Budget Blog

Apr 30 2015

Sanders review of Republican Budget Conference Agreement Shows It Takes America in the Wrong Direction

Devastating cuts to health care, job creation, college affordability among the goals of GOP plan

The Republican Budget Conference Report:

more tax breaks for millionaires;

more pain for the middle class

The Republican budget conference report moves this country in exactly the wrong direction. At a time of massive wealth and income inequality, it gives huge tax breaks to millionaires and billionaires, while making devastating cuts to education, Medicare, affordable housing, prescription drug coverage, and many other vital investments for the elderly, the children, the sick, and the poor.

The Republican budget would eliminate health insurance for at least 27 million Americans by repealing the Affordable Care Act and making draconian cuts to Medicaid.

This budget is truly the Robin Hood principle in reverse: It takes from the most vulnerable and gives to the wealthiest families and largest corporations in America. 

The Republican budget would eliminate the estate tax for 5,400 families who inherit over $10 million, while increasing taxes on 13 million working families with 25 million children. Meanwhile, it uses an accounting gimmick to increase defense spending by $38 billion, which could pave the way for another costly war.‎

Further, at a time when senior poverty is going up, the Republican budget calls for ending Medicare as we know it by turning it into a voucher program. At a time when millions of disabled people are trying to survive on less than $14,000 a year, the Republican budget would pave the way for a massive cut to Social Security Disability Insurance.‎

Instead of creating jobs, the Republican budget eliminates jobs. Instead of making education more affordable, it will make it harder for millions of young Americans and their families to afford the cost of a college education. Instead of helping to eliminate hunger in America, it will add to the financial problems of low-income Americans and create more hunger.

For all of these reasons, the Republican budget must be defeated.‎ Included below is a summary of the conference report.

The Republican budget would repeal the Affordable Care Act, which would:

  • Immediately eliminate health insurance coverage for 16.4 million Americans and reduce the ranks of the insured by 23 million within one year.
  • Deny over 2.3 million young adults the right to stay on their parents’ health insurance plan until the age of 26.
  • Deprive up to 130 million Americans with pre-existing conditions the right to purchase affordable health insurance if they lose their jobs or otherwise lose their health insurance.
  • Increase prescription drug prices for than 9.4 million seniors and persons with disabilities who are on Medicare Part D by re-opening the donut hole.‎
  • Deprive every woman in this country with equal protection that prevents insurance companies from charging extra simply because they are women.

 The Republican budget would eviscerate Medicaid and cut more from Medicare than any budget resolution or conference report in at least a decade. Specifically, the Republican budget:

  • Cuts Medicare by more than $431 billion over the next decade – a deeper cut than any plan in the last decade.‎
  • Calls for ending Medicare as we know it by turning it into a voucher that would increase out-of-pocket costs for millions of seniors and those with disabilities.
  • Cuts Medicaid by at least $400 billion which would eliminate health insurance for at least 11 million Americans, and jeopardize nursing home care for some of the most vulnerable Americans in this country.

 The Republican budget would pave the way for Social Security cuts that would deprive the disabled and elderly of benefits they have worked to earn over their lifetimes. The Republican budget:

  • Puts nearly 11 million disabled Americans and their families at risk of a 19 percent benefit cut to Social Security Disability Insurance by preventing a routine accounting practice known as reallocation.
  • Does not include an amendment that received 51 votes in the Senate which would have prevented benefit cuts, an increase in the retirement age, or the privatization of Social Security.

 The Republican budget cuts about $270 billion from education and job training investments over the next decade. Specifically, the Republican budget: 

  • Slashes Pell Grant funding by more than a third by eliminating mandatory funding for Pell Grants, cutting the program by nearly $90 billion over 10 years – and cutting discretionary Pell funding by $30 billion more. This would make college less affordable for many of the more than 8 million students receiving aid and tens of millions more over the next decade.
  • Switches to Fair Value accounting – making student loans appear vastly more expensive to the federal government than they are – which could increase college costs by more than 15 percent for struggling students.
  • Eliminates an in-school interest subsidy for need-based student loans, increasing student loan debt by nearly $4,000 for an estimated 30 million students.
  • Eliminates Head Start services for 400,000 children over the next decade by cutting the program by more than $4 billion.
  • Cuts for Title I education funding and Individuals with Disabilities Education Act funding by $7 billion. 

