Economists Offer Opposing Views On GOP Tax Plans
STEVE INSKEEP, HOST:
So what would a Republican tax plan really do? It's about time we found out, since the House votes this week and the Senate is working toward a vote of its own on a somewhat different bill. Peter Morici of the University of Maryland is with us once again. Good morning, sir.
PETER MORICI: Good morning.
INSKEEP: And Jared Bernstein of the Center on Budget and Policy Priorities. Good morning to you.
JARED BERNSTEIN: Good morning.
INSKEEP: And Mr. Bernstein is on my left. Mr. Morici is on my right. And that is more than just...
BERNSTEIN: It's appropriate.
INSKEEP: It's appropriate. It fits their politics. So first off, I mean, the broad strokes here are this is a business tax cut. It's supposed to change the tax brackets, eliminate some deductions. But despite some early promises, some people's taxes, we've found, that are going to go up. Who loses here, Jared?
BERNSTEIN: Forty-six percent of taxpayers with incomes below $100,000 will either get nothing from this or a higher tax rate.
INSKEEP: Higher tax rate because what? Deductions that they used go away?
BERNSTEIN: Exactly. Now, these might be people who live in states that lose the state and local tax deduction. They might be families with numerous kids. So the personal exemption, that's gone. So that hurts them. So it's an interesting wrinkle here because initially Republicans were selling the plan as if nobody was going to get dinged by a tax increase, but in fact, as I said, almost half of those with incomes under $100,000 will get either an increase or a very small change.
INSKEEP: Peter Morici, do Republicans really want to raise taxes on so many people?
MORICI: No, they don't, and they're not going to. The problem here is that a lot of these tax cuts, like the Bush tax cuts, have to expire after 10 years because of Senate rules about increasing the deficit. So in the early years most people, like, 90 percent of the people get a tax cut. But towards the end of the process, if left to expire just like the Bush taxes then a lot of people's taxes would go up. They're banking on the notion that this time around the Democrats won't let that happen, just like the last time around. They're basically making a political bet. But it's important to recognize...
INSKEEP: Why does that make sense as public policy, if I could just ask?
MORICI: Well, it doesn't make sense to me at all, but the Senate won't change its rules. Under the Senate rules, and they're in statute now, they can't implement any legislation with only a 51 Senate vote...
MORICI: ...That increases the deficit beyond 10 years.
MORICI: And a tax cut is going to increase the deficit. Now, there are people in the White House that would tell you that's not the case. And I have a perpetual motion machine in the trunk of my car, which I'd be happy to show you.
INSKEEP: That's good. We'll do that after the interview.
MORICI: The point is that they are stuck in this box. If you cut taxes and you only do it with 51 votes, you have to repeal them in some form or other after 10 years.
BERNSTEIN: I think one of the big problems with this plan is it adds $1.5 trillion to the debt over 10 years, and that's kind of what Peter's getting at there. This is the ninth year of an economic expansion. The unemployment rate's very low. It is not at all clear to me or, frankly, to the American public why we need a big, wasteful regressive tax cut at this point. It's actually a pretty unpopular piece of work.
It's not very representative. It cuts the corporate rate dramatically. It gets rid of the estate tax, which helps literally almost no one, just the wealthiest of the states. It gets rid of the AMT, a tax that hits those with the very high incomes. So most of the benefits go to the top of the scale. It increases the deficit. And - I'm just starting to write about this now - it incentivizes offshoring of jobs. So on any level that a kind of working-class person would care about, this bill doesn't really do much for them.
INSKEEP: What's good here, Peter?
MORICI: Well, I don't have the same spin on it as Jared does. They're going to cut the corporate rate from 35 to 20 percent. What really matters is how much taxes people actually pay, what the effective rate is.
MORICI: And the effective rate in the United States is much higher than in Europe and Japan. So companies are leaving. We - you have covered on this broadcast inversions where companies basically leave the United States or reincorporate in Ireland. In addition to that, in terms of choosing places to locate production, the actual factories, people choose other locations 'cause our taxes are so high. And this is supposed to correct that. That's very different than the personal tax cuts. Now, why do it in the eighth year of recovery? We've just had a recovery with only 2 percent growth, and we need to do something to increase growth.
BERNSTEIN: So first of all, and by the way, it's the ninth year of the recovery, but...
MORICI: Well, whatever it is.
BERNSTEIN: Whatever it is.
INSKEEP: Not that anybody's counting.
BERNSTEIN: But look, you know, the thing you've got to wrap your head around is that this tax plan actually incentivizes more offshoring of production. It's exactly the opposite.
INSKEEP: You've said that twice. How does it do that?
BERNSTEIN: So it does that by moving to a system. It's called territoriality. But basically, what it means is that if you're a multinational firm, an affiliate of an American firm overseas, you no longer have to pay any domestic taxes on your foreign incomes. As it stands today, you're supposed to pay taxes when you bring that foreign earnings back. Under this plan, you will not have to do that anymore.
INSKEEP: Well, you get to bring the foreign earnings back, which could be good for the economy, right?
BERNSTEIN: It could be, but oftentimes it ends up being, you know, share buybacks or just dividends. So put that aside. My point is that - and this is not a question. This is widely agreed upon - this incentivizes more offshoring.
INSKEEP: Peter Morici, I want to just ask one other question.
MORICI: Well, can I address that?
INSKEEP: In about 30 seconds. Go.
MORICI: Well, the point is that's the way every other tax system in the world works. So we're just aligning ourselves so American companies don't feel discriminated.
INSKEEP: Here's my question. Because you do eliminate a bunch of these deductions, of course the bills could change, the bills are different, but there's talk of eliminating deduction for state and local income taxes. There's talk of capping the deduction for mortgage interest. These are things that would primarily affect people on the East and West Coasts, where taxes are higher, where expenses are higher, people are paid more but they have more costs. I can't help but notice that the East and West Coasts are the, I don't know, the more Democratic voting parts of the country. Is this tax plan, Peter, skewed to shaft people who did not vote for Donald Trump?
MORICI: No. I think it's to create greater equity. First of all, they're talking about capping interest deductions at $500,000 a year as opposed to a million. So a waitress in Mississippi making $35,000 a year pays higher taxes...
BERNSTEIN: Yeah, and gets nothing.
MORICI: ...So a Wall Street banker - let me finish, Jared.
BERNSTEIN: And gets nothing from this.
INSKEEP: Let him finish. Let him finish. Let him finish. Ten seconds.
MORICI: They do get something from this plan.
BERNSTEIN: Virtually nothing.
MORICI: They do get something from this plan. Those people will pay lower taxes in 2018 if this plan goes through.
BERNSTEIN: The problem with the plan is not that it whacks people who didn't vote for Trump. It's that it whacks people who did. This plan does nothing for working-class people of the type Peter was just describing. Moreover, it actually ships, it incentivizes shipping their jobs overseas.
INSKEEP: OK. Jared Bernstein and Peter Morici, thanks to you both for another civil discussion, spirited discussion of the Republican tax plan. Always a pleasure when you come by.
MORICI: Take care.
[POST-BROADCAST CORRECTION: In a previous version of this interview, it was incorrectly said that the proposed $500,000 cap on the home mortgage interest deduction applied to the annual interest payment. It actually applies to the size of the mortgage.] Transcript provided by NPR, Copyright NPR.