Why the Senate Tax Bill Hurts Montana Small Businesses & Main Street – Even with a change to benefit pass-through entities

On Monday Senate Daines announced that he would vote “No” on the Senate tax proposal, citing that the current bill does more for large corporations at the expense of small businesses. While we appreciate Senator Daines’ concern that this bill doesn’t work for Montana, the issues and threats we face in this tax bill are far greater than this narrow issue.

Daines’ concern relates to the provisions for pass-through entities. Pass-through entities include partnerships, sole proprietorships, S-corporations, and other companies whose earnings pass straight through to owners’ individual returns, rather than being taxed at the corporate level.

The current Senate bill includes a new deduction for taxpayers who have income from a pass-through entity. The Senate bill provides a 17.4 percent deduction on income earned from pass-through businesses, effectively bringing the taxpayers top tax rate down to about 32 percent. Senator Daines is calling to increase this deduction to 20 percent on income, which would further lower their rate.

However, small tweaks like this one do not fix this bill. There are several key provisions of the Senate tax plan that are far more harmful to middle-class Montanans and small businesses, which Senator Daines has not yet addressed.

For example, decreasing the corporate tax rate from 35 percent to 20 percent largely benefits large corporations that are experiencing record profits, while tax revenue from the same group has been plummeting. The decrease in the corporate tax rates further tilts the scales in favor of large corporations, giving them an unfair edge over Main Street small businesses. 
At the end of the day, the Senate bill’s corporate tax cuts are permanent, while pass-through entities would see a tax hike by 2027 because the deduction is a temporary provision set to expire after 2025.

Repealing the State and Local Tax (SALT) deduction means increased taxes for small business owners and their customers, and increased pressure on state budgets.

Finally, repealing the individual mandate requirement under the Affordable Care Act would cause 13 million Americans to become uninsured. The increase in uncompensated care costs could force some providers to close their doors or cut back spending in ways that undermine the quality of care. Providers might also raise prices, shifting costs to people with private insurance coverage (including employer coverage). Or, states or the federal government might be forced to step in to cover some of these uncompensated care costs, shifting costs to taxpayers.

Regardless of what changes are made to the Senate tax bill before a vote later this week, this proposal is still bad for Montana, and it does nothing to help working families. Main Street small businesses don’t benefit from tax cuts to millionaires and billionaires. They deserve Congress to work in a bipartisan manner to find ways to really help small businesses.

US Senate Tax Plan in Montana: Winners and Losers

In mid-November, the House passed a tax plan that would add $1.5 trillion to the federal deficit and increase taxes on working and middle-class people to pay for permanent tax cuts for large corporations and the super wealthy. The proposal also sets up deep cuts to Medicaid, Medicare, education, and SNAP that would add to the pain families feel as a result of this bill.

The Senate bill has the same basic flaws as the House bill, but this time the tax legislation also includes a direct attack on the Affordable Care Act, resulting in millions of Americans losing coverage. As we anticipate the Senate vote this week, let’s take a closer look at who are the real winners and losers in the Senate tax plan:

WINNERS

The Super Wealthy: Despite all of the talk about helping the middle class, wealthy individuals and their heirs win big from the Senate tax plan. The top tax rate for millionaires has been shaved down to 38.5 percent from 39.6 percent, while the exemption from the estate tax—which is a an inheritance tax on multi-million dollar estates—doubles to $11 million for individuals and $22 million for couples. The Senate bill also eliminates the alternative minimum tax (AMT), a levy aimed at ensuring that higher-earning people pay at least some tax.

By 2025 (when most of the Senate bill’s provisions would be in place), high-income households would get the largest tax cuts as a share of after-tax income, on average. Meanwhile households with incomes below $30,000 would, on average, face a tax increase.

Multi-National Corporations: The Senate bill slashes the corporate tax rate from 35 percent to 20 percent, going into effect in 2019. U.S. oil companies with foreign operations would pay reduced taxes under the Senate bill on their income from sales of oil and natural gas abroad. Beer, wine and liquor producers would also reap tax reductions under the Senate measure. Like the House bill, the Senate bill creates a lower corporate tax rate for multinationals’ foreign profits. That’s a big incentive for companies to shift profits and investments offshore to get the lower rate, and it advantages large multinationals compared to small, domestic firms.