When it comes to tax policy, the Republican budget ‎provides huge tax breaks to millionaires, billionaires, and the most profitable corporations in this country, while increasing taxes on millions of working families. Specifically, the Republican budget: 

  • Provides a $269 billion tax break for the wealthiest 0.2 percent of Americans over the next decade by abolishing the estate tax – providing an average tax break of $3 million to multi-millionaires and billionaires.
  • Calls for lowering the top corporate tax rate, at a time when corporate profits are at an all-time high and the effective corporate tax rate is just 12.6 percent.‎
  • Calls for lowering the top individual tax rate at a time when the top one percent already earn more income than the bottom 50 percent.
  • Does nothing to eliminate the carried interest loophole at a time when Wall Street billionaires pay a lower effective tax rate than truck drivers or nurses.‎
  • Does nothing to eliminate over $40 billion in tax breaks and subsidies for oil and gas companies, even as the five biggest oil companies alone made more than $1 trillion in profits over the last decade.
  • Calls for the adoption of a territorial tax system that would reward companies for shifting profits to offshore tax havens in order to avoid paying U.S. income taxes – even as corporations are already avoiding $100 billion a year in taxes by shifting their profits to the Cayman Islands and other offshore tax havens. 

Meanwhile, when it comes to the taxes that struggling working families pay, the Republican budget: 

  • Raises taxes by an average of $900 on 13 million families with 25 million children – who have an average household income of just $22,600. This increase stems from the Republican budget’s plan to allow tax credits for working families to expire, despite the fact that 73 senators voted to maintain the expanded credits.
  • Paves the way for a tax hike of $1,100 for 12 million families and students paying for college by allowing the American Opportunity Tax Credit to expire. 

Republicans are using a budget gimmick to increase defense spending, even as they gut domestic programs. The Republican budget: 

  • Increases OCO funding by $38 billion, which could pave the way for another unpaid for war.
  • Removes a budget point of order that would constrain Republicans’ ability to add more war funding than was requested by our generals and commanders in the field.
  • Pays for the increase in defense spending by cutting non-defense programs by $544 billion over 10 years – a total that includes Republicans’ elimination of “program integrity” funding, which roots out fraud, waste, and abuse and more than pays for itself. 
If the Republican budget’s cuts spending are applied proportionately, in an average year the Republican budget: 
  • Eliminates housing assistance for 450,000 families due to a 14 percent cut to the Section 8 rental assistance program.
  • Cuts 14 percent from housing programs for the elderly and for persons with disabilities.
  • Eliminates heating assistance (LIHEAP) for up to 823,000 families.
  • Eliminates nutrition assistance for 1.2 million women, infants, and children who rely on the WIC program.
  • Cuts mandatory transportation funding by 40 percent – $217 billion over the next decade.
  • Cuts funding for the National Institutes of Health by $8 billion over the next decade, which would cut funding for Alzheimer’s, cancer, and other critical medical research. 

The Republican budget also: 

  • Leads to the loss of at least 2.3 million jobs and a 1.9 percent reduction in GDP in 2017.
  • Eliminates Democratic budget amendments that would allow Americans to earn paid sick leave, save the Postal Service, and would ensure all legally married same-sex spouses have equal access to the Social Security and veterans benefits they have earned.
  • Paves the way for a fast-track vote to repeal the Affordable Care Act though the reconciliation process.
  • Repeals the rule that prevents reconciliation legislation from increasing the deficit, allowing Republicans to fast track tax cuts for the wealthy and large corporations just like they did under President George W. Bush.
  • Rigs the rules to make it easier to pass tax cuts for the rich through the use of “dynamic scoring.”

 

Apr 14 2015

New Bill to Curb Tax Dodging Corporations

Legislation from Sanders will prevent corporations from sheltering profits in tax havens like Bermuda and the Cayman Islands and would stop rewarding companies that ship jobs and factories overseas with tax breaks

THE CORPORATE TAX DODGING PREVENTION ACT OF 2015

The Corporate Tax Dodging Prevention Act would prevent corporations from sheltering profits in tax havens like Bermuda and the Cayman Islands and would stop rewarding companies that ship jobs and factories overseas with tax breaks. The Joint Committee on Taxation (JCT) has estimated in the past that similar provisions would raise more than $590 billion in revenue over a decade. The Corporate Tax Dodging Prevention Act will reform the tax code by:

1. Ending the rule allowing American corporations to defer paying federal income taxes on profits of their offshore subsidiaries. (Section 2 of the bill.)

