Pelosi Vows to Undo Federal Tax Reform

Published May 16, 2018

U.S. House Minority Leader Nancy Pelosi (D-CA) says she will work to undo the federal tax reforms enacted in December 2017 if the Democratic Party achieves a majority in the U.S. House of Representatives in this  November’s elections and she is chosen to lead the party’s caucus.

In a May 8 interview with reporters Jake Sherman and Anna Palmer, Pelosi said a recent National Republican Congressional Committee advertisement accurately described her plans for tax hikes.

“I do think we should revisit tax legislation in the way that we always have, in a bipartisan, transparent way, that the result is unifying for the country,” Pelosi said. “I do object to what they did in the dark of night, at the speed of light, to put forth something that gives 83 percent of the benefits to the top 1 percent. Eighty-six million middle-income families will pay more taxes in the life of this bill, even though they call it a middle-class bill. It gives $1.5 trillion worth of tax cuts to corporate America, adding over $2 trillion to the national debt, because of the interest on that money.”

Win-Win Situation

Roy Cordato, vice president for research at the John Locke Foundation and a policy advisor for The Heartland Institute, which publishes Budget & Tax News, says the tax law benefits everyone.

“I really don’t see a down side to the individual tax cut or the business tax cut,” Cordato said. “Across the board, people are going to see more in their paycheck, but I don’t think that’s the most important part of this legislation. I think the bigger point of the legislation, from an economics perspective, really is to change incentives for employers to put more into savings and investments and that sort of thing.”

Says Benefits Already Visible

Adam Michel, a policy analyst with The Heritage Foundation, says many people are already enjoying tangible benefits from the tax reforms.

“About 80 percent of people will see an actual tax cut as a result of the Tax Cuts and Jobs Act,” Michel said. “The average family will see a $2,000 to $3,000 reduction in the amount of money they’re sending to Washington. That’s already materialized. The new withholding tables have been put out by the IRS, and that’s telling employers to stop withholding as much money. So paychecks have actually increased for a majority of Americans. That’s the tangible effect that most Americans will see.”

Cordato says there are less visible benefits to tax reform, too.

“People having more in their paychecks is a short-term benefit, but there is a longer term incentive in the business tax that really grows the economy,” Cordato said.

Lower Taxes, More Money

Michel says companies are passing the benefits of business tax reductions along to employees, in the form of higher wages.

“I think it’s something like 430 companies have announced plans to give bonuses, increase investments, or increase wages as a result of tax reform,” Michel said. “That’s $4 billion that is directly going to workers, and that’s just the short-term effects.”

Michel says employees, not business owners, ultimately pay the costs of corporate taxes.

“When you actually look at the long-run incidence of corporate tax cuts, who actually bears the burden of the tax in the economic sense, around 75 percent of the corporate tax is passed on to workers in the form of lower wages,” Michel said. “When the corporate tax goes down, workers’ wages go up. That’s obviously not something that happens tomorrow or within a couple of months, but after everything re-finds its equilibrium, workers’ wages will go up.”

Competing for Employees

Michel says the Republicans’ tax reform has created a positive feedback loop, spurring increased demand for workers.

“More investment means a need for more workers, which means you have to pay your workers more so that your competitor doesn’t hire them away,” Michel said. “The real power behind tax reform comes from the investments that businesses are making, which will then create additional demand for workers. Then, when demand for workers increases, that’s what requires businesses to bid up wages.

“That’s a much more sustainable mechanism, and that’s what we’ll hope to see over the next several years,” Michel said.