Tax Cut? Republican Tax Plan is Nothing More than Government-Authorized Public Loan, Says Expert

House Republicans unveiled a new tax plan on Nov. 2, touting the proposal as a tax break for most Americans.

Hayes says that he frames the proposed tax cut as a “public loan” because the plan would allow the federal government to borrow at least $1.5 trillion over 10 years to fund the forgone revenue as a result of the tax cut.

But not so fast, says Rutgers–Camden researcher Michael Hayes, who calls it nothing more than a government-authorized public loan, which all Americans will be forced to pay back.

In the following Q & A, the assistant professor of public policy and administration, and a faculty fellow of the Senator Walter Rand Institute for Public Affairs, at Rutgers University–Camden, offers his take on the proposal and its future implications.

Is the Republican tax proposal unveiled on Nov. 2 a tax cut?

Let’s be clear, the proposed GOP “tax cut” currently being debated in Congress is not a tax cut. It’s a government-authorized public loan of roughly $1.5 trillion, which all Americans will be forced to implicitly cosign.

Why do you frame the proposal as a public loan?

I frame the proposed tax cut as a “public loan” because the current GOP proposal would allow the federal government to borrow at least $1.5 trillion over 10 years to fund the forgone revenue as a result of the tax cut. A true tax cut would imply that the government has a surplus and the government uses the surplus in federal revenues to reduce federal income tax rates. This is not the case. There are no projected surpluses in the coming years.

What are future implications of this proposal?

The worst part of this plan is that the borrowed money from this “public loan” is not distributed equally among Americans. In fact, 60% of the borrowed money will be distributed to the top 10% income earners. For some middle-class households, it is possible that their federal income tax liability might increase, especially those in states such as New Jersey.

Why is that?

New Jersey has above-average state and local taxes. The current GOP proposal would end the state and local tax deduction, which negatively impacts New Jersey middle-class households that itemize their tax deductions instead of taking the standard dedication.

What are some questions that lawmakers and citizens alike should be asking?

I’m left with one simple question: What rational person would cosign a public loan where they have equal responsibility in paying back the loan, but do not receive an equal share of the borrowed money?

In reality, no household explicitly pays back government debt. However, they do pay the “opportunity cost” – the forgone revenue that could have been used for other federal projects, such as infrastructure investment.

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