Current law allows American corporations to defer paying U.S. income taxes on profits of their offshore subsidiaries until those profits are “repatriated” (officially brought to the U.S.) which may not happen for years, if ever. As a result, American corporations would rather report foreign profits than domestic profits to the I.R.S. Deferral therefore creates an incentive to either move operations and jobs to a lower-tax country, or to use accounting gimmicks to make U.S. profits appear to be earned in a lower-tax country.

The Congressional Research Service has indicated that the cost of this tax avoidance to the U.S. Treasury approaches or exceeds $100 billion annually. The Corporate Tax Dodging Prevention Act would end this tax avoidance by ending the rule allowing deferral of U.S. income taxes on offshore profits.

Under this legislation, American corporations would still be allowed a credit that reduces their federal income tax liability by an amount equal to income taxes paid to foreign governments on these profits. This foreign tax credit exists under current law and already prevents double-taxation of profits.

2. Closing loopholes allowing American corporations to artificially inflate or accelerate their foreign tax credits. (Section 4 of the bill.)

When U.S. corporations earn profits overseas, taxes paid to the foreign country are credited against U.S. tax liabilities, in order to avoid double-taxation. Under current rules and tax planning strategies, corporations are allowed to claim foreign tax credits for taxes paid on foreign income that is not subject to current U.S. tax (meaning foreign tax credits in excess of what is needed to avoid double-taxation). As a result, companies are able to use such credits to pay less tax on their U.S. taxable income than they would if it was all from U.S. sources – providing them with a competitive advantage over companies that invest in the United States. Under the Corporate Tax Dodging Prevention Act, foreign tax credits generated by profits earned in one country could not be used against U.S. income taxes on profits earned in another country.

3. Preventing American corporations from claiming to be foreign by using a tax haven post office box as their address. (Section 5 of the bill.)

Some companies claim to be based in a tax haven like the Cayman Islands even though their presence in these locations consist of nothing more than a post office box and their actual staff is still located in the U.S. Today, a single five-floor office building in the Cayman Islands is claimed as the address for over 18,000 corporations, demonstrating how easy it is for companies to pretend to be based there. Under the Corporate Tax Dodging Prevention Act, a corporation could not claim to be foreign if their management and control operations are primarily located in the U.S.

4. Preventing American corporations from avoiding U.S. taxes by inverting. (Section 7 of the bill.)

Another way American corporations avoid U.S. taxes is by inverting. In an inversion, an American corporation acquires or merges with a (usually much smaller) foreign company and then claims that the newly merged company is a foreign one for tax purposes — even though the majority of the ownership is unchanged and little or no personnel or operations have actually moved offshore.

Under the Corporate Tax Dodging Prevention Act, the U.S. would continue to tax such a company as an American corporation so long as it is still majority owned by the owners of the American party to the merger or acquisition.

5. Prevent foreign-owned corporations from stripping earnings out of the U.S. by manipulating debt expenses. (Section 6 of the bill.)

Foreign controlled multinational corporations sometimes load up their U.S. affiliates with excessive debt as a way to shift profits out of the U.S. The foreign-owned U.S. affiliates then make interest payments to foreign companies that result in deductions that reduce or wipe out their U.S. income for tax purposes. Often the loans are made between commonly owned companies, which means they are really an accounting fiction and the only real consequence is a lower U.S. income tax bill.

Under the Corporate Tax Dodging Prevention Act, a U.S. affiliate of a foreign-owned multinational corporation would not be allowed to deduct interest expenses that are disproportionate to its share of income of the entire corporate group (entire group of corporations owned by the same parent company). The U.S. affiliate could choose instead to be subject to a different rule limiting deductions for interest payments to ten percent of its income.

6. Preventing large oil companies from disguising royalty payments to foreign governments as foreign taxes. (Section 3 of the bill.)

U.S. taxpayers are taxed on their income worldwide, but are entitled to a dollar-for-dollar tax credit for any income taxes paid to a foreign government. U.S. oil and gas companies have been disguising royalty payments to foreign governments as foreign taxes in order to claim foreign tax credits. The Corporate Tax Dodging Prevention Act would close this loophole which amounts to a U.S. subsidy for foreign oil production for the five largest oil companies.

FACTS ON SENATE BUDGET RESOLUTION

Healthcare

The Republican budget would repeal the Affordable Care Act which would:

• Eliminate health insurance coverage to 16 million Americans;

• Deny over 2.3 million young adults the right to stay on their parents’ health insurance plan until the age of 26;

• Deprive up to 130 million Americans with pre-existing conditions with the right to purchase affordable health insurance if they lose their jobs or otherwise lose their health insurance; and

• Deprive every woman in this country with equal protection that prevents insurance companies from charging extra simply because they are women.