The Senate bill makes all these tax cuts for corporations and multinationals permanent—paying for that by repealing the individual mandate and making millions more uninsured, even while allowing provisions that are intended to benefit middle-income families expire at the end of 2025.

Senate tax plan

LOSERS

Montanans with Health Care Needs: The Affordable Care Act’s individual mandate would be repealed, which would cause 13 million more Americans to be uninsured and raise individual market premiums by 10 percent. The individual mandate is critical to keeping individual market coverage affordable and keeping the individual market stable. The $338 billion in savings from repealing the individual mandate are being used to pay for making part of the Senate bill’s corporate tax rate cut permanent, which overwhelmingly benefits high-income households: the top 0.1 percent of households would get an average tax cut of about $100,000 annually.

Working Folks: Many families making less than $30,000 a year would face tax increases starting in 2021 under the Senate bill, according to Congress’ nonpartisan Joint Committee on Taxation. By 2027, when many of its provisions would have expired, those at the top would still get large tax cuts, but every income group below $75,000 would face tax increases, on average.

Working Families with Children: The Senate plan’s signature “middle class” tax cut, its Child Tax Credit (CTC) increase, provides almost no benefit ($75 or less) to 10 million children in low-income working families, and provides less than the full $1,000 increase in the credit to millions more. At the same time, it newly extends the full $2,000 per child credit to couples with incomes between $110,000 and $500,000. Even this meager increase would be temporary, as the Senate tax plan ends the entire CTC increase after 2025. Low-income working adults without children and non-custodial parents are also largely excluded from the plan’s tax cuts, so millions would continue to be taxed into or deeper into poverty.

Charities: Charities that support low-income families and supplement government services are nervous about the impact of doubling the standard deduction. The National Council of Nonprofits warns that charitable deductions are likely to go down under this bill. While the GOP enables the wealthy to continue deducting their charitable giving, many middle- and upper-middle-class families would no longer get that tax break, because they probably would stop itemizing their deductions. At the moment about 30 percent of Americans itemize, but under the GOP bill, the standard deduction roughly doubles from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples, meaning fewer people would probably itemize.

All of us in Montana: About half of Montana’s budget comes from federal funding. If these cuts become law, state policymakers will have to find ways to pay for health care, food aid, grants for college, and more. Thanks to low revenue due to our own trickle-down policies, it is highly unlikely Montana will make up the difference. This tax proposal on top of our current budget crisis in the state will be devastating to our economy, our communities, and our families that are already struggling.

Montana Represents at National Budget & Policy Conference

DOs_ImAV4AAMbspThe Montana Budget and Policy Center was well-represented by four of our six staff members at the IMPACT 2017 Conference held in Washington, DC last week. Tara Jensen, Heather Cahoon, Adrienne Bombelles, and Kirsten Gerbatsch all attended.

With hundreds of people in attendance from over forty states, you may wonder how Montana fared. Well, we made a real splash at this year’s conference by sharing our state EITC success story, our state-tribal policy research, and our creative tactics in the ongoing fight to preserve access to affordable health care.

State-Tribal Policy Analyst Heather Cahoon kicked off the conference on Wednesday evening by reading three of her own poems in front of a packed house. The rest of the MBPC team was proud to watch her share her talent and life experiences with national foundations, organizations, and colleagues from around the country.

Tara Jensen

Tara Jensen, Co-Director of Public Affairs and Operations, spoke at two sessions on Friday.

In the session “A Whole New World: Strategies That Work to Impact Federal Debate,” Tara presented on a panel with staff from Idaho, New Jersey, and West Virginia, sharing our strategies in Montana to preserve the Affordable Care Act, Medicaid, and other investments that build opportunity for all Americans.

