Tax bills a mixed bag for Montana


David Crisp

Now that our national leaders are learning that sexual harassment is a bad thing, what comes next? Learning to use forks and spoons?

No, we are leaping past that complexity straight to tax reform. I have been trying to understand how the Senate and House tax bills would affect Montana in between dealing with waves of guilt over that girl I kissed back in first grade. I can’t say I have figured out the tax bills, or the girl; on the other hand, my paycheck doesn’t depend on my willingness to lie about either of those things, so here’s an honest if incomplete take on taxes.

The Montana Budget and Policy Center, a left-leaning but nonpartisan think tank, calculates that the tax plan would be great for the wealthiest 1 percent of Montana households, which would save nearly $69,000 in taxes each year. Households earning less than $60,000 would get $190.

On a percentage basis, the Tax Policy Center calculates that the tax proposal would raise after-tax income of the bottom fifth of Americans 0.3 percent. The richest fifth would see their incomes increase 2.2 percent. So the rich win out not only in terms of actual dollars, which is nearly inevitable, but also as a share of income.

The numbers get worse over time, since the income tax cuts are temporary, but proposed corporate tax cuts are permanent. By 2027, most middle- and low-income taxpayers actually could see a tax increase. One theory is that shoveling more money to rich people fuels investment, but America already has the highest income equality gap among developed countries, and the gap is growing faster here. If tax cuts for the wealthy are good for the economy, ours should be roaring.

The cuts are temporary to hold down the cost of the tax reforms, which are expected to add at least $1.5 trillion to the national debt over the next decade. By some estimates, the additional debt will offset any boost the cuts might otherwise add to the national economy.

Remember that when President Obama proposed increasing deficits in order to relieve the worst financial crisis since the Great Depression, Republicans reacted as if he had proposed mandatory abortions for elementary school kids. But now that the GOP wants to increase the deficit in hopes of cranking up the economy a couple of percentage points, they act as if it’s the greatest thing since Ronald Reagan.

But there is a bright spot for Montanans. U.S. Sen. Steve Daines, R-Mont., who supports the deficit-hiking tax reforms, has introduced legislation that would cut off the pay of members of Congress if they fail to balance the budget. That bill will never pass, but surely Daines will demonstrate his intellectual integrity by refusing to accept a paycheck until he actually votes for a balanced budget. So we save that money.

Beyond that, it isn’t clear that drastic cuts in corporate tax rates will do much to help the U.S. economy. Although America has the highest corporate tax rate in the developed world, deductions and exemptions reduce the burden substantially. As a percentage of Gross Domestic Product, corporate taxes in America already are lower than those in Japan, France, Britain, Canada, Denmark and Spain.

Of greater concern to Montanans is the proposal to eliminate the federal deduction for state and local taxes. Opponents of the so-called SALT deduction say that it mostly benefits rich people, but about 28 percent of Montana tax filers take that deduction, ranking us 24th among the states. Nationwide, 42 percent of households making between $50,000 and $100,000 a year took the SALT deduction in 2015.

Since loss of the SALT deduction would be accompanied by a doubling of the standard deduction, it’s hard to tell exactly what it would do to Montana. But even if it only affects high-tax, high-income states like New York and California, it could still hurt us. Those states pay more to the federal government than they get in return; Montana is among the states that get more from Washington than we send there. In that respect, what’s bad for New York is bad for Montana.

It’s also annoying, by the way, to hear politicians defend SALT cuts by saying states like New York and California should just tax less. Not only is that using the tax code to pick winners and losers, it discriminates against states that reduce the federal burden by providing quality government services on their own. Not smart.

Eliminating the estate tax, long a Republican goal, has been touted as a boon for farmers and small-business owners, but it would affect very few Montanans. Only 27 estate tax returns were filed in Montana in 2013, the latest year I could find.

Other concerns about proposed tax reforms involve potential cuts to popular federal programs. The Flathead Beacon, for example, reports that the House version of the bill could cut funding for the Montana Board of Housing, which has helped 43,000 families obtain $3.2 billion in financing for housing over the last 40 years. Habitat for Humanity also could be affected, the Beacon reported.

Reforms also would be bad for college students, who could lose $60 billion in nationwide benefits in the House bill over the next 10 years, the Atlantic has reported. Among the casualties would be graduate students, who often depend on tuition waivers as compensation for teaching classes or other work on campus. The House bill would require them to report those waivers as income, a huge expense for aspiring scholars. The bill also would eliminate some deductions for student loan debt.

Atlantic writer Derek Thompson is cynical enough to note that 58 percent of Republicans say that “colleges and universities have a negative effect on the way things are going in this country.” College-educated white people also are much more likely to disapprove of President Trump than those who didn’t go to college.

Maybe that’s because college students are brainwashed by liberal professors into quiescently accepting a socialist state. Or maybe it’s because college grads are more likely to look beyond political talking points to try to understand what a tax bill would really do.

You can test both theories by reading the House bill, which is 429 pages long. It turns out that a simplified tax code is simple like “The Brothers Karamazov” is simple, only with more bloodshed.

Comments are closed.