Kamala Harris Tax Plan Would Cost $2.8 Trillion, Conservative Group Says
(Bloomberg) -- It’s been a week for tax ideas with potentially hefty price tags.
A plan from Senator Kamala Harris, a California Democrat regarded as a possible 2020 presidential candidate, would cost $2.8 trillion over a decade, the conservative Tax Foundation said Wednesday. Harris’s proposal would provide a tax credit or direct payment to middle-class and poor individuals and families.
Shortly after Harris introduced her plan last week, President Donald Trump floated the idea of a 10 percent middle-class tax cut, catching members of his party and administration off guard. The effort -- seen as a campaign tactic ahead of the midterm elections -- could cost from $410 billion to more than $2 trillion, depending how it’s designed, according to an analysis of data from the Joint Committee on Taxation and Congressional Budget Office.
The Tax Foundation score of Harris’s proposal accounts for some slowing down of the economy as a result of the plan, but doesn’t factor in any tax increases Harris is proposing to offset the cost. The Democrat has said parts of the plan would be paid for by rolling back unspecified provisions in the GOP’s 2017 tax overhaul that don’t benefit those making less than $100,000, and by imposing a tax on banks with more than $50 billion in assets.
The conservative think tank said those proposals were too vague to be included in their assessment of the plan. The left-leaning Institute on Taxation and Economic Policy estimates Harris’s plan would cost at least $250 billion annually -- with $200 billion of the benefit going to the bottom 60 percent of taxpayers by income, according to Meg Wiehe, the group’s deputy director.
‘Small Economic Impact’
Republicans passed a $1.5 trillion tax cut last year that permanently slashed the corporate rate, temporarily cut individual rates, almost doubled the standard deduction and provided a special break for owners of partnerships and limited liability companies.
The House approved legislation earlier this year that would make the tax changes for individuals permanent, which would cost an estimated $630 billion over a decade, according to the nonpartisan Joint Committee on Taxation.
The Harris plan would cause more than 825,000 jobs to disappear over 10 years and a 0.7 percent dip in gross domestic product, according to the Tax Foundation analysis. Harris’s plan “has a very small economic impact,” said Kyle Pomerleau, an economist at the Tax Foundation. The job reduction would be due to the phasing out of the credit above certain income levels, which could affect individuals’ incentive to work.
The Harris proposal, known as the LIFT the Middle Class Act, would provide middle-class and working families with a refundable tax credit of up to $6,000 a year to cope with rising living costs for things such as medical bills, rent and child care. (LIFT stands for livable incomes for families today.)
The credit would apply to households earning under $100,000 annually. Single filers earning under $50,000 a year would get $3,000. The credit could be accessed monthly or in one lump sum at the end of the year. It would begin to phase out for single taxpayers without children earning $30,000, single taxpayers with children earning $80,000, and married taxpayers earning $60,000.
Lily Adams, a Harris spokeswoman, called the foundation’s analysis "fundamentally flawed."
"The notion that receiving a tax credit of up to 500 dollars a month would provide a disincentive for people to work is insulting to every American who shows up to work every day," Adams said in an email. "In fact, the bill would substantially increase living standards for millions of Americans, putting money back into their pockets to help them keep up with the rising cost of living."
ITEP’s Wiehe said the plan is more highly targeted than the 2017 tax law to help low-income workers. The poorest 20 percent would see a $2,100 benefit under the Harris plan, compared with $80 under the GOP plan, she said. About 123 million workers would receive tax breaks under the plan, according to Wiehe.
The Tax Foundation said the plan “would greatly increase the progressivity of the U.S. tax code.” Its analysis shows the proposal would give the bottom 20 percent of taxpayers a 20.5 percent boost in after-tax income. While pre-tax wages would remain unchanged, the plan would functionally raise the value of after-tax wages by 2.4 percent.
©2018 Bloomberg L.P.