Tara also spoke at an EITC-specific workshop. In 2017, Montana was the only state to pass a refundable state earned income tax credit. Tara spoke about how we worked with partners to make our tax system more fair, get more resources to low-income families, and how this work is helping to build power and equity in addition to boosting incomes.

Kirsten Gerbatsch

Outreach and Communications Coordinator Kirsten Gerbatsch presented at the a workshop to communications professionals about the work MBPC has done in the past year to lift up spokespeople’s voices from all over the state in order to defend the Affordable Care Act.

Now, having returned to Montana after a full week, we are back at work feeling invigorated to continue our efforts on the state budget, the federal tax bills, and the on-going efforts to preserve the ACA and Medicaid.

The House Republican Tax Plan: Lion’s Share of Tax Cut Given to Richest 1 Percent of Montana Households, Grows Over Time

Today the US House Ways and Means Committee will begin its work on the House Republican tax cut bill.

House leadership continues to tout this tax proposal as a plan to boost the middle class. Yet a closer look at the bill’s details reveals that it provides an increasing share of tax cuts for the nation’s – and Montana’s – richest households while also increasing the federal deficit by $1.5 trillion over the next decade.

The share of tax cuts to the wealthiest taxpayers in Montana will grow over time due to phase-ins of tax cuts that mostly benefit the rich. The plan also includes the eventual elimination or erosion of tax credits and deductions that benefit low- and middle-income taxpayers.

For example, after five years, the bill eliminates a $300 non-child dependent credit that benefits low- and middle-income families while fully repealing the estate tax that impacts less than 1% of very large estates.

The 10-year outlook for the plan reveals that by 2027, the share of tax cuts given to the wealthiest 1% of households in Montana would grow from 34 percent in 2018 to 49 percent by 2027, for an average yearly tax cut of $50,890.

Middle-income taxpayers’ average tax cut would erode from $600 from $200. In fact, by 2027, one in six Montanans with incomes between $36,000 and $57,000 would actually face a tax hike.

Average Tax Cuts to Top 1% of Montana Taxpayers Dwarf Those Going to All Other Income Groups

Tax Cuts for the Wealthiest Could Result in Deep Cuts to Critical Services for Montanans

Equally problematic to who is benefiting, this tax plan will also result in a massive increase to the federal deficit, that will likely put pressure on federal spending cuts down the line. This budget pressure would then hit our state budget when federal programs get slashed and costs get shifted to the state and local governments. In our state, we know from experience that tax cuts will lead to larger deficits — they will not pay for themselves over the next decade.

Already-struggling families, seniors, and people with disabilities would lose more from cuts to food assistance, health care, housing assistance, and workforce development and educational opportunities than they would gain from the tax cuts outlined in this House bill.

Amidst our current budget crisis, Montana cannot afford additional budget pressure as the result of federal cuts to programs that support low- and middle-income families. Federal funds are the largest funding source for Montana at $4.5 billion or 44.7 percent of the 2019 biennium budget. Our state cannot adequately serve the people of Montana if we see federal support for children, families, and seniors begin to erode as a result of this tax plan skewed heavily to the richest taxpayers.

Our Montana Congressional Delegation should not support any tax bill that is heavily weighted to help the wealthiest, does little to support working Montana families, and swells the budget deficit.

Open Enrollment & the Alexander-Murray Bill

Open Enrollment for 2018 begins tomorrow, November 1st, and this year the enrollment period is shorter — lasting for only six weeks—from November 1st until December 15th.

The Affordable Care Act has been the target of countless efforts of repeal and replace, as well as direct sabotage from the Trump administration. However, going into the 2018 Open Enrollment, the ACA is still in place.

The Alexander-Murray bill is currently the only plausible bipartisan market stabilization package to strengthen the ACA in Congress. The Congressional Budget Office found that Alexander-Murray would benefit both consumers and federal taxpayers by reducing individual market premiums beginning in 2019 and reduce deficits by $3.8 billion over ten years – while maintaining coverage rates.

