Deficit-Financed Tax Cuts Are Not The Answer

This month, Congress began consideration of a new budget, which will set the stage for the debate of a major tax reform proposal. During the campaign and since his election, President Trump promised a tax reform plan that would benefit the average American and would not grow the deficit. We haven’t overhauled our tax code since 1986, and a proposal to make it simpler and fairer and more competitive could attract bipartisan support, a welcome change after a bitter and partisan fight over health care.

A true tax reform plan will require real tradeoffs and hard, but overdue, discussions between both parties about how to put us on a sustainable fiscal path. We all want tax policies that benefit the average American and boost our economy, and we should endeavor to negotiate something that lowers taxes on small businesses, simplifies the tax code and gets rid of special interest loopholes that allow many companies to pay no taxes at all while others pay a high rate.

Unfortunately, from what we know thus far of the tax proposals presented by the Administration, the current plan would result in higher taxes for middle class families in blue states, and cut taxes for large companies and special interests by borrowing more money and putting the nation deeper in debt. In fact, these combined tax cuts would increase the federal debt by $2.4 trillion in the first 10 years and cost an additional $3.2 trillion in the second decade.

When I came to office in 2001, the federal debt was $5.7 trillion, and we were in a period where our annual deficits were low, or even running in surplus. Since then, a combination of tax cuts, wars, growth in healthcare spending and economic downturns have brought our national debt to more than $20 trillion, with no end in sight. This tax proposal would only widen deficits, damaging our nation’s long-term fiscal stability.

The one proposal that has been offered to offset the increased deficit is ending or limiting the State and Local Tax (SALT) deduction – a tax break that allows individuals to deduct their state and local taxes paid from income when filing a federal tax return. The SALT deduction is particularly meaningful for Americans in states like California, New York and Illinois. Middle class residents in these states would suffer the most if the SALT deduction were eliminated. It is no coincidence, of course, that this proposal raises taxes on the blue states and cuts taxes on the red states, in a thinly veiled effort to penalize residents of states that did not support the President. This may be good politics, but it is terrible policy.

In California, nearly six million residents claimed the deduction, and nearly 84% of those who claimed it earned less than $200,000 in annual household income. In our district, elimination of this deduction would result in a whopping tax increase on middle class families. Because this proposal is still in the draft form in the House, I have joined many members of both parties in urging those drafting the final legislation to eliminate this provision.

A tax reform should simplify the tax code, make sure everyone pays a fair share – rather than have some companies and individuals pay little or no tax while the rest of us pay more – and be fiscally sound. This plan does not meet any of those standards and it is certainly not the comprehensive “tax reform” plan that the President promised.

I hope that Congress and the President can get to work on a real tax reform rather than a bill that punishes middle class families in certain states like ours and worsens the long term fiscal health of our nation.