House Democrats continue working to secure the necessary votes to pass “Build Back Better,” their massive reconciliation bill. Even if House Speaker Nancy Pelosi twists enough arms for passage, prospects in the Senate remain dim as Sens. Joe Manchin and Kyrsten Sinema have refused to endorse the legislation. Their hesitancy is justified by the proposal’s enormous cost, economic damage and poor design. Consider the following eight major flaws of the proposal:
1. No cost estimate. Democrats are racing to pass the largest non-emergency spending bill since the 1960s. Precisely how much will it cost? No one knows. Lawmakers are not even waiting for the Congressional Budget Office to score the bill. The White House and others have pegged the 10-year cost at around $2 trillion, but that is surely an underestimate because of …
2. Gimmicks to hide the cost. The White House intends for the new policies to be permanent, but is using fake expiration dates to score only the first year of the extended child tax credit, the first four years of new health care expansions, and the first six years of child care and early pre-K subsidies. The stated goals of extending these provisions will add approximately $2 trillion to the 10-year cost, likely pushing the total past $4 trillion.
3. Less economic growth. The White House claims these policies will grow the economy. Yet the nonpartisan economists at the Penn-Wharton Budget Model calculate that — if Congress follows White House policy to make most provisions permanent — then Build Back Better will reduce the long-term GDP by 2.8 percent, reduce wages by 1.5 percent, and reduce work hours by 1.3 percent. The only thing it will expand is government debt, by 25 percent.
4. Expanded SALT deduction. The House bill would hike the cap on the state and local tax (SALT) deduction from $10,000 all the way to $72,500. This $500 billion tax cut (relative to keeping the $10,000 cap) would provide 84 percent of its benefits to the top-earning 10 percent of households (saving as much as $19,000 each), while the typical median-earning family would save just $20. And Democrats say Republicans are the party of the rich! The result is that — even with other new tax hikes — many wealthy families could see a net tax cut in this bill.
No, capping SALT is not about forcing blue states to subsidize red states. States don’t pay taxes, individuals do. And if Democrats object to wealthy taxpayers in California or New Jersey redistributing income to less-fortunate families in Arkansas or West Virginia, they are free to advocate the repeal of federal welfare programs.
5. Child tax credits for undocumented immigrants. The legislation would end the requirement of a valid Social Security number and thus extend the refundable child credit to undocumented families — covering approximately 675,000 children. It is not anti-immigrant to note that even legal immigrants (such as green card holders) have typically had to wait five years to receive public assistance benefits. The waiting period matters because, for a family with three young children, the fully refundable $10,800 child tax credit payment would exceed the entire average family income in several Central and South American countries, and thus encourage more illegal border crossings. Indeed, poverty expert Samuel Hammond notes that, following the enlargement of the European Union in 2004, nations with generous benefits for new arrivals saw a stampede of new migrants from poorer countries that eventually forced them to mandate waiting periods. Immediate, easy welfare benefits are not compatible with easy immigration.
6. Child care “reform.” While many families surely struggle with child care costs, the Democrats’ solution has been slammed across the political spectrum. It would create a one-size-fits-all system that would drive up the cost of daycare centers with new regulations and large mandated salary increases for child care workers. This could raise child care prices by as much as $13,000 per year, according to the left-wing People’s Policy Project. Many of these new costs would then be passed on to the government (i.e., the taxpayers) in order to cap costs for families. Yet households earning above the eligibility threshold (which gradually rises over a few years from 100 percent to 250 percent of state median income) would have to pay these new costs themselves. Families that prefer informal child care arrangements, such as friends or grandparents, would likely be excluded from assistance. A cleaner option would simply expand the child tax credit and let families decide how to spend it.
7. Historic new taxes. Even as tax revenues surge, the House bill’s $2 trillion tax increase would be the largest in nearly 40 years. The corporate tax increases would be nearly triple the size of the tax cuts they received in 2017, and the international reforms would harm American multinational companies relative to their international competitors. For households, the top combined marginal income tax rates (including federal, state and payroll taxes) would soar to the highest in the OECD, exceeding 66 percent marginal tax rates in New York.
Few will shed a tear for large corporations or wealthy taxpayers (many of whom would also receive the aforementioned SALT tax cuts). However, these taxes will harm American competitiveness, and much of the corporate taxes will be passed down to families through higher prices, lower wages and smaller retirement investment returns. Furthermore, if Congress maximizes taxes on corporations and wealthy families to pay for this legislation, guess whose taxes will be left to raise when it’s time to address the staggering $25 trillion in new deficits projected between 2019 and 2031? Get ready for significant middle-class tax increases just a bit down the road.
8. Marriage penalties. The House bill would extend the American Rescue Plan’s expansion of the earned income tax credit (EITC) that broadened age eligibility and increased benefits for childless workers.
However, this new design expands a marriage penalty in which the simple act of getting married would cause two individuals to forfeit as much as $2,700 in annual EITC benefits. The easiest fix would allow married couples who file their taxes separately to remain eligible for the EITC (and thus guarantee the same pre-marriage benefits). A better option would simply fix the EITC formulas so that a couple’s benefit levels are the same regardless of whether they get married.
President Biden and Congress have already added more than $3.5 trillion in new 10-year debt from the American Rescue Plan, infrastructure bill, and higher discretionary spending baseline. The Build Back Better plan would add trillions more in debt, fuel inflation, raise current taxes, and set the stage for future middle-class tax hikes — all for a poorly designed bill that economists show would hurt the economy. Lawmakers should kill this bill.
Brian Riedl is a senior fellow at the Manhattan Institute. Follow him on twitter @Brian_Riedl
This article was originally published by the NY Post. Read the original article.
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