Tax proposals recently released separately by Republicans in the House and Senate could reshape the financial lives of thousands of Vermonters if passed. Peter Welch, a Democrat who is Vermont’s lone representative in the House, articulated his opposition to the House plan in particular in a wide-ranging interview with The Campus.
Welch said he was especially struck by the discrepancy between the Republicans’ claims about the tax plan — namely, how it would impact the middle class — and the reality. “If the tax bill accomplished what [House Speaker] Paul Ryan says is the goal, I’d be for it,” Welch said in a phone interview on Tuesday. “The reality of the bill is 180 degrees different than what he’s talking about.”
In assessing the tax bills, Welch said he considered two main components: how the proposed tax plan would affect the budget deficit and whether the proposal would benefit the middle class. The proposed House bill is projected to add $2.3 billion to the budget deficit and strip a range of popular itemized deductions that taxpayers rely on each year.
One of the dubious justifications made by Republicans for the tax plan, Welch said, is that by lowering the corporate tax rate from 35 percent to 20 percent, firms will reap new profits and eventually increase wages. “There’s literally no empirical support for that claim,” he said. “There’s no indication that this tax bill, with a corporate tax cut, would somehow result in pay raises from the workers, and that’s a big claim that Ryan and the Republicans are making.”
Welch notes that, across the board, 80 percent of the benefits from the tax plan would accrue to the wealthiest one percent of Americans. “You’re going to have 99 percent of taxpayers fighting for the crumbs,” Welch said. “They’re saying it’s going to benefit the middle class, but they can’t prove that.”
The elimination of the estate tax would play a major role in that disparity. Doing away with the estate tax would only impact two in 1,000 Americans, providing a significant tax break to estates worth more than $1 million. Welch said that although these properties are appreciating in value over time, the capital gains are never taxed as the inheritors would receive the market value for the estate at the time of death.
Itemized deductions — eligible expenses that taxpayers can claim in order to reduce their taxable income — have also been slashed under the House proposal. Medical costs, nursing home expenses, school supplies purchased by teachers out of pocket, student loan interest, state and local income tax— all of which were previously deductible on federal income taxes — have been collectively removed in the most recent House bill.
The bill also contains certain provisions that disproportionately affect certain regions of the country. In the House plan, for example, damage caused by wildfires and earthquakes would no longer be deductible from taxable income, although wreckage from most hurricanes would be.
“If you lost your home in the California fires, you can’t deduct your loss,” Welch said. “And that feels very much like an attack on a ‘blue state.’ Flood or fire, you still lost your house, so why can you deduct the loss in one case and not the other?”
Another striking aspect of the House’s tax proposal is a lack of transparency in its drafting process, Welch asserted. Although most legislation is crafted following a series of open hearings to allow for public input, this tax bill was drafted entirely in secret in the Speaker’s office. Most House members, including many Republicans and members of the Ways and Means Committee, were unaware of the plan until it was formally proposed in the House.
“The problem with a bill written in secret is that you can’t have public input into the whole process,” Welch said. “It creates a situation where you’re not focusing as much on the policy as you are on chasing votes to get to the magic number of 218 in the House.”
Using a procedure called the “closed rule,” Republican leaders have denied the opportunity for any member to oppose an amendment to the existing bill, he said. As a result, Welch, along with Vermont Senators Bernie Sanders and Patrick Leahy, have tried to raise public awareness to combat what they call a disastrous bill.
“Our effort is to get as much public awareness of what’s in the bill and how bad it is so that there’s a reaction of how the bill increases inequality, adds to the debt and fails to promote economic growth,” Welch said.
Welch suspects that Republicans are determined, and willing, to pass any tax bill in order to claim success following months of failed and stalled legislative efforts.
In summarizing his greatest concerns about the bill, Welch highlighted the trend between both tax bills: an attempt to compensate for losses stemming from the elimination of the estate tax by hurting the middle class.
“These eliminations are a direct take-away from the middle class and it’s hard to justify that under any circumstances,” Welch said. “And most egregiously for taking away these benefits to pay for the elimination of the estate tax for billionaires.”
Welfare programs will feel the most immediate repercussion from the cuts, Welch contended. In the long-term, however, he noted that the bills’ effect on the federal deficit could negatively impact future generations.
“We’re borrowing money to pay for the tax cuts, and the people benefiting from it won’t be paying for it,” Welch said. “By driving up the deficit, it’s going to put enormous pressure on Medicaid and Medicare and Social Security programs.”