Medicaid

• The Republican Budget Resolution would cut Medicaid by $400 billion over the next decade denying health insurance to an additional 11 million Americans, including millions of children from low-income families.

• These cuts would also threaten the nursing home care of millions of Americans of senior citizens.

Medicare Part D Prescription Drugs

• The Republican Budget Resolution would increase prescription drug prices for 4 million seniors and persons with disabilities who are on Medicare Part D by re-opening the donut hole.

$5 trillion in cuts over the next decade

• The Republican budget would cut over $5 trillion in spending over the next decade from healthcare, education, nutrition assistance, affordable housing, and many other programs.

• The Budget Resolution is not an appropriations bill. It is not an authorization bill.

• The assumptions it makes will not become law. These decisions will be made at a later date.

• Further, the Budget Resolution is filled with magic asterisks to hide the true cost of many of the policies that the Republicans would like to enact.

• But, if the cuts the Republicans are talking about are applied proportionately here is what will happen:

Education

• At a time when the cost of a college education is becoming out of reach for millions of Americans, the Republican budget would eliminate mandatory Pell Grants, cutting this program by nearly $90 billion over ten years, which would increase the costs of a college education of more than 8 million Americans.

• At a time when the cost of pre-school and childcare has skyrocketed, the Republican budget would mean that 110,000 fewer young children would be able to enroll in Head Start over the next 10 years.

• Under the Republican budget, 1.9 million fewer students would receive the academic help they need to succeed in school by cutting about $12 billion in cuts to the Title I education program.

• The Individuals with Disabilities Education Act would be cut by $10 billion over the next decade which would shift costs to states and local school districts to pay for special education and could lead to increased property taxes for millions of Americans.

Nutrition Assistance

• At a time when there are more than 40 million hungry Americans throughout the country, some 1.2 million women, infants, and young children would be denied the nutrition they need to live healthy lives by $10 billion in cuts to the WIC program over the next decade.

• Further, the Republican budget would cut $660 billion over 10 years to programs that support low-income individuals and families, including massive unspecified cuts to Food Stamps.

• In 2011, according to the USDA, 83 percent of households receiving food stamps lived in poverty; and over 80 percent of benefits went to households that included a child, an elderly person, or a disabled person.

• The average food stamp benefit is $1.42 for a meal.

Affordable Housing

• Under the Republican budget, nearly half a million families would be kicked off of the Section 8 affordable housing program – and out of their homes by cutting the Section 8 program by $46 billion over ten years.

Job Training

• At a time when real unemployment is 10.9 percent, the Republican budget cuts job training and employment services for more than 2 million Americans.

Taxes

• At a time when the richest 400 Americans paid a tax rate of just 16.7 percent in 2012, the second lowest on record, the Republican budget does nothing to ask the wealthiest Americans to pay their fair share of taxes to create jobs or reduce the deficit.

• While the effective tax rate of large, profitable corporations was just 12.6 percent in 2010, and corporate profits are at an all-time high, the Republican budget does nothing to end the outrageous loopholes that allow major corporations to avoid $100 billion a year in taxes by shifting their profits to the Cayman Islands and other offshore tax havens.

• At a time when billionaire hedge fund managers on Wall Street pay a lower effective tax rate than a truck driver or a nurse, the Republican budget does not eliminate the carried interest loophole that costs the federal government $16 billion in lost revenue over the next 10 years.

• The Republican budget protects over $40 billion in unnecessary and expensive tax breaks and subsidies for oil and gas companies, even as the five biggest oil companies alone made more than $1 trillion in profits over the last decade.

• At a time when millions of Americans are working longer hours for lower wages, the Republican budget paves the way for a tax hike averaging over $900 apiece for more than 13 million families with 25 million children by allowing the expansions of the Earned Income Tax Credit and the Child Tax Credit to expire.

• Further, the Republican budget paves the way for a tax hike of $1,100 for 12 million families and students paying for college by allowing the American Opportunity Tax Credit to expire.

Defense Spending

• Despite the fact that the U.S. is spending more on military spending than the next nine countries combined, the Republican budget increases funding for the Pentagon by $38 billion next year alone by using an accounting gimmick that could pave the way for another unpaid for war.

Job Loss

• The Economic Policy Institute has estimated that the Republican budget would lead to the loss of 2.3 million jobs and a 1.9 percent reduction in GDP.