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The GOP tax plan: Who does it help and hurt?

One of the biggest questions surrounding the Republican tax overhaul is who benefits from the changes. Democrats have decried it as a giveaway to the rich, but GOP defenders insist it will cut most middle class taxes and boost jobs. Lisa Desjardins reports and Judy Woodruff talks to Douglas Holtz-Eakin of the American Action Forum and Jared Bernstein of the Center on Budget and Policy Priorities.

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  • Judy Woodruff:

    Congress may have gone home for the holiday, but Republicans are working during the break to get a tax bill on the president’s desk before the end of the year.

    One of the big questions surrounding the battle over a tax overhaul- Who’s benefiting from the changes?

    Lisa Desjardins is right back with this report.

  • Lisa Desjardins:

    From the negotiator-in-chief today, his summary of the endgame on tax cuts.

  • President Donald Trump:

    It’s up to the Senate. And if they approve it, the House and the Senate will get together. I will be there right in the middle of it.

  • Lisa Desjardins:

    President Trump’s words followed a weekend where indeed one senator stood out.

  • Sen. Susan Collins:

    I don’t think that provision should be in the bill.

  • Lisa Desjardins: 

    Senator and key vote Susan Collins of Maine said she’s against the current idea of using a tax overhaul to repeal the individual mandate to buy health care.

  • Sen. Susan Collins: 

    If you do pull this piece of the Affordable Care Act out, for some middle-income families, the increased premium is going to cancel out the tax cut that they would get.

  • Lisa Desjardins:

    Sure enough, President Trump’s budget director said he is open to dropping the repeal.

  • Mick Mulvaney:

    If it becomes an impediment to getting the best tax bill we can, then we’re OK with taking it out.

  • Lisa Desjardins:

    A quick reminder- Republicans’ tax plans would lower individual and corporate tax rates, while also ending the personal exemption and cutting some popular deductions, like those for high medical costs or state and local taxes.

    Democrats have decried it as a giveaway to the rich, especially big corporations. But GOP defenders insist it will cut most middle-class taxes and boost jobs.

    The debate became dramatic at the Senate Finance Committee last week between Democratic senator Sherrod Brown and Republican Chairman Orrin Hatch.

  • Sen. Sherrod Brown:

    This tax cut really is not for the middle class. It’s for the rich. Spare us the bank shots. Spare us the sarcasm and the satire, and let’s…

    (CROSSTALK)

  • Sen. Orrin Hatch:

    But I’m going to just say to you that I come from the poor people, and I have been here working my whole stinking career for people who don’t have a chance. And I really resent anybody saying that I’m just doing this for the rich.

  • Lisa Desjardins: 

    That debate and the final bill are still fluid, even as the Senate hopes to vote on its version next week.

    For the PBS NewsHour, I’m Lisa Desjardins.

  • Judy Woodruff:

    Let’s focus now on how the benefits are distributed in these tax bills.

    The Senate bill, for example, would make the corporate tax rate cut permanent, but benefits for individuals and families would expire after 2025. That led Congress’ bipartisan Joint Committee on Taxation to conclude that, by 2027, most Americans earning under $70,000 would pay more in taxes.

    We turn now to two economists, from the left and the right, who study these issues.

    Jared Bernstein of the Center on Budget and Policy Priorities, he’s worked in the White House as an adviser to former Vice President Joe Biden. And Douglas Holtz-Eakin of the American Action Forum, he served as an adviser to John McCain during his presidential run.

    And we welcome both of you back to the program.

    I want to ask both of you, is this — just give us your overall view. Is this a bill, this proposal as it’s come out of the House, Jared Bernstein, good for Americans or not?

  • Jared Bernstein:

    Certainly not for those in the middle class or those of moderate incomes.

    You just reported some findings from the Joint Committee on Taxation, nonpartisan scorekeepers. And they find, as you have said, that by the time this fully phases in, taxes actually increase on average for families below $75,000.

    That seems uncanny, given all that we have heard about tax cuts. But the reason is, is because the tax benefits on the individual side of the code, they phase out. Why do they phase out? They phase out to pay for very large corporate reductions. And I think that’s just a very misguided architecture.

  • Judy Woodruff:

    Doug Holtz-Eakin, if the purpose of this is to help the middle class and to help businesses, how can one say that there’s equity here, with these tax cuts being phased out for those in the middle?

  • Douglas Holtz-eakin:

    Well, you can’t do everything in a tax reform.

    So, let’s remember the main problem to be solved is that, in 2016, those households where people worked full-time, full-year saw exactly zero increase in their real income. And to change that, the poor performance in raising real wages, the standard of living, you have to attack the foundations of what businesses do by giving them better incentives.

    So, the status quo says, you should take everything in your intellectual property, park it offshore, should do you production offshore, keep the earnings offshore. Eventually, the headquarters go offshore. That can’t continue. We have to have a change in the status quo.

    So when you look at the corporate incentives for better investment, that what routes productivity and real wages. When you look at the pass-through rate being brought down, that’s the same kind of equal treatment on that side.

    So, all of those reforms are targeted at solving the fundamental problem in the U.S. economy, and the middle class lives in that economy. And it needs to live better.

  • Judy Woodruff:

    Why isn’t that an argument that people could live — could accept, Jared Bernstein, that you’re helping businesses, big businesses and small businesses, grow, they will hire more people, they will pay higher wages?

  • Jared Bernstein:

    So, that is fundamentally a trickle-down kind of argument that we have heard for decades in efforts to sell tax cuts structured exactly like this one.

    And the story that Doug tells is a chain with a lot of links, and every one of those links is problematic. It is true that the tax cut will increase the profitability of U.S. corporations and our multinationals.

