NC Budget and Tax Center

The possibility of a government shutdown was avoidable

For those of us digging out of the snow still, it may be surprising to learn that our country is facing a federal shutdown that could begin tomorrow based on the lack of progress on a long-term deal to fund programs and services, to ensure children have health care, and to make sure young adults have pathways to education and jobs no matter where they come from.

To avoid a shutdown, the House in Congress voted yesterday to approve legislation that would keep agency doors open and hundreds of thousands of federal employees at work through Feb. 16. It is now up to the Senate to decide today whether it will take the House bill and approve another short-term continuing resolution (CR) to avoid a federal shutdown.

Where we are now is not inevitable. It is the result of a failure to put together long-term plans for funding government and the preference for tax cuts that have grown the deficit.  Despite broad public support and bipartisan agreement that we should fund children’s health insurance and fix the temporary protections for immigrants who arrived in this country as children, these two issues are now caught up in this short-sighted deal-making. Read more

NC Budget and Tax Center

Thousands of North Carolinians stand to lose from Step #2 of the GOP tax plan

The Senate and the House in Congress have reached a deal for a tax plan that would give unnecessary tax cuts to the richest top 5 percent of Americans and most profitable corporations. This deal now clears the way for final votes next week. That this tax bill is full of tax games, roadblocks, and glitches that will drive up the federal deficit by over $1.5 trillion has been widely reported. What is not widely covered is that passing the tax plan and increasing the deficit is only the first of two steps planned by Congress.

The second step involves lawmakers using the deficit they created to justify major budget cuts to federal investments that help millions of North Carolinians.

Below is a brief list that provides the total number of North Carolinians that currently receive assistance from a major federal program that could be affected from the second step of the tax plan. Included in the total numbers are children, students, the elderly, and people with disabilities.

  • Medicaid: 2,024,342
  • Medicare: 1,883,428
  • SNAP (food assistance): 972,535
  • Housing Assistance: 256,545
  • Supplemental Security Income: 233,432
  • Health Marketplace Enrollees: 549,155
  • Pell Grants: 223,633

Some Congressional leaders have already stated publicly their intent to cut programs and services starting next year. In many cases some federal programs could be cut to nothing automatically as a result of a 2010 law that Congress passed to keep itself from increasing the deficit too much.

Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

NC Budget and Tax Center

Experts conclude: New tax legislation is full of tax games, roadblocks, and glitches

As Congress continues to go against the will of the people by pushing a tax framework that most Americans are not in favor of, it is worth noting that a number of leading tax academics, practitioners, and analysts have issued a 35-page report describing various tax games, roadblocks and glitches in the tax legislation.

According to the report:

“The complex rules proposed in the House and Senate bills will allow new tax games and planning opportunities for well-advised taxpayers, which will result in unanticipated consequences and costs. These costs may not currently be fully reflected in official estimates already showing the bills adding over $1 trillion to the deficit in the coming decade. Other proposed changes will encounter legal roadblocks that will jeopardize critical elements of the legislation. Finally, in other cases, technical glitches in the legislation may improperly and haphazardly penalize or benefit individual and corporate taxpayers.”

The report highlights various problems with the bill in the following areas:

  • Using Corporations as Tax Shelters: If the corporate tax rate is reduced in the absence of effective anti-abuse measures, taxpayers may be able to transform corporations into tax-sheltered savings vehicles through a variety of strategies.
  • Pass-Through Eligibility Games: Taxpayers may be able to circumvent the limitations on eligibility for the special tax treatment of pass-through businesses.
  • Restructuring State and Local Taxes to Maintain Deductibility: The denial of the deduction for state and local taxes will incentivize these jurisdictions to restructure their forms of revenue collection to avoid this change. This could undercut one of the largest revenue raisers in the entire bill.
  • International Games, Roadblocks, and Glitches: The complex rules intended to exempt foreign income of domestic corporations from U.S. taxation present a variety of tax planning and avoidance opportunities.
  • Money Loophole Machines: The variety of tax rates imposed on different forms of business income in different years invite arbitrage strategies, whereby taxpayers can achieve an economic benefit solely based on the timing and assignment of their income and deductions.

The report concludes with a serious warning:

“Further problems with the bills are likely to emerge. These tax games will reduce tax revenues and thereby increase the true cost of the legislation and make the legislation more regressive than it now appears. Furthermore, additional tax complexity will be necessary in order to police the new rules and to prevent these abuses, ensuring that this legislation will move us further away from the goals a simpler, more equitable, and more efficient tax system. Finally, the IRS and Treasury may be overwhelmed in their efforts to police the new and manipulable rules during a period of reduced funding and budgetary constraints.

