And last month’s economic update reminded us, when state revenues came in below expectations, that a state’s budget outlook is vulnerable to changes in the economic outlook.

Net General Fund Changes (FY 2018-19)
Tax Cuts and Aids to Local Governments $648 million
K-12 Education $485 million
Transportation $301 million
Higher Education $210 million
Public Safety $159 million
State Government and Veterans $46 million*
Jobs and Energy $30 million
Debt Service, Capital Projects $16 million
Environment $8.1 million
Agriculture $5.7 million
Health and Human Services -$463 million
Other Bills (including reinsurance) $142 million
Total $1.6 billion
Bottom Line $50 million
*pre-veto of Legislature’s budget
Figures shown are changes compared to FY 2018-19 baseline.

The largest portion of the surplus went toward the tax bill: $648 million in FY 2018-19 and $791 million in FY 2020-21. Provisions such as large cuts to the estate tax could reverse the state’s recent progress toward making Minnesota’s taxes more equitable across income levels, and the large and growing size of the tax cuts harms the state’s ability to fund essential services. Bright spots in the tax bill include expansions of the Working Family Credit and the Child and Dependent Care Tax Credit, which support the work efforts of lower-income Minnesotans and their families.

The second largest use of the surplus is for E-12 Education; per-pupil funding on the basic student formula is increased by 2 percent each year of the biennium — that’s a little less than the cost of keeping up with inflation. The Education budget also expands Early Learning Scholarships so that more young children can benefit from early childhood programs.

Despite the surplus, this budget makes large reductions in Health and Human Services, cutting its general fund dollars by $463 million in FY 2018-19 and by $273 million in FY 2020-21. The budget also nearly empties the Health Care Access Fund by FY 2021, which puts affordable health care for hundreds of thousands of Minnesotans at risk, even as substantial health care funding cuts are being considered in Washington. One positive component of the HHS budget is that Minnesota improved the Child Care Assistance Program, making it easier for families to afford consistent care for their children. Unfortunately, there are still more than 2,000 families on the waiting list.

A $301 million general fund boost makes a down-payment on the state’s transportation needs. However, the budget puts transportation in greater competition with K-12 education, higher education and other services for general fund dollars, rather than funding these needs through dedicated transportation funding sources. It also fails to bridge the funding gap to meet the state’s infrastructure needs highlighted by the Transportation Finance Advisory Committee.

Since it leaves just $50 million of the projected surplus remaining, the state’s biennial budget puts Minnesota in a precarious situation. Budget or economic projections changing even a little bit could mean deficits. With unprecedented uncertainty about the future of federal-state partnerships, the budget put together last session leaves Minnesotans in a vulnerable spot.

-Clark Goldenrod

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Fiscally irresponsible Senate tax plan prioritizes corporate tax cut, many everyday Americans made worse off

The latest tax bill moving through Congress shares the same harmful architecture as previous versions, and it adds on the loss of health care for millions of Americans. Further, this bill takes a cynical approach towards safeguards meant to promote responsible budgeting, and instead contains fiscal time bombs.

The Senate tax and health care bill has the same negative outcomes as the House tax bill and the Republicans’ unified tax framework: It provides the largest share of the tax cuts to wealthy individuals and profitable corporations, while many working-class and middle-income households are left out or even harmed. A substantial number of families would see tax increases as a result of provisions in the bill, including some that hit Minnesota particularly hard. And it would add more than $1 trillion to the deficit, with clear plans to come back and deeply cut health care and other critical services, leaving the nation’s children, elderly, people with disabilities, workers, and families worse off. The full Senate is expected to vote on this bill as early as this week.

What’s new: millions lose health insurance

On top of their upside-down tax priorities, the Senate piles on the repeal of the individual health insurance mandate, which generates savings for the federal government that is used to pay for dramatic permanent cuts in corporate taxes. Repealing the mandate is expected to result in 13 million fewer Americans having health insurance, and the federal government spending less on Medicaid and the tax credits and other measures that millions of Americans use to better afford the cost of health care. It is also projected to cause a 10 percent increase in premiums for those buying insurance on the individual market.

Who benefits: profitable corporations and the highest-income households

Whether looking at the tax portions alone, or the combined effect of the tax and health care components, the largest benefits go to those already doing well in today’s economy. For those working paycheck to paycheck, the tax benefits pale in comparison, and many everyday Americans would be worse off overall because of the bill’s erosion of affordable health insurance.

Profitable businesses and those with the highest incomes are the main beneficiaries of central elements of the bill, including cutting the corporate tax rate from 35 percent to 20 percent, providing tax cuts for “pass through” business income, steeply cutting the estate tax, and repealing the Alternative Minimum Tax.

For working-class and middle-income people, the benefits are much smaller. For example, under the Child Tax Credit expansion, about 10 million children in working families live in households that will get just $75 per family or less, while a family with two children and income of $500,000 would get a $4,000 tax cut. Others will find that any benefits from a higher standard exemption or income tax rate cuts are partially or completely swept away by the loss of other exemptions and deductions.

