Oct 25, 2017

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Beware of falling taxes

by | Oct 25, 2017

Regardless of your credit rating or income, you likely find “free-money” offers inside your mailbox regularly. Perhaps a financial institution with a respectable-sounding name (like “New America Bank”) offers you a no-interest $24,000 cash advance that you could use to buy a new car, fix your house or splurge on a vacation.

These get-money-quick schemes sound tempting until you read the fine print and discover that you need to repay all of the free money within 12 months or the interest rate ramps up to an eye-popping level that would leave you much deeper in debt than you were before. Unless you are in desperate straits, or extremely short-sighted financially, you would rightfully feed such a solicitation to the paper shredder before even opening the envelope.

In many ways, the tax “reform” proposals currently being crafted by President Trump and members of Congress, resemble a careless, free-money scheme that will come at the expense of the country’s financial security and health. In the end, low- to-middle-income Americans will end up paying the “interest” for the scheme.

Even on the surface, the proposals being considered at the nation’s capital are shadier than the terms of the payday loan. While the details are still being worked out, Trump and Congress are promising “middle-class tax relief” by increasing the federal deficit over the next 10 years on top of the already-ginormous national debt. Historically, Congress and the President justify such increases in the deficit during times of extreme economic hardship – such as the Great Recession. So it’s baffling that the President and Congress want to “give away” so much money when the economy is doing so well and when the revenue could be better spent addressing long-term needs. The recently released tax “framework”  could add upwards of $2.2 trillion to the deficit. That saddles Americans with roughly $17,500 per household, according to the Committee for a Responsible Federal Budget.

Details are sketchy
Despite all of the promises from Congress, the details of the framework are still sketchy and are being drafted as the President and members of Congress pitch the unfinished plan to the American people. Indeed, unlike most free-money schemes, there is no fine print yet and we don’t know how much or whether the average American family will benefit should this plan become law.

But we do know that what has been proposed would benefit the wealthiest 1 percent of households and profitable corporations considerably more than average Americans.

In fact, a preliminary analysis from the nonpartisan Tax Policy Center estimates that more than half of the benefits in the first year would go to the top 1 percent of taxpayers, while 30 percent of the benefits will go to the top 0.1 percent. Meanwhile, the Center estimates that roughly one-quarter of Americans would pay higher taxes by 2027, including 30 percent of those with incomes between $50,000 and $150,000 and 60 percent of those making between $150,000 and $300,000.

Trump and members of Congress claim that these tax cuts will “pay for themselves” through the fabled “trickle-down effect” that will purportedly encourage corporations to invest in plants and equipment, increase wages and create more jobs. While that sounds like a great deal, decades of mainstream economic research long ago debunked the trickle-down approach of stimulating the economy.

In short, the money from trickle-down economics doesn’t trickle down. It tends to stay at the top, fortifying wealth for the wealthiest. While huge budget cuts might not happen immediately (2018 is an election year, after all), low- to middle-income Americans will inevitably pay the tab for tax relief in later years as political pressure intensifies to cut the resulting bloated deficit. It’s likely that these tax cuts will paid for via cuts to government spending on the programs that working families depend on most, including Social Security, Medicare, Medicaid, student loan programs and others. Congress has already taken steps to cut these programs through their budget resolution process.

Budget cuts are inevitable
In the short term, President Trump and members of Congress have been clear on the areas they want to cut, as evidenced in CCLP’s multi-part “A Better Budget” series. If Congress passes the kind of tax cuts that many members badly want, and President Trump approves the reforms, expect draconian cuts in programs that provide basic housing, food and other assistance, as well as health care for millions of low- to middle-income families.

On top of that, a growing national debt not only suppresses economic growth, it suppresses future personal income. For example, based on estimates from the nonpartisan Congressional Budget Office, average income in 30 years will be $5,000 less a year if the national debt continues to grow on its current trajectory rather than being put on a downward path. And this is based on what our debt is already projected to be under current law, before trillions more are added in debt-financed tax cuts, according to the Committee for a Responsible Federal Budget.

