Hide your kids! Hide your wallets! Despite all the faux acrimony on display between the parties in Congress this week, the House of Representatives is about to pass a new bill with broad bipartisan support. That is not good news.
Not only do Republicans refuse to cut a single penny from the budget they passionately complain about, but they also add to the deficit at any opportunity. They have already added $2.7 trillion in the past year. This week, House Republicans are set to pass a bipartisan tax bill, which they’re trying to sell as a massive tax cut. In fact, H.R. 7024 would add welfare dependency to the tax code, which is worse than welfare itself.
If this tax bill is the only accomplishment of the GOP-controlled House after funding every other policy that negates these cuts, then thanks, but no thanks.
The dirty little secret is that taxes, for the most part, are no longer a pressing issue. Because of the Reagan, Bush, and Trump tax cuts, tens of millions of Americans no longer incur a net positive income tax liability below a certain income threshold. Absent overhauling the entire broken system, we have squeezed as much juice out of tax cuts as possible.
Gone are the days when cutting taxes starved the beast of the federal government. Now, Congress and the Treasury simply print all the money they need to feed the leviathan. But it is that deficit spending that spurs inflation, which harms lower- and middle-income families more than their current tax burden.
A new entitlement
The House Ways and Means Committee is scheduled to vote early this week on H.R. 7024, which would, among other things, expand the refundable portion of the child tax credit yet again.
For years, the child tax credit was worth $1,000 per dependent child, regardless of whether the tax filer had a net positive tax liability. The 2017 tax reform bill doubled the credit to $2,000 and this year allowed up to $1,600 per child (tethered to inflation) to be “refundable,” meaning a person could make money from the credit even if he paid no taxes. It’s a dressed-up wealth redistribution program.
The new bill, sponsored by House Ways and Means Committee Chairman Jason Smith (R-Mo.) and Senate Finance Chairman Ron Wyden (D-Ore.), would make up to $2,000 refundable by 2025 and expands the base credit with inflation for three years. But once an entitlement is created, you have to score its deficit effects forever because it will never be repealed.
Worse, the bill would weaken work requirements by allowing a filer to qualify based on the previous year’s work, meaning the filer could receive the credit while not working.
Under current law, according to the Joint Committee on Taxation, the average tax filer in the entire bottom 50% of income earners has a net negative income tax liability thanks to the earned income tax credit and the additional child tax credit. Right now, those programs cost more than $100 billion combined. During the pandemic years, the cost reached as high as $250 billion because of the $3,500 refundable credits per child handed out by the Biden administration.
Rather than replacing welfare programs with refundable tax credits, we expanded both to record levels since the Obama years. This has allowed millions of Americans who don’t pay taxes to think they really do, without suffering the pain of electing socialists who are at war with our society, economy, borders, and culture.
In 2021, 57% of households paid no federal income taxes, and 19% had their payroll tax liability more than zeroed out, too. Those numbers likely receded slightly with the tapering of COVID handouts, but it’s not as if we have an urgent need to add to the ranks of Americans who make money from the tax code at the expense of actual taxpayers. The fact that 94% of the JCT’s $33 billion projected three-year cost of the expanded tax credit is scored as an “outlay” rather than a reduction of revenue underscores the fact that most of this expansion will be welfare and not a tax cut.
Not an equal trade
Which brings us back to the GOP’s quixotic focus on a tax bill as the one priority of this session. Until now, the low-tax doctrine — perhaps even including refundable tax credits — has been worthwhile, but any continued effort to only cut taxes while continuing to hike spending is counterproductive both policy-wise and politically.
Although it is true that in exchange for the welfare spending Republicans have secured the extension of pro-growth tax cuts, such as the deduction for domestic research and development, 100% bonus depreciation for equipment and capital assets, and deductions for interest payments, the swap is not worth it. Also, Republicans expended some of their capital on the budgetary scoring of the bill by making these tax breaks retroactive for the past two years, which is silly because you can’t retroactively incentivize growth.
By giving Democrats their most prized tax provision on refundable credits, Republicans have lost any leverage to demand an extension of the broader Trump tax cuts slated to expire at the end of 2025. Now that we have released the hostage, Democrats will have no reason to extend the other provisions or agree to a less complex, flatter tax code.
Also, even if Republicans were going to trade business tax cuts for more welfare, they could have negotiated a better deal. Republicans didn’t even secure the repeal of refundable tax credits for illegal aliens while giving in to Democrats on the tax pork, including billions in additional “emergency” spending.
Additionally, the bill expands the socialist low-income housing tax credit, a social engineering program that gives states $10 billion to offer to well-connected banks and land developers who purposely inflate their constructions costs to milk the credit and float projects that are not otherwise sound economically. In that sense, this housing credit is a bit like the green energy tax credits. The bill would increase the program by 12.5%. Overall, the bill spends too much.
A double-edged sword of low-tax socialism
While we don’t believe in needlessly taxing corporations, simply giving more tax cuts to the broken and woke corporate world without addressing regulations, subsidies, monopolies, energy policy, and health care creates an imbalance in politics against a broader conservative agenda.
Corporate America has become the No. 1 enforcer — even more effective than the media and academia — in promoting open borders, endless Middle East migration, soft-on-crime laws, anti-religious liberty policies, mindless multiculturalism, the biomedical security state, and the transgender agenda. Even on fiscal issues, corporations fully support the welfare state, Obamacare, the global warming agenda, and all the regulations that help them shut out competition.
The one missing component from the Democrat portfolio is taxation. If the corporations empowered Democrats on that issue, too, they couldn’t survive. Thus, Big Business backs the Republican Party line on cutting taxes, so that it is free to promote the rest of the progressive agenda.
Knowing that, conservatives should be willing to shoot our hostage (business tax cuts) instead of releasing their hostage (welfare spending). And I say this as someone who does not have a negative tax liability. With four children, I would benefit greatly from an increase in the child tax credit.
The GOP has supported low-tax socialism, and even negative-tax socialism for some, which has allowed the weaponized leviathan to grow without people having to feel the pain. Perhaps it’s time we change strategies. Let’s push conservatism on every other policy so we don’t suffer all the liabilities of zero taxes on many individual Americans and low taxes on corporations without reaping the benefits.
If this tax bill is the only accomplishment of the GOP-controlled House after funding every other policy that negates the purpose of these business tax cuts, then thanks, but no thanks.