    By the way, that profitability is already near historical highs. So, when I kind of make up my list of who needs help in this economy, multinational corporations don’t even make the list. But this tax cut does wonderful things to them, with the hope that they will invest more, and that will be good for productivity growth, and that that productivity growth will trickle down and lift the wages of middle-income workers.

    It simply hasn’t happened in every experiment we have done of this sort.

  • Judy Woodruff:

    If that is the case, Doug Holtz-Eakin, why — what makes you believe it’s going to happen now, especially when corporations are already doing very well?

  • Douglas Holtz-eakin:

    Well, I think there are two things about what Jared said that I disagree with.

    First is, we haven’t done this before. This isn’t 1986. 1986 was a tax increase on corporations to finance large marginal rate reductions on the individual side. This is exactly the opposite. We are going to see better business tax policy and higher rates on individuals in the House bill.

    So, this isn’t your father’s tax cut. It’s fundamentally structured differently.

    (CROSSTALK)

  • Douglas Holtz-eakin:

    Secondly, you don’t want to evaluate what is intended to be a tax reform, something that’s good today, five years from now and 10 years from now, on the basis of current conditions.

    The question is, what do you want the tax system to incentivize, what do you want it to not incentivize? And we don’t want it to incentivize not investing and, if we do, doing it somewhere else.

    So, that’s what this is structured to do.

  • Jared Bernstein:

    So, I think that puts way too much weight on corporate tax cuts.

    There’s no question in my mind that, if you cut corporate taxes from 35 to 20 percent, we’re going to have a much more profitable corporate sector.

    But we already have a highly profitable corporate sector. And if they wanted to invest more now, they could. They’re not doing so. The cost of capital is extremely cheap. So this is kind of pressing on the wrong button. If we actually want to help the middle class, let’s help the middle class, but let’s not try to do the trickle down.

    (CROSSTALK)

  • Judy Woodruff:

    What about that point that corporations have profits now?

    (CROSSTALK)

  • Douglas Holtz-eakin:

     They have profits, but let’s distinguish between tax cuts. That is not what this is about.

    This is about fundamental tax reforms. The reason it’s important for the business incentives to be permanent, although it forces the individual ones to sunset, because they can’t run more than a $1.5 trillion deficit, the reason that’s important is, you want to keep those production jobs in the U.S. You want people who operate outside the U.S. to come to the U.S.

    And you want to do all of that on the basis of permanent, better incentives. So, a 20 percent rate cut is driven by the fact that we’re way out of line with the world. Twenty percent gets us to the middle of the pack. Changing the way we tax corporations, which is what this reform does, gives them better incentives to operate in the U.S. And better investment incentives give them a chance to raise productivity in the U.S.

  • Judy Woodruff:

    And, Jared Bernstein, that would mean, should mean, if it works out, as Doug is describing, more jobs created in the U.S., better wages here in the U.S.

  • Jared Bernstein:

    Right. So, it should mean that. I’m afraid it doesn’t.

    So, we have tried these experiments before. We have had these tax repatriations, these tax holidays where corporates were able to bring their foreign earnings back to this country. They didn’t create jobs. They did share buybacks and dividend payouts.

    If you’re trying to…

  • Judy Woodruff:

    What does that mean, for laypersons?

  • Jared Bernstein:

    OK.

    So, they took their profits from abroad, they brought them back at a very favorable tax rate, which is very much like what we’re talking about now, a similar kind of structure, and instead of creating new employment, they increased the prices of their stocks by buying back shares, and they paid out more dividends.

    So, the problem isn’t — and this is not just my opinion. These are the scores that we have been talking about. They all show that the benefits go to the top, because that’s who benefits from corporate profitability. It doesn’t trickle down and help wage earners.

  • Douglas Holtz-eakin: 

    So, this is a great story, and Jared is one of the world’s best storytellers.

    But that’s not what’s in the bill. What is in the bill is actually a test of whether this is a good reform or not. In the bill, on a date certain, every dollar that is currently abroad will be deemed to have come back. It will say, we’re going to pretend it’s back. You must pay taxes on it.

    (CROSSTALK)

  • Jared Bernstein:

    But why isn’t that what I was just describing?

  • Douglas Holtz-eakin:

    It’s nonvoluntary.

    Every dollar has to come back. So, at that point — and this is the key — at that point, firms face a real choice. They can not bring it back, or they can bring it back. The taxes are the same.

    So, if it’s a good reform, the money will come back. It will show up in better factories and plants in the U.S. and it will help American workers.

  • Judy Woodruff:

    Just probably 30 seconds left. But I do want to get an answer from both you on this.

    The proposal to do away, Doug Holtz-Eakin, with deductions from medical expenses, my understanding is this is going to hit middle-income families who have serious medical needs for a family member.

  • Douglas Holtz-eakin:

    This is the basic dilemma of tax reform.

    You have to broaden the base to lower the rates. So, you have a choice. Do you take the 6 percent of people who have a medical deduction, averaging about $9,000, and preserve their break, or do you increase the standard deduction by over $9,000 for everybody? That’s what they do.

  • Jared Bernstein:

    Seventy percent of folks who take those deductions have incomes below $70,000.

    It is another whack on the middle class. And why? To pay for a massive tax cut for multinational corporations. It’s just not fair.

  • Judy Woodruff:

    All right, gentlemen, I know we’re coming back to this. Thank you very much.

  • Douglas Holtz-eakin:

    Thank you.

  • Jared Bernstein:

    Thank you.

  • Judy Woodruff:

    Jared Bernstein, Doug Holtz-Eakin, thanks.

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