The tax-cut “framework” that the Trump administration proposed raises the standard deduction from $6,500 for individuals up to $12,000. Those who file as married couples will see their standard deduction go up from $13,000 to $24,000. The framework eliminates most current deductions — including health care, state and local tax deductions — but maintains deductions for mortgage interest and charitable contributions which could result in a net loss of deductions notwithstanding the increased standard deduction. And while the framework retains the Earned Income Tax Credit for low-income families, it reduces “refundable” tax credits that put money in the pockets of the lowest income earners.

The Colorado connection
What does this mean for Colorado? Since taxable income in Colorado is based on federal taxable income, the revenue generated by Colorado’s flat income tax could decline.  But it is also possible that if deductions are reduced, that figure could increase. Right now, it is too soon to know.

The bigger danger may be in the budget proposal.  Big cuts in federal programs would hurt Coloradans who struggle with food insecurity, need student loans or federal job training assistance, and rely on Medicaid for health care.  Exacerbating the problem, Colorado would not be able to replace lost federal funds to meet these needs with locally generated funds because of the taxation constraints in the state’s constitution.

While there would be winners and losers in reforming the tax code, most Americans will have to ask themselves if a humongous tax cut is worthwhile if their children will end up picking up the tab and earning less because of it.

Contact Congress!
Although pressure is mounting in Washington for Congress to approve a tax-reform plan, there’s still hope that Congress can avoid a fiscal catastrophe that will hurt Americans. Many “deficit hawks” — including conservative Republicans — are leery of raising the deficit and may reject a plan or approve it with the caveat that programs will be cut dramatically in the future.

We encourage Coloradans to make their concerns known to their Congressional representatives. Ask them to reject any changes to the tax code that disproportionately benefit the wealthiest Americans and forces future cuts to investments that could give all Coloradans the chance to thrive.

After all, there’s no such thing as “free-money.”

— By Bob Mook

Recent articles

CCLP’s 2024 legislative wrap-up, part 2

CCLP's 2024 legislative wrap-up focused on expanding access to justice, removing administrative burden, supporting progressive tax and wage policies, preserving affordable communities, and reducing health care costs. Part 2/2.

CCLP’s 2024 legislative wrap-up, part 1

CCLP's 2024 legislative wrap-up focused on expanding access to justice, removing administrative burden, supporting progressive tax and wage policies, preserving affordable communities, and reducing health care costs.

CCLP testifies in support of Clean Slate updates

Bethany Pray, CCLP’s Chief Legal and Policy Officer, provided testimony in support of House Bill 24-1133, Criminal Record Sealing & Expungement Changes. CCLP is in support of HB24-1133, as it is one of our priority bills.

HEALTH:
HEALTH FIRST COLORADO (MEDICAID)

To maintain health and well-being, people of all ages need access to quality health care that improves outcomes and reduces costs for the community. Health First Colorado, the state's Medicaid program, is public health insurance for low-income Coloradans who qualify. The program is funded jointly by a federal-state partnership and is administered by the Colorado Department of Health Care Policy & Financing.

Benefits of the program include behavioral health, dental services, emergency care, family planning services, hospitalization, laboratory services, maternity care, newborn care, outpatient care, prescription drugs, preventive and wellness services, primary care and rehabilitative services.

In tandem with the Affordable Care Act, Colorado expanded Medicaid eligibility in 2013 - providing hundreds of thousands of adults with incomes less than 133% FPL with health insurance for the first time increasing the health and economic well-being of these Coloradans. Most of the money for newly eligible Medicaid clients has been covered by the federal government, which will gradually decrease its contribution to 90% by 2020.

Other populations eligible for Medicaid include children, who qualify with income up to 142% FPL, pregnant women with household income under 195% FPL, and adults with dependent children with household income under 68% FPL.

