Tax bills must be stopped before they do major damage to poor

Tax bills must be stopped before they do major damage to poor
© Getty Images

As many economists and policy analysts have indicated, the large tax cuts proposed recently by both House and Senate Republicans would create large federal deficits and worsen the already disturbing long-term debt picture of the U.S.

By raising interest rates and reducing productive investments, these deficits could slow economic growth over time — exactly the opposite of the sunny forecasts espoused by supporters of this bill but by almost no mainstream economists.


The proposed tax plan would also generate enormous income gains for very high-income families, and much less for those in the middle class at a time when inequality between the rich and everyone else has already grown hugely.


Yet, there is another aspect of the plan that has not been widely acknowledged: It would likely hurt lower-income families a great deal over time.

Why is this so? For one thing, the economic prospects of the poor depend even more heavily on economic growth than do others, so anything that threatens such growth could hurt them the most. But, more broadly, these deficits would also squeeze out important public spending on lower-income Americans for many years to come.

This is not just an argument espoused by liberals and not just about the threats to traditional anti-poverty programs like food stamps and Medicaid.

I was part of an ideologically diverse Working Group on Opportunity and Mobility at the American Enterprise Institute and Brookings Institution that issued a major report on how to reduce poverty in December 2015. The report’s recommendations included a number of ideas advocated by both progressives and conservatives.

For instance, it endorses proposals by conservatives to encourage and strengthen two-parent families, expand school choice and innovation, increase accountability in state and federal spending and strengthen work requirements for those on public assistance.

At the same time, the report calls for greater public investments in effective pre-kindergarten programs, elementary and secondary schools in low-income areas, effective community college training programs as well as apprenticeships, subsidized jobs for the hardest to employ and stronger income supports for poor families with children.

In the views of all of the report’s authors, both of these approaches are needed to generate opportunity for and responsibility among lower-income Americans. Indeed, they go hand in hand, and adopting one without the other is unlikely to create great progress.

Unfortunately, the House and Senate tax plans would make the investments described above almost impossible to implement. The very large deficits generated by the tax cuts would not only create pressure to cut existing programs for the poor, including Pell grants for college students, but they would also preclude any major new federal investments in the skills and well-being of lower-income students.

In addition, the elimination of the federal deduction for state and local taxes would similarly put large pressure on states and localities to restrict their spending in this area.

Given the inability or unwillingness of Congress to pass sensible antipoverty legislation in recent years, many states have invested importantly in pre-kindergarten programs, K-12 reforms and job training initiatives that benefit lower-income students and workers in recent years.

As examples, Oklahoma and Georgia have implemented impressive pre-K programs, while South Carolina spends its public dollars (in the form of tax credits) to encourage apprenticeships in the private sector.

Kentucky, through its FAME program to train workers for jobs in advanced manufacturing, and Tennessee, through its Drive to 55 program to increase higher education credentials among their workers, are among the states doing the most to increase skills by creating partnerships between business groups and community colleges, with at least some public funding.

Indeed, these programs benefit not just the poor, but anyone hoping to advance from lower-wage jobs to those providing middle-class incomes, and employers as well as workers.

All such programs would be at risk if some version of the House or Senate plans becomes law, making state and local spending of this type costlier to their citizens. Even widely endorsed spending by states or the federal government in areas such as treatment for victims of the opioid epidemic would be harder to generate.

Tax plans that do so much damage, and preclude such important public investments in the well-being of its citizens, should not be allowed to move forward, even as opening moves in a longer tax reform process. They should be stopped right now.

Harry J. Holzer is the LaFarge SJ professor of public policy at Georgetown University and is a former chief economist of the U.S. Department of Labor.