“We urge the members of the Senate and House to reassess the tax reform process and the resulting legislative proposals, and to undertake a more deliberative approach to far-reaching legislation that will significantly affect our economy and taxpayer behavior.”

Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

NC Budget and Tax Center

Next up in Congress, cuts to programs that deliver opportunity, strengthen economy

Congressional Republicans are rushing to get their tax bill to President Trump’s desk before the end of the year. At the same time most Americans have clearly shown that they are not in favor of this tax bill, and for good reason.

The proposed tax plans in Congress are simply the first of two steps that will hurt millions of low- and middle-income Americans. The first step involves cutting taxes for the richest top 5 percent and major corporations.

The second step, however, entails budget cuts to vital programs that help millions of families and communities across the U.S. While the details of exactly the size and scope of the cuts isn’t immediately clear (beyond those that will be automatic due to sequestration — read more here), GOP leaders have stated publicly their intent to cut programs and services deeply. Here are just a few recent and clear statements around this intent:

“We’re looking very strongly at welfare reform, and that’ll all take place right after taxes, very soon, very shortly after taxes,” – President Trump

“We’ve got a lot of work to do on cutting spending,” – House Speaker Paul Ryan

“The only way you are going to deal with the debt is you have to do two things. … You have got to generate economic growth because growth generates revenue. But you also have to bring spending under control. And not discretionary spending. That isn’t the driver of our debt, … The driver of our debt is the structure of Social Security and Medicare,” – Senator Marco Rubio

Under this tax plan “we will be able to raise more revenues and if not, as a Republican, the answer would be less spending,” – Rep. Jeb Hensarling, Chairman of the House Financial Services Committee

“I have a rough time wanting to spend billions and billions and trillions of dollars to help people who won’t help themselves, won’t lift a finger, and expect the federal government to do everything.” – Senator Orrin Hatch

Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

NC Budget and Tax Center

Memo to Tillis and Burr: Proposed “trigger” in Senate tax bill is flawed, inadequate, and unrealistic

The U.S. Senate is currently debating its tax plan and rushing to vote on it by the end of this week with the hopes of getting tax legislation to President Trump by the end of the year.

One new and concerning development is that some Republicans in the Senate are considering adding a “trigger” to the bill that would reportedly activate tax increases in 2022 if the promised positive economic effects of the bill have not materialized.

It is a sign that legislators are unclear of what the future will hold as the plan is implemented and the full impact of each detail is understood.  Senator Tillis and Senator Burr should be very concerned about this development and oppose moving forward on a major tax overhaul that provides no protections from myriad harm for North Carolinians and is still not fully understood.

According to a new report, the trigger mechanism is deeply flawed and cannot undo the harmful fiscal impact of the bill’s unfinanced tax cuts. The Center on Budget and Policy Priorities points out:

“The details about the trigger mechanism are still emerging.  Under one reported version, corporate tax increases would take effect if revenues in 2022 are below a “target” — the amount that the tax code is expected to generate that year under the tax laws in effect today (that is, before tax cuts take effect), minus the cost of extending a business tax break now in effect that is due to expire under current law.   Under another version, the tax increases would be triggered if economic growth fell below a target rate.  Regardless of the precise criteria, such a trigger mechanism is unlikely to result in tax increases going into effect.

Moreover, the triggered tax increases are limited to $350 billion over a decade, far less than the estimated revenue loss from the pending tax bill.  Thus, even if the trigger took effect, the tax cuts still would fall far short of the standard of not increasing the deficit that various Republican senators have argued the tax bill will meet.”

The report is blunt by concluding that:

“If policymakers are truly concerned about the harmful impact of higher deficits and debt, they should address the problem head on: they should identify the revenues they will raise or the spending they will cut to offset the cost of tax cuts they evidently view as the nation’s highest priority.  That’s how responsible major legislation has been designed in the past.  The landmark 1986 tax reform legislation, for example, raised taxes on some businesses and individuals and cut taxes for others to create a more efficient tax code, without the large revenue losses in the current tax bill.

‘Trigger’ proposals, on the other hand, let policymakers sidestep the hard choices and still try to claim the mantle of fiscal responsibility.”

It is worth noting that Republican Senator Ted Cruz of Texas has said he’s working on a trigger provision that would apply two ways and bring additional cuts if there’s robust growth.

Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.