Some analyses indicate that Colorado's investment in Medicaid will pay off in the long run by reducing spending on programs for the uninsured.

FOOD SECURITY:
SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM (SNAP)

Hunger, though often invisible, affects everyone. It impacts people's physical, mental and emotional health and can be a culprit of obesity, depression, acute and chronic illnesses and other preventable medical conditions. Hunger also hinders education and productivity, not only stunting a child's overall well-being and academic achievement, but consuming an adult's ability to be a focused, industrious member of society. Even those who have never worried about having enough food experience the ripple effects of hunger, which seeps into our communities and erodes our state's economy.

Community resources like the Supplemental Nutrition Assistance Program (SNAP), formerly known as Food Stamps, exist to ensure that families and individuals can purchase groceries, with the average benefit being about $1.40 per meal, per person.

Funding for SNAP comes from the USDA, but the administrative costs are split between local, state, and federal governments. Yet, the lack of investment in a strong, effective SNAP program impedes Colorado's progress in becoming the healthiest state in the nation and providing a better, brighter future for all. Indeed, Colorado ranks 44th in the nation for access to SNAP and lost out on more than $261 million in grocery sales due to a large access gap in SNAP enrollment.

See the Food Assistance (SNAP) Benefit Calculator to get an estimate of your eligibility for food benefits.

FOOD SECURITY:
SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS AND CHILDREN (WIC)

Every child deserves the nutritional resources needed to get a healthy start on life both inside and outside the mother's womb. In particular, good nutrition and health care is critical for establishing a strong foundation that could affect a child's future physical and mental health, academic achievement and economic productivity. Likewise, the inability to access good nutrition and health care endangers the very integrity of that foundation.

The Special Supplemental Nutrition Program for Women, Infants and Children (WIC) provides federal grants to states for supplemental foods, health care referrals, and nutrition information for low-income pregnant, breastfeeding and non-breastfeeding postpartum women and to infants and children up to age five who are found to be at nutritional risk.

Research has shown that WIC has played an important role in improving birth outcomes and containing health care costs, resulting in longer pregnancies, fewer infant deaths, a greater likelihood of receiving prenatal care, improved infant-feeding practices, and immunization rates

Financial Security:
Colorado Works

In building a foundation for self-sufficiency, some Colorado families need some extra tools to ensure they can weather challenging financial circumstances and obtain basic resources to help them and their communities reach their potential.

Colorado Works is Colorado's Temporary Assistance for Needy Families (TANF) program and provides public assistance to families in need. The Colorado Works program is designed to assist participants in becoming self-sufficient by strengthening the economic and social stability of families. The program provides monthly cash assistance and support services to eligible Colorado families.

The program is primarily funded by a federal block grant to the state. Counties also contribute about 20% of the cost.

EARLY LEARNING:
COLORADO CHILD CARE ASSISTANCE PROGRAM (CCCAP)

Child care is a must for working families. Along with ensuring that parents can work or obtain job skills training to improve their families' economic security, studies show that quality child care improves children's academic performance, career development and health outcomes.

Yet despite these proven benefits, low-income families often struggle with the cost of child care. Colorado ranks among the top 10 most expensive states in the country for center-based child care. For families with an infant, full-time enrollment at a child care center cost an average of $15,140 a year-or about three-quarters of the total income of a family of three living at the Federal Poverty Level (FPL).

The Colorado Child Care Assistance Program (CCCAP) provides child care assistance to parents who are working, searching for employment or participating in training, and parents who are enrolled in the Colorado Works Program and need child care services to support their efforts toward self-sufficiency. Most of the money for CCCAP comes from the federal Child Care and Development Fund. Each county can set their own income eligibility limit as long as it is at or above 165% of the federal poverty level and does not exceed 85% of area median income.

Unfortunately, while the need is growing, only an estimated one-quarter of all eligible children in the state are served by CCCAP. Low reimbursement rates have also resulted in fewer providers willing to accept CCCAP subsidies.