WASHINGTON – The Senate Finance Committee's Democratic staff is blasting the Republican Blueprint for tax reform as "highly regressive and fiscally irresponsible," warning it would expand many tax breaks for the wealthy while cutting back on deductions and credits important to the poor and middle class.
In a recent memorandum sent to Democratic tax legislative assistants, the staff charged the Blueprint proposed by House Ways and Means Committee chairman Rep. Kevin Brady, R-Texas, "does not represent a balanced approach to tax reform."
The Republican Blueprint proposes to eliminate "certain tax breaks deemed politically vulnerable, such as the federal deduction for state and local taxes and the municipal bond interest deduction, which helps cities borrow at a lower interest rate," the Democratic staff said, adding, it would preserve other tax breaks such as the home mortgage interest deduction and charitable deduction.
Many think President-elect Donald Trump's tax reform plan will contain some, if not much, of the Republican Blueprint, though Trump told city officials last week that he supports the federal tax code's exclusion for municipal bond interest.
For individuals, the Blueprint proposes to consolidate the seven individual income tax brackets from seven to three: 12%, 25% and 33%, the committee's Democratic staff said.
It would combine the standard deduction and the personal exemption into a larger standard deduction that would benefit childless adults and hurt middle class households with children, according to the staff.
The plan would reduce taxes on capital income with a 50% exclusion on capital gains, dividends, and interest, as well as repeal the 3.8% tax on net investment income. It would repeal all taxes associated with the Affordable Care Act and would eliminate most tax preferences as well as the alternative minimum tax. It would also repeal estate and gift taxes, the staff said.
About three-quarters of the tax cuts would benefit the top 1% of all taxpayers, according to the Democratic staff. The reduction in the marginal rates from 43.4% to 33% would benefit high income professionals, while the reduction in capital gains taxes from 23.8% to 15.5% would mainly benefit investors and top fund managers, the staff said.
The Blueprint "is fiscally irresponsible and would explode the federal deficit," the staff charged.
The Tax Policy Center estimates that the Blueprint would reduce federal tax revenues by at least $3 trillion on a static basis and at least $2.5 trillion with dynamic scoring, which accounts for the macroeconomic effects of growth.
The "key feature on the business side of the Blueprint – a destination-based cash flow corporate income tax with "border adjustments" – is confusing, untested, leads to bizarre results, and is possibly illegal under [World Trade Organization] rules, the Democratic staff said.
The Blueprint would implement "a new and untested business tax system that in some ways resembles a consumption tax" or value-added tax, the staff warned.
Republicans are considering trying to fast-track some of the tax reforms by including them in budget reconciliation bills. But the Democratic staff said the reconciliation process "is inherently partisan," would "not allow for careful consideration," and would "not create lasting, sustainable tax reform."
