Whether middle class Iowans save or pay depends on future federal tax reform vote
Tax reform savings come with time limit
By Erin Murphy, Gazette-Lee Des Moines Bureau
DES MOINES — They are being sold as middle-class tax cuts.
With majorities in both chambers of Congress and a president in the White House, Republicans hope to check off one of their top policy goals: an overhaul of federal tax laws that includes reducing many tax rates, including for individuals and families.
The U.S. House and U.S. Senate have created separate proposals, but they hope to pass a bill and get it to President Donald Trump this year.
“What Iowans need to know is taxes under the Republican plan are going to be cut for the middle class,” Ronna McDaniel, the national Republican Party chairwoman, said in a recent interview in Des Moines.
Not everyone agrees.
One of the biggest issues in analyzing the proposals is that major tax savings for the middle class end in 2023 under the House bill and in 2026 under the Senate bill. But tax cuts for large corporations remain.
For the next five years, the vast majority of Americans — 92 percent — would either pay less or see little change, according to official estimates from Congress’ nonpartisan Joint Committee on Taxation. But later that shifts sharply.
After 2023, only 40 percent of Americans would pay less. Twenty-two percent would pay more, the committee found.
Much of that is because a key savings for the middle class — the Family Flexibility Credit — goes away after 2022.
The House proposal also uses a low measure of inflation after 2022, meaning more and more people start to jump to a higher tax bracket.
In Iowa over 10 years, middle-class workers — the middle 20 percent of wage earners — would on average see an overall tax increase of $40 per year under the Senate bill, according to the progressive Institute on Taxation and Economic Policy. The poorest 20 percent would see an increase of $70.
While those are modest increases, they are not tax cuts as the proposals are advertised.
“The point is not the size of the increase at those levels, but the fact that those taxpayers cannot expect any, or any substantial, tax benefit,” Anne Discher, interim director of the nonpartisan Child and Family Policy Center in Des Moines, said in a report filed by the progressive Iowa Policy Project.
Over the same period, the top 1 percent of wage earners would see a $4,770 tax reduction, according to the institute.
That is not the only independent report to reach such a conclusion.
Taxes would go up on nearly two-thirds of middle class workers — by an average of $140 per year — under the Senate bill, according to a Nov. 20 report by the nonpartisan Tax Policy Center. Nearly a third of the poorest 20 percent also would see an increase.
The Tax Policy Center’s findings were similar when analyzing the House bill in a Nov. 13 report, under which 30 percent of middle class workers and 13 percent of the poorest would see tax increases.
Both analyses of the Senate bill take into account its repeal of the mandate that most individuals carry health insurance. Economists say repealing the mandate — and the tax penalty for those who do not — will drive up costs for low-income individuals who obtain coverage through the federal marketplace.
“A weekend of further scrutiny by responsible analysts shows just how much this legislation is skewed toward the wealthy and most powerful,” Mike Owen, executive director of the Iowa Policy Project, said in the organization’s analysis. “When you look beyond the early years of this plan, you see that low- and middle-income Iowans are whacked by this plan in 2027. They’ll pay more in tax, on average, and many will have lost their health insurance while millionaires, billionaires and corporations bank the benefits.”
The GOP tax overhaul proposals so far have been unpopular in public opinion polls. Just 30 percent of Americans support the proposals, according to an averaging of multiple national polls, calculated by George Washington University political scientist Chris Warshaw.
That level of public support is lower than any major piece of federal legislation passed in the past 30 years, and is higher only than the same GOP Congress’ failed health care overhaul proposals from earlier this year, according to Warshaw’s research.
Despite the low approval ratings, Iowa’s Republicans in Congress, like most of their GOP colleagues, are defending the tax overhaul bills.
Chuck Grassley, Iowa’s senior senator, did not dispute the reports’ findings but said most Iowans will see a tax cut.
“While every individual case is different, on average, income groups across the board will experience a tax cut. That includes the vast majority of Iowans,” Grassley said in an emailed response to questions. “Common sense measures, like doubling the child tax credit and the estate tax exemption, will give a hand up to taxpayers, family farmers and business owners. It will let people keep more of their own money instead of sending it to Washington.”
Many Republicans, including U.S. Rep. Rod Blum, a Republican from Eastern Iowa, argue the economy will grow as a result of the tax cuts, and that will boost incomes and overcome losses projected in the analyses.
Economic growth “following tax reform, proven by both the Kennedy and Reagan administrations, will reignite our economy, create jobs, and increase wages through competition for labor,” Blum said in an emailed statement.
Blum said Congressional rules require some tax cuts to be phased out after 10 years, but he is “very confident” — as are other Republicans — that those cuts, years down the road, will be extended.
The rules he refers to are a bit complicated and have everything to do with the balance of power in Congress.
Under both proposals, the federal deficit would increase because the lower taxes won’t bring in as much revenue.
But Senate rules don’t allow legislation that adds to the deficit after 10 years without being approved by 60 votes,
Since no Senate Democrats are expected to vote for the plan, it would have to be adopted by a simple majority — in other words, by Republican votes only.
GOP lawmakers cannot continue cuts for both individuals and corporations without increasing the deficit a decade out. But ending the tax cuts for individuals saves about enough, and gets Republicans a long way toward being able to pass the bill with only a simple majority.
The Washington Post contributed to this report.