The legislation would:

  • Guarantee cost-sharing reduction (CSR) payments to insurers through 2019;
  • Restore a significant portion of the Trump Administration’s cuts to ACA marketplace outreach and enrollment assistance;
  • Expand eligibility for so-called “catastrophic plans,” which are high-deductible plans that are subject to ACA rules and consumer protections but are currently available only to people under age 30; and
  • Simplify and alter some aspects of the ACA’s “Section 1332” waivers, which allow states to modify certain provisions of the ACA as long as the waivers cover as many people, provide coverage at least as affordable, provide coverage at least as comprehensive, and do not increase the federal deficit.

By guaranteeing payment of CSRs, the agreement would lower individual market premiums, prevent insurer exits, and save the federal government money – next year, and even more so in 2019.

By restoring funding for outreach, the agreement will help hundreds of thousands of people get coverage they need and help keep premiums low for all consumers, since outreach is especially important to encouraging healthy people to buy insurance.

While the Alexander-Murray proposal is not perfect, it is a step in the right direction. Most importantly, it signifies progress toward bipartisan action on health care, and away from damaging efforts to repeal the ACA, radically overhaul Medicaid, and take away coverage from millions of people.

We need swift, bipartisan Congressional action on this front in the passage of Alexander-Murray. The sooner this agreement is enacted into law, the more it will do to help consumers and strengthen markets in 2018.

During this enrollment period, call Senator Daines and Senator Tester, and ask them to reject calls from the White House, from Senator Hatch and Congressman Brady, and others to undermine the Alexander-Murray bill. We cannot risk the coverage of millions of Americans and destabilize the individual market with continued partisan health care games.

Alexander-Murray Bill: Stabilizing the health insurance market is key to affordable health care

Earlier this week, Senators Alexander and Murray announced an agreement on a bipartisan bill to stabilize the individual health insurance market. While the Alexander-Murray bill isn’t perfect, it marks an important first step toward bipartisan action on health care, and away from damaging efforts to repeal the ACA, radically overhaul Medicaid, and take away coverage from tens of thousands of Montanans.

Governor Bullock should be commended for supporting this bill and for laying the groundwork for the agreement through his work with governors of both parties. When the governors released their health care “blueprint” in August, they showed it is possible to reach bipartisan agreement on proposals that can strengthen the individual market and make coverage more affordable for consumers.

This bill would also directly benefit Montana’s consumers. By guaranteeing payment of CSRs, the agreement would lower individual market premiums, prevent insurer exits, and save the federal government money – next year, and even more so in 2019. By restoring funding for outreach, the agreement will help hundreds of thousands of people get coverage they need and help keep premiums low for all consumers, since outreach is especially important to encouraging healthy people to buy insurance. 

Some of the provisions in the Alexander-Murray bill do raise concerns. For example, its changes to waivers go beyond those proposed in the bipartisan governors’ blueprint, and could increase the risk that waivers in some states could make coverage less affordable for some people. And, the bill is also only an initial and incomplete response to the Trump Administration’s actions undermining the ACA marketplaces.

Congress should guarantee CSRs permanently, not just for two years, to provide greater certainty and stability to the market. And, Congress should address the harmful actions foreshadowed by the Administration’s recent executive order, which would raise premiums, destabilize the individual and small group markets, and undermine protections for people with pre-existing conditions.

Overall, however, the bill represents significant progress. In addition to the bipartisan group of ten governors, including Governor Bullock, numerous patient, provider, consumer and insurer groups support it. It has two-dozen Senate co-sponsors from both parties.

Some House and Senate Republicans, along with the Administration, are rejecting the Alexander-Murray bipartisan stabilization package for the partisan Hatch-Bray proposal, which attempts to hold CSR payments hostage for a renewed version of a “skinny ACA repeal” bill.

Senator Daines should reject the harmful Hatch-Brady proposal and offer his support to the Alexander-Murray bill so that Congress and the President can enact it into law without delay. The sooner this agreement is enacted into law, the more it will do to help consumers and strengthen markets in 2018.

Who exactly is covered under CHIP in Montana?