Minnesotans are especially harmed by the Senate’s proposed elimination of the State and Local Tax Deduction; in fact, the Tax Policy Center finds that Minnesota’s 3rd Congressional District is among the 20 Congressional districts with the highest share of tax-filers claiming this deduction.

Adding up all the tax changes, the Tax Policy Center finds the largest average tax cuts in 2019 go to the 5 percent of households with the highest incomes, and that’s true whether measuring the tax cuts in dollars or the percentage increase in after-tax income. The top 5 percent would get about 42 percent of all the net tax cuts that year.

Looking at the full impact of the bill, many everyday Americans would be worse off than they are today.

  • Households with incomes under $40,000 are worse off in 2025 on average, taking in account both the tax portions and the reduction in federal health care spending.
  • By 2027, the three-fifths of American households with incomes about $90,000 or less would be worse off, on average, according to analysis from the Institute on Taxation and Economic Policy that takes into account the tax changes and the health insurance changes that flow through the tax code, especially the lost of tax credits that bring down the cost of health insurance premiums.

The Tax Policy Center finds that about 9 percent of taxpayers in the U.S. would pay higher taxes in 2019. But since most of the individual income tax provisions expire, by 2027 50 percent of taxpayers would pay more in that year than they do today.

Trouble ahead: fiscally irresponsible steps taken to work around the rules

The U.S. Senate has rules meant to prevent policymakers from irresponsibly passing legislation that creates future budget problems. However, the bill’s writers have made a set of cynical choices to technically meet the requirements but plant a ticking fiscal time bomb.

The fast-track process that would allow this sweeping tax legislation to pass the Senate without bipartisan support also requires that it not add to the nation’s deficit after 2027. The bill’s authors seek to avoid adding to the deficit after a decade by having the provisions that provide individual income tax cuts expire, while making the corporate tax rate cut permanent. As a result, 50 percent of taxpayers would pay more in 2027.

Some of the bill’s proponents argue that they have no intent of letting that happen, that they expect future Congresses would extend the tax cuts for families rather than have them expire. This essentially puts in motion another round of expensive tax cuts just at the time that the nation would need the revenues for other priorities, not least of which is meeting the health care and other needs of a much larger number of elderly residents as the Baby Boomers age.

One bill after another has been released following the unified framework, and they all reveal the same fatal flaws. It’s time for policymakers to start over, and instead seek bipartisan solutions that focus on responsibly creating greater economic opportunity for those working hard to reach the middle class.

-Nan Madden

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High-income households get largest share of tax cuts, and their share gets bigger over time

The tax bill moving quickly through the U.S. House fails to do what its proponents claim: it is not focused on the middle class. The tax plan provides the largest tax cuts to those already doing well in today’s economy, and their share of the tax cuts grows significantly over time. The bill provides smaller and shrinking tax benefits for lower- and middle-income families, and a significant number of households would see tax increases.

Those are the findings as national experts, including the Tax Policy Center, the Center on Budget and Policy Priorities, and the Institute on Taxation and Economic Policy, have had a chance to dig into the details and see the implications of the bill.

ITEP finds that the 1 percent highest-income American households would get about one-third of the tax cuts in 2018, and nearly half of the tax cuts by 2027. That’s well out of proportion with either their share of total income (22 percent) or the share of total federal taxes this income group pays (26 percent).

For Minnesotans, ITEP finds a similar pattern. The 1 percent of households with incomes above $624,000 would receive 25 percent of the tax cuts going to Minnesotans in 2018, and 39 percent of the tax cuts in 2027. In contrast, the 60 percent of Minnesota households making around $75,000 or less would get just 21 percent of the tax cuts in 2018 and only 17 percent in 2027.

The Richest 1% of US Taxpayers Receive the Largest Share of Tax Cuts in the House Proposal

It’s not surprising that the largest share of tax cuts goes to those with the highest incomes, given that’s who benefits most from many of the centerpiece provisions of the House bill: corporate tax rate reductions, cut and repeal of the estate tax, repeal of the Alternative Minimum Tax, and providing special tax treatment for some “pass-through” income.

The share of the tax cuts going to the highest-income households grows in part because a number of provisions focused on middle-class families expire or get smaller as the years pass. A $300 per adult tax credit is temporary and disappears after 2023. The value of the Child Tax Credit, the increased standard deduction, and other elements of the tax code are eroded over time because the bill would adjust these provisions with a slower-growing measure of inflation than is used today.

It’s also the case that for some families, any benefits from provisions like the increased standard deduction and expanded Child Tax Credit are partially or completely outweighed by the loss of personal exemptions, increasing the tax rate in the lowest tax bracket, or other tax changes in the bill. An estimated 135,000 Minnesota children in working-class families are fully left out of the Child Tax Credit expansion — often cited as one of the bill’s primary benefits for families. Add in the 180,000 children who get only a partial benefit, and that’s more than 1 in 4 Minnesota children in working families fully or partially left out.

Some households in every income group would actually face a tax increase; the Tax Policy Center estimates that 7 percent of households would see tax increases in 2018 and 25 percent would see higher taxes in 2027.

Minnesotans are particularly harmed by the proposal to severely limit the State and Local Tax Deduction, which is claimed by more than one-third of Minnesota tax filers. This proposal penalizes states like Minnesota that have relatively higher incomes, that have responded to their residents’ desires for investments in public services, and that fund those services in ways that are more based on income, rather than property or sales taxes.

This bill is based on a theory of trickle-down economics that has failed time and time again to deliver, as the experiences of Kansas and the Bush tax cuts of the 2000s illustrate.

Federal policymakers shouldn’t make the same mistake. Not only will the promised jobs and wage increases fail to materialize, but we’ll all pay the price in terms of the cuts in health care and other essential services that policymakers plan to enact to pay for these tax cuts.

-Nan Madden

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US House tax plan still fatally flawed

The tax plan released in the U.S. House yesterday retains the same basic architecture as the unified tax framework previously released, and as a result, continues to have the same fatal flaws. It provides large tax cuts for the highest-income Americans and profitable businesses, while everyday folks get a smaller portion of the bill’s tax benefits – and some may face tax increases.

This tax plan irresponsibly adds at least $1.5 trillion to the deficit over 10 years, and it is lower- and middle-income Americans who will most feel the brunt of the impact when the bills come due to pay for these tax cuts. Importantly, we don’t have to guess where the cuts to essential services would come from. The menu of cuts is laid out in the budget plans passed by Congress and put forward by President Donald Trump this year; affordable health care through Medicaid and Medicare, basic food assistance through SNAP, and a range of other services that invest in our communities have all been targeted for deep cuts.

Of course, the details are important and we’ll be taking a deeper dive in the coming days. But at first look, we see that the centerpieces of the House plan are provisions that provide large tax cuts to corporations and those with the highest incomes:

  • Cutting the top corporate tax rate from 35 percent to 20 percent.
  • Tax cuts for “pass-through income.” The plan cuts taxes on some Americans who pay income taxes on pass-through income (from businesses such as partnerships, S corporations, and sole proprietorships). While touted as a benefit for small businesses, in fact the majority of this kind of income goes to high-income households.
  • Doubling the exemption then repealing the estate tax. Compared to the tax framework, the House bill delays the repeal of the estate tax to occur in 2024; this maneuver only hides the true cost of this provision, which only benefits the 0.2 percent largest estates nationally.
  • Repealing the Alternative Minimum Tax, which was created to ensure that higher-income people with a large number of deductions and other tax preferences still pay a minimum level of tax.

Retaining the current top income tax rate of 39.6 percent, rather than dropping it to 35 percent as proposed in the earlier tax framework, won’t significantly change the fact that this bill includes large tax cuts to the highest-income households.

Low- and middle-income households face a complex array of income tax changes in the House tax plan. More detailed analysis will be needed to understand the overall impact of the plan and how it differs from the unified framework (under which the 40 percent of American households with the lowest incomes were estimated to receive only about 5 percent of the tax cuts.)

But it’s already clear there are several ways this bill leaves behind families struggling to get by and get ahead. For example:

  • The proposed expansion of the Child Tax Credit leaves out more than 10 million children in low-income working families.
  • About 3 million children in working families would lose eligibility for the Child Tax Credit; about 80 percent of these are children born in this country and the remainder are “Dreamers” who came to this country as children.

One provision – the elimination of the deduction for state income taxes – particularly harms people in states like Minnesota that have relatively higher incomes and fund their public services through tax systems that are more equitable in how they treat residents across the income scale.

When both the tax implications and the likely cuts to services are taken into account, this is a plan that would exacerbate income inequality and do little to meaningfully improve the living standards of most Americans.

These aren’t the priorities that most Americans expect. Policymakers should sharpen their pencils and go back to work to craft a tax plan that doesn’t pave the way for deep cuts in health care and other crucial services, and that doesn’t provide big tax cuts for corporations and the wealthy at the expense of families living paycheck to paycheck.

-Nan Madden

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Action alert: Sign-on letter calls on Minnesota’s congressional delegation to reject large, damaging tax cuts

Congress is moving fast on a tax and budget framework that would dramatically cut federal funding for vital supports like Medicaid and SNAP food assistance, and other priorities like education, affordable housing, and environmental protection. These deep cuts to federal investments that build thriving communities and allow Minnesotans to make ends meet are paired with a tax-cutting framework that provides most of the benefits to profitable businesses and the highest-income Americans. A tax bill that fills in more of the details is expected to be introduced in the U.S. House on November 1, with a goal of passing it through the House by Thanksgiving.

It’s imperative that nonprofits speak up now. These are the wrong priorities for the country and Minnesota.

The Minnesota Council of Nonprofits is asking organizations to sign a letter to Minnesota’s Congressional delegation demonstrating our commitment to a tax code that raises the revenues required to support essential services and make long-term investments in our communities, that shares the responsibility for funding public services equitably, and values the important partnership between nonprofits and government.

Read the letter here and sign your organization on online.

Deadline for signatures is end of business, Friday, November 3.

Posted in Action Opportunity, Federal Budget, Taxes | Tagged , , | Leave a comment