At the end of September, Congress allowed funding for the Children’s Health Insurance Plan (CHIP) to expire. While Montana has funds to keep the program running for the next few months, the state is expected to run out of federal funds in early 2018. The failure of Congress to act before then will put thousands of Montana children at risk of losing their insurance coverage.

But exactly who is at risk of losing coverage has garnered some questions. In Montana, federal CHIP funds create the program known as Healthy Montana Kids (HMK). HMK has two parts – HMK and HMK Plus. The benefits and network of providers are relatively the same for both plans.

For the time being, coverage under HMK Plus is likely to continue because the state is required by federal law to maintain this coverage. However, without action by Congress, coverage through HMK is almost certainly at risk.

Parents can tell which program their children are enrolled in by taking a look at their kids’ insurance cards. Those with insurance cards for HMK include the logo for Blue Cross Blue Shield and are potentially affected by CHIP funding expiring. Children whose cards say Medicaid or HMK Plus are in the Medicaid program and are not affected. Images of the two different insurance cards can be found on the DPHHS site.

Each program has certain income eligibility requirements, based on the federal poverty level data. Below is a chart that provides a comparison of who is covered in each of the programs.

While the Medicaid portion is not at risk with Congress’ failure to extend CHIP funding, in the past the state has received more federal funds for some of these children. Without an extension to CHIP, the federal government will pay less for the 7,000 children in this group. The state will still provide coverage, but will face increased costs.

Chip Chart

 

Unlike children’s Medicaid and HMK Plus, coverage through HMK is at risk of ending if Congress does not extend funding. If Congress does not act, Montana will run out of federal funds by early 2018. At that point, it could choose to continue to provide coverage using state funds, but it would cost roughly $96 million per year in state funds to maintain that coverage.

Alternatively the state may be forced to cut coverage or end the program. This means tens of thousands of children in Montana are at risk of losing their health care coverage in early 2018 if Congress does not act quickly.

What has CHIP and Healthy Montana Kids meant to your family? Share your story with Montana’s members of Congress and tell them about the impact that HMK has had on your family.

What is Reconciliation?

Perhaps you recall hearing the term “reconciliation” earlier this year when Congress was fired up to repeal the ACA. Well, reconciliation is making a comeback as GOP leadership attempts to pass the 2018 federal budget and then ram through a partisan tax code overhaul.

Together, these measures would benefit the wealthy and profitable corporations, while cutting trillions of dollars in investments made in the states through a broad range of basic public services, assistance for low- and moderate-income Americans, and health care.

While both the House and Senate budget resolutions include deep cuts to SNAP, Medicare and Medicaid, the budget is a non-binding resolution and still requires appropriation bills and other measures to put in place these cuts. However, the budget resolution does set up the mechanism for reconciliation as a way for Congress to “fast track” legislation.

Created by the Congressional Budget Act of 1974, reconciliation allows for faster-than-usual consideration of certain tax, spending, and debt limit legislation. In the Senate, reconciliation bills can’t be held up by filibuster and the scope of amendments is limited under a 20 hour cap, which gives this process serious advantages for enacting controversial budget and tax measures. The Senate can pass a reconciliation bill with just 51 votes.

This reconciliation process permits Congress to enact the federal budget resolution’s program cuts with only a simple majority in the Senate — i.e., without any Democratic votes — and is the same process that GOP leaders had been using to repeal the ACA.

US Capitol Building in Washington, D.C., the seat of the United States Congress.

US Capitol Building in Washington, D.C., the seat of the United States Congress.

The House budget passed on October 5th calls for congressional committees to produce at least $203 billion in savings over ten years through cuts to Medicaid, Medicare, and other entitlement funds to be enacted in the months ahead.  The Senate budget is expected to pass later this week and would add $1.5 trillion to the deficit.

Although the two resolutions have some important differences, they have the same basic architecture: They both establish the reconciliation process with the aim at making massive tax cuts that will primarily benefit the wealthiest and corporations, while paying for them through massive cuts to public services for the vast majority of Americans. Read our initial analysis of the Trump tax plan’s impact on Montana’s working families.

After the Senate vote later this week, House and Senate Republican leaders will create a conference committee to resolve the differences between their two resolutions and agree on one budget resolution that can be used to create the filibuster-proof reconciliation process for the tax package.

When the House and Senate go to conference committee, the final conference agreement will likely include reconciliation instructions that would require Congress to take immediate steps to cut SNAP, Medicaid, and other programs that support moderate- and low-income Montanans.

We’ll continue to track the federal budget development and the next steps for tax legislation in Congress.

Trump’s Tax Plan: Not a Middle-Class Miracle for Montana

The tax framework announced last week by President Trump and Republican leaders in Congress outlines large tax cuts aimed at the wealthiest households in the country – while offering little benefit for working families who are often struggling to cover day to day living costs.

The GOP-Trump Tax Plan is a massive giveaway to the richest 1 percent of taxpayers and increases the national deficit by $1.5 trillion.

Who benefits?

This tax plan is being sold as a “middle-class miracle,” but according to the Institute on Taxation and Economic Policy, it is anything but.

In Montana, the wealthiest 1 percent of households (those with annual incomes of $535,000 or greater) would receive an average tax cut of $68,950 every year. Meanwhile, middle-income earners would see almost no benefit. Montanans who earn about $60,000 per year or less would see an average tax cut of about $190, with those at lower income levels receiving less.

Overall, the richest 1 percent (roughly 5,000 taxpayers) would receive over half (56 percent) of the tax cuts received in Montana. Such enormous tax cuts for the wealthiest would ultimately hurt many Montanans, because the resulting increase in deficits and debt would increase the pressure for cuts in investments across the country that produce long-term economic benefits. Congressional GOP leaders may use deep cuts to Medicaid and Medicare to pay for these tax cuts, gutting programs essential for Montana families and our state budget. It is important to note that approximately 42 percent of Montana’s state budget comes from federal funds.

Average Montana families and communities across the state ultimately stand to lose far more from federal cuts than we would gain from tax cuts outlined in the this new tax framework crafted to benefit the wealthy.

To learn more, see our news release on the tax plan here.

Trump Tax Plan - MT

For a more detailed breakdown of how the tax plan would affect Montana taxpayers, go tohttp://itep.org/trumptaxprelim/.

SNAP: A Public-Private Partnership

SNAP, the Supplemental Nutrition Assistance Program, is a public-private partnership that helps families afford a basic diet, strengthens the national hunger safety net, and reduces food insecurity in America.

A “public-private partnership” is a cooperative and typically long-term arrangement between two or more public and private sectors that work together towards a shared goal or project.

In the case of SNAP, the public partner is the federal government and the private partners are the multitude of businesses, farmers markets, and retailers that participate in SNAP. Participating businesses agree to accept a SNAP payment when customers purchase food at their store with SNAP benefits.

SNAP plays no small part in our national economy. Many types of stores accept SNAP as a form of payment for food purchases, from small local businesses to large national corporations, superstores (such as Walmart), supermarkets (such as Safeway and Albertsons), and convenience stores (including CVS and 7-Eleven stores) In 2016, food retailers nationwide redeemed a total of nearly $66.5 billion in SNAP payments.

In Montana, 763 authorized retailers participate in SNAP. In 2016, these businesses redeemed about $166 million in SNAP benefits.

SNAP MT Economy

SNAP clearly provides an economic boost to our communities by bringing in revenue and creating jobs. Because most households redeem their monthly SNAP benefits quickly, SNAP is one of the most effective forms of stimulus when the economy is weak, generating $1.70 in economic activity for every $1.00 spent with SNAP benefits.

The U.S. House budget resolution currently includes a recommended $150 billion in cuts to SNAP over the next decade through a massive restructuring of the program. This change would not only mean a loss of an estimated 28.4 million meals annually for food insecure families in our state, it would also have a ripple effect throughout communities, businesses, and the larger economy.

Ultimately, solving food insecurity requires sustaining strong public-private partnership with private support, state funding, and effective federal